Projects
My research focuses on macroeconomic theory, with special interest in fiscal policy matters. I am currently working on two lines of research: the impact of secondary markets for sovereign debt on default decisions and on welfare, and the macroeconomic consequences of tax evasion (including effects on output and inequality) under diverse decision-making frameworks.
Sovereign Default, Secondary Markets and Welfare
joint with K. Shakhnov
We investigate the impact of secondary markets on welfare, debt, and default decisions in a production economy with distortionary taxation and output costs associated with default. Our analysis reveals that, under a relevant parameter set, commitment yields a positive value relative to a discretionary equilibrium. We find that secondary markets enhance welfare by making the allocation closer to the commitment equilibrium, i.e. by reducing ex-post default probabilities and increasing ex-ante borrowing. However, secondary markets may detrimentally affect welfare if vulture funds intervene, extracting repayment at the expense of domestic households and exacerbating domestic default risk. Financial repression, for example in the form of capital controls, might be desirable.
Domestic and Foreign Sovereign Debt Stability
joint with W. Paczos and K. Shakhnov
In this paper, we present a theory of determinants of sovereign debt stability on foreign and domestic markets. Besides the two traditional factors - debt size and output contractions, we highlight the role of the third factor: distortionary tax, which hinders the government’s ability to freely raise revenues. We emphasise the impact of tax distortions and output fluctuations on the trade-off between domestic and foreign debt stability. The paper explains why outright defaults in domestic debt are rare, despite its significant share in public debt, and provides insights into optimal debt issuance and taxation strategies.
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Endogenous Tax Compliance and Macroeconomic Performance Driven by Satisficing Evolutionary Dynamics
joint with G.T. Lima and J.J. Silveira
We incorporate tax evasion to a demand-led macrodynamic model of capacity utilization and output growth rate. Pecuniary and non-pecuniary elements determine the frequency of tax evaders in the economy, driven by a novel imitation-augmented satisficing evolutionary dynamics, and the microdiversity of tax compliance behavior and the macrodynamics of economic activity are co-evolutionarily coupled. Matching empirical evidence, long-run heterogeneity in tax compliance is a stable evolutionary equilibrium, and the higher the median tax morale, the lower the frequency of tax evaders.
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Persistent Heterogeneity in Tax Compliance and Macroeconomic Dynamics
joint with G.T. Lima and J.J. Silveira
In an overlapping generations model, we couple the microdynamics of tax compliance with the macrodynamics of the economy. We specify the proportion of tax evaders using the discrete choice approach, which allows considering both deterministic components and idiosyncratically subjective motivations (such as tax morale) as drivers of tax compliance. The model replicates some pieces of evidence on tax evasion: (i) heterogeneity in tax compliance exhibits persistence and fluctuations over the long run; (ii) the share of tax evaders in the economy varies positively with the tax rate and negatively with the probability of detection; and (iii) the impact of a change in the share of evaders on the per capita output over the long run is ambiguous.
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