Research
Work in Progress
On the Optimal Design of Consumption Taxes (Draft available upon request)
- EUI Best Second Year Paper Award
- Presented at: EUI 2nd Year Forum (2022), Swiss Economists Abroad End of the Year Conference 2022, Banco Central de Chile, EUI Macro Working Group (2023), SAEe 2023, Study Center Gerzensee, MMF Annual Conference 2024, Doctoral Workshop on Quantitative Dynamic Economics (AMSE) 2024
Abstract
How should differentiated consumption taxes be designed in the presence of capital income taxes and progressive labor income taxes?
I study this question using a quantitative model featuring heterogeneous households with non-homothetic preferences, uninsurable idiosyncratic risk, and a government that uses various tax instruments to raise revenue. I estimate the parameters governing households' demand using data from the US Consumption Expenditure Survey, and show that my model matches the heterogeneous consumption behavior across the income distribution. Allowing the benevolent government to jointly optimize consumption taxes on 11 different consumption categories and labor income taxes, I find that necessities should be heavily subsidized (-50%), that luxuries are optimally taxed at a positive rate (12%), and that the level of the labor income tax is increased while its progressivity remains largely unchanged from the status quo. Three main mechanisms explain why such differentiated tax rates are welfare maximizing: they reduce consumption inequality by subsidizing essential goods of low-income households, imply a targeted taxation of the initial wealth of high-wealth households, and induce highly productive households to increase their labor supply.
How to Finance the Green Transition? The Political Economy of Green Investment Tax Credits
- with Russell Cooper
- Presented at EUI 4th Year Forum (2024)
- Blog post
Abstract
We study the aggregate and distributional consequences of green investment tax credits (ITCs) and ask under which financing structures such environmental policies would be adopted by a majority of voters and sustained in the long run. We develop an overlapping generations model with heterogeneous households, multiple sectors, and a government that wants to introduce a green ITC to reduce pollution. Our model highlights both an intratemporal (across the income distribution) and an intertemporal (across generations) disagreement about the desirability of green ITCs arising from the unequal distribution of the costs and benefits. Together, they can lead to voting outcomes in which the ITC would never be adopted, even though it would be welfare improving for a majority of the population in the long run. We show that allowing for some debt financing of the ITC can overcome this political gridlock. Moreover, this debt can be fully repaid in the long run while maintaining high approval rates for the ITC. Changes in asset market participation rates and factor prices induced by the ITC explain why fully tax-financed ITCs are approved only in the long run, but not at the time of introduction of the ITC.
Taxing Mobile Money: Theory and Evidence
- with Shafik Hebous, Faycal Sawadogo and Jean-Francois Wen
Heterogeneity in the Bank Lending Channel: Evidence from the Euro Area
- with Sylvia Kaufmann