Seminario CEDE

Jueves 23 de octubre | 12:30 p.m.
Presenta: Giorgio Chiovelli - Universidad de Montevideo.
Coautores: Francesco Amodio (McGill University) and Serafin Frache (Universidad de Montevideo)

Beefing Up the Service Sector: Commodity Export Booms and Production Network Spillovers
We show that commodity export booms can propagate up the value chain, reshape production networks, and promote growth in the service sector. We study Uruguay’s beef ex- port boom to China in the 2010s, combining customs, firm-to-firm transactions, employer- employee, and balance sheet data. Firms more linked to exporters experienced higher sales, especially in services, with associated gains in employment, wages, and sales per worker. Aggregate sales rose by 1.79%, with each export dollar generating 46 more cents in domestic sales, 10 cents in services. Over time, service firms reoriented their connections toward beef exporters, amplifying their gains from trade.

Jueves 16 de octubre | 12:30 p.m.
Presenta: Elisa Belfiori - Professor, School of Business, Universidad Torcuato Di Tella.
Coautor: Manuel Macera, Economics Department, Universidad Torcuato Di Tella

Optimal Climate Policy with Demographic Transitions
This paper develops a framework to integrate demographic change into climate policy analysis. We build an overlapping-generations climate-economy model with a rich demographic structure, allowing population growth and survival probabilities to vary over time. These features endogenously determine the age composition of society and shape aggregate preferences over time. A central result of our framework is an aggregation result: despite the heterogeneity across cohorts, the planner’s problem can be recast as a representative-agent model with a time-varying social discount factor that reflects demographic dynamics. Notably, as the population ages, the discount factor declines, causing society to behave as if it were more impatient. We use this framework to study how current global demographic trends affect the social cost of carbon—the model-based measure of the economic cost of climate change. We find that this cost is significantly higher under medium- and high-fertility scenarios, driven by greater emissions from larger populations. These effects are partially offset by higher discounting in aging societies. Relative to a benchmark model with no demographic change, the initial social cost of carbon rises by 20% under medium fertility and by 57% under high fertility. Global temperatures also increase more sharply in these scenarios, suggesting that demographic trends will exacerbate the climate problem.

Jueves 9 de octubre | 12:30 p.m.
Presenta: Maria Pia Paganelli - Trinity University.

From dull to cheerful: the relevance of Adam Smith for today
Is there a secret recipe for economic growth? No, but we can extrapolate some pieces of advice from Adam Smith. An economy can leave behind its “dull” stagnant state and grow when its markets expand, when the productivity of its workers increases thanks to high compensations which are seen as incentives to work harder, and when lobbying and cronyism are kept at bay. Luck plays a role too, but these three ingredients are necessary, even if not sufficient, for an economy to grow and thus be “cheerful.”

Jueves 25 de septiembre | 12:30 p.m.
Presenta: Luis Felipe Sáenz - University of South Carolina
Coautor: Robert E. Lucas, Jr.

The Global Industrial Revolution
Standards of living were roughly constant before 1800, almost everywhere. In the early 19th century, English-speaking countries began a process of sustained economic growth that continues today. We document that this rise in living standards—first observed in Great Britain and the United States—is now a global phenomenon. Across countries, we observe four robust patterns along the development path: (i) a reallocation of labor out of agriculture, (ii) a demographic transition, (iii) rising human capital, and (iv) a U-shaped trajectory of female labor force participation. We develop a Unified Growth Theory in which these changes arise endogenously from household decisions. Parents choose how to allocate their time between working and raising children, and how to divide labor between a traditional land-based technology and a modern, human-capital-intensive one. A gradual rise in traditional productivity relaxes resource constraints, enabling investments in child quality. These investments, in turn, make the modern sector profitable, triggering a self-sustaining transition to growth. Calibrated to historical data, the model reproduces the main features of the global development path—including, critically, the U-shaped evolution of female labor force participation.

Jueves 18 de septiembre | 12:30 p.m.
Presenta: Hernando Zuleta - Universidad de los Andes

Labor-Saving Innovations? Optimal Capital-Biased Taxation
This paper investigates optimal taxation in a growth model with capital-biased technological change. We study how the optimal allocation of resources between capital accumulation and innovation depends on who controls this decision. Three scenarios are considered: a centralized economy where a planner chooses the allocation to maximize output, and two decentralized economies that differ in their allocation mechanisms. In the first decentralized scenario, households allocate their savings between capital accumulation and innovation to maximize capital income. We show that: (i) If the production function is linear in capital stock, the decentralized solution is optimal. (ii) If the production function is concave in the capital stock, the decentralized solution is sub-optimal, allowing optimal taxation. In the second decentralized scenario, firms, rather than households, decide how to allocate investment resources. Although the firm also maximizes capital income, the resulting equilibrium diverges from both the planner’s and the household-driven case, leading to a distinct expression for the optimal tax. Across both decentralized settings, a tax on RD becomes necessary when the marginal return to capital deviates from the marginal return to innovation.

Jueves 11 de septiembre | 12:30 p.m.
Presenta: Juan José Ferro - Universidad de los Andes

Relative price and deterrence: the effect of speeding tickets on road behavior
Governments use fines in order to deter socially unwanted behavior on a wide array of issues. It is commonly assumed that, fixing the probability of sanction, the higher the price, the more deterrent a sanction is. I use data from automated speed cameras in Bogotá, Colombia to measure the deterrent effect of a speeding ticket. By using the real speed limit as a source of exogeneous variation and a regression discontinuity design, I find that speeding tickets have a general deterrent effect on speeding behavior but a null effect on reducing traffic accidents. Using the commercial price of the vehicle as a proxy for wealth and the fact that the monetary sanction is fixed, I find that the deterrent effect is concentrated on the higher quintiles of the distribution. I validate these findings with a judge-IV using the fact that a police agent manually verifies all tickets. Other dimensions of driving behavior show that speeding tickets do change behavior, not only adjust beliefs about enforcement. In short, speeding tickets might be less useful for preventing road fatalities than it is commonly assumed and inefficiently expensive for changing behavior for a considerable number of drivers. They also seem to be of little effectiveness for the current public health challenge of traffic fatalities in low and middle income countries. This evidence points to income based fines as a necessary public policy tool.

Jueves 4 de septiembre | 12:30 p.m.
Presenta: Daniel Schwartz - Universidad de Chile

The Rise of a Nudge: Field Experiment and Machine Learning on Minimum and Full Credit Card Payments
An analysis of corporate income tax reveals a largely overlooked fact: statutory tax rates are higher in developing economies. In addition, statutory tax rates are procyclical in low-income economies, rising during downturns and potentially amplifying recessions. This paper develops a theoretical framework that reconciles these two phenomena. In our model, firms choose between formal and informal operations based on their productivity and the benefits of formalization, while the government---constrained by limited tax collection efficiency---must set a statutory tax rate to finance a given level of expenditure. We show that low state capacity forces governments to adopt high statutory tax rates, which in turn raise the threshold for formalization and exacerbate informality. Moreover, during economic downturns, the contraction of the tax base compels these governments to raise statutory rates, rendering fiscal policy procyclical. We demonstrate that this procyclicality intensifies as state capacity decreases, creating a compounding challenge where the weakest states face the most destabilizing fiscal adjustments during economic downturns. We also show that even when firms in different countries have the same inherent productive capabilities, stronger state capacity leads to higher observed productivity. This creates an artificial productivity gap between developing and developed countries, driven by institutional constraints rather than actual differences in productive potential. A dynamic extension of our model reveals how political instability and high reform costs can trap countries in a low-capacity equilibrium. Our framework offers implications for policies aimed at modernizing tax administration, broadening the tax base, and implementing countercyclical fiscal measures in developing economies.
>>Paper

Jueves 28 de agosto | 12:30 p.m.
Presenta: Luis Fernando Mejía - Director ejecutivo Fedesarrollo

Why are Tax Rates High and Procyclical in Developing Economies?
An analysis of corporate income tax reveals a largely overlooked fact: statutory tax rates are higher in developing economies. In addition, statutory tax rates are procyclical in low-income economies, rising during downturns and potentially amplifying recessions. This paper develops a theoretical framework that reconciles these two phenomena. In our model, firms choose between formal and informal operations based on their productivity and the benefits of formalization, while the government---constrained by limited tax collection efficiency---must set a statutory tax rate to finance a given level of expenditure. We show that low state capacity forces governments to adopt high statutory tax rates, which in turn raise the threshold for formalization and exacerbate informality. Moreover, during economic downturns, the contraction of the tax base compels these governments to raise statutory rates, rendering fiscal policy procyclical. We demonstrate that this procyclicality intensifies as state capacity decreases, creating a compounding challenge where the weakest states face the most destabilizing fiscal adjustments during economic downturns. We also show that even when firms in different countries have the same inherent productive capabilities, stronger state capacity leads to higher observed productivity. This creates an artificial productivity gap between developing and developed countries, driven by institutional constraints rather than actual differences in productive potential. A dynamic extension of our model reveals how political instability and high reform costs can trap countries in a low-capacity equilibrium. Our framework offers implications for policies aimed at modernizing tax administration, broadening the tax base, and implementing countercyclical fiscal measures in developing economies.