Capital-skill complementarity in production implies non-trivial interactions between availability... more Capital-skill complementarity in production implies non-trivial interactions between availability of human capital and financial constraints. Firms that are constrained in their access to finance hire a lower proportion of skilled workers than unconstrained firms. On the other hand, higher wages of skilled workers reduce firms’ desired capital intensity and thus loosen their effective financial constraints. We build a dynamic occupational choice model to quantify how a lack of human capital and financial frictions, as well as the joint effect of both restrictions interact to explain cross-country differences in aggregate output per capita, productivity, average firm size and college premia. We calibrate our model to US data, and we vary financial frictions and educational attainment as observed across countries. We find that the joint effect of both restrictions is up to 50 percent larger compared to the sum of the individual effects. In countries with a negligible share of tertiary...
Revista de Historia Económica / Journal of Iberian and Latin American Economic History, 2019
ABSTRACTIn 1940, the Portuguese government approved a massive primary school construction plan th... more ABSTRACTIn 1940, the Portuguese government approved a massive primary school construction plan that projected a 60 per cent increase in the number of primary schools. Based on the collection of a new dataset, we describe literacy levels in Portugal prior to the plan as well as the plan's strategy regarding the location of schools. We then estimate the causal impact of the increase in the number of schools between 1940 and the early 60s on enrolment and literacy, all at the county level. We conclude the increase in the number of schools was responsible for 80 per cent of the increase in enrolment and 13 per cent of the increase in the literacy rate of the affected cohorts.
I propose a reform of public sector wages consisting of: i) a review of pay of all public sector ... more I propose a reform of public sector wages consisting of: i) a review of pay of all public sector workers to align the distribution of public sector wages with the private sector and ii) stipulating up a rule to determine the yearly growth rate of public sector wages. I set up a DSGE model with labour market frictions and heterogeneous workers to structure the discussion of the reform. I show that, in a sample of 29 developed countries for the pre-crisis period of 19952006, countries that deviated more from the rule had a larger increase in the unemployment rate and higher volatility of unemployment relative to GDP.
European Economics: Labor & Social Conditions eJournal, 2020
The size of the public sector in terms of employment and compensation has a strong life-cycle dim... more The size of the public sector in terms of employment and compensation has a strong life-cycle dimension. We establish a quantitative partial-equilibrium life-cycle model with incomplete markets, private and public sectors, and risk-averse workers, and use it to (i) calculate three dimensions of public-sector compensation: wage, pension, and job-security premia, and (ii) quantify the effects of harmonizing the compensation in the two sectors. We find that the job-security and pension's premia are important forms of compensation to public-sector workers. Harmonizing the characteristics of public employment with those of the private sector would lower the unemployment rate and reduce government costs.
This paper argues that the governmental decisions on corporate tax and public capital stock are n... more This paper argues that the governmental decisions on corporate tax and public capital stock are not independent. In order to explain this relationship, we have built a general equilibrium model of corporate tax competition where governments supply public capital and compete for corporate profits. When international tax competition drives the statutory tax rate down from 50% to 30%, public capital
The paper analyzes the determinants of four fiscal trends, observed in many developed countries o... more The paper analyzes the determinants of four fiscal trends, observed in many developed countries over the past 40 years: a decline in the corporate tax rate and public investment offset by an increase in the labour income tax and government consumption. Within a simple neoclassical growth model with a public sector, we illustrate the interdependency between the two government problems of how to spread the tax burden and how to allocate the spending. We find that investment-specific technological changes account for one third of the change in the composition of taxes and two thirds of the change of the composition on spending.
We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on... more We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on the reaction of government yield spreads before and after announcements from rating agencies (Standard & Poor’s, Moody’s, Fitch). Our results show: significant responses of government bond yield spreads to changes in rating notations and outlook, particularly in the case of negative announcements; announcements are not anticipated; bi-direction causality between ratings and spreads; spillover effects especially from lower rated countries to higher rated countries; and amplification effects for recently downgraded countries. JEL: C23; E44; G15.
Any opinions expressed here are those of the author(s) and not those of IZA. Research published i... more Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to enco...
This study maps the various alternatives to external credit ratings that are currently being used... more This study maps the various alternatives to external credit ratings that are currently being used by market participants across Europe. These include: (i) internal measures and ratings where bulk of the analysis is performed in-house by the investor using qualitative and qualitative information collected from a variety of sources; (ii) market implied ratings e.g. bonds/ equity pricing information, CDS spreads; and (iii) accountancy based measures such as profitability and leverage ratios. Third party assessments conducted by non-commercial entities such as the OECD and Central Banks are also considered as an alternative to ratings produced by Credit Rating Agencies. The study then assesses the feasibility of implementing the identified alternatives in a European context based on a consideration of criteria such as costs, market acceptability, accuracy and reliability, comparability, suitability for regulatory purposes etc. while drawing lessons from the US experience of implementing...
We show that the distinct post-crisis dynamics of United States and the Euro area can be rational... more We show that the distinct post-crisis dynamics of United States and the Euro area can be rationalized through different fiscal and monetary policy mixes. While the United States implemented an active fiscal–passive monetary policy, the Euro area implemented an active monetary–passive fiscal policy. We show that, in a financially constrained environment, this monetary dominance amplifies technology shocks and neutralizes the expansionary effects of fiscal shocks through debt deflation and real interest rate channels, leading to a deeper crisis and slower recovery.
We show that the distinct post-crisis dynamics of United States and the Euro area can be rational... more We show that the distinct post-crisis dynamics of United States and the Euro area can be rationalized through different fiscal and monetary policy mixes. While the United States implemented an active fiscal–passive monetary policy, the Euro area implemented an active monetary–passive fiscal policy. We show that, in a financially constrained environment, this monetary dominance amplifies technology shocks and neutralizes the expansionary effects of fiscal shocks through debt deflation and real interest rate channels, leading to a deeper crisis and slower recovery.
Capital-skill complementarity in production implies non-trivial interactions between availability... more Capital-skill complementarity in production implies non-trivial interactions between availability of human capital and financial constraints. Firms that are constrained in their access to finance hire a lower proportion of skilled workers than unconstrained firms. On the other hand, higher wages of skilled workers reduce firms’ desired capital intensity and thus loosen their effective financial constraints. We build a dynamic occupational choice model to quantify how a lack of human capital and financial frictions, as well as the joint effect of both restrictions interact to explain cross-country differences in aggregate output per capita, productivity, average firm size and college premia. We calibrate our model to US data, and we vary financial frictions and educational attainment as observed across countries. We find that the joint effect of both restrictions is up to 50 percent larger compared to the sum of the individual effects. In countries with a negligible share of tertiary...
Revista de Historia Económica / Journal of Iberian and Latin American Economic History, 2019
ABSTRACTIn 1940, the Portuguese government approved a massive primary school construction plan th... more ABSTRACTIn 1940, the Portuguese government approved a massive primary school construction plan that projected a 60 per cent increase in the number of primary schools. Based on the collection of a new dataset, we describe literacy levels in Portugal prior to the plan as well as the plan's strategy regarding the location of schools. We then estimate the causal impact of the increase in the number of schools between 1940 and the early 60s on enrolment and literacy, all at the county level. We conclude the increase in the number of schools was responsible for 80 per cent of the increase in enrolment and 13 per cent of the increase in the literacy rate of the affected cohorts.
I propose a reform of public sector wages consisting of: i) a review of pay of all public sector ... more I propose a reform of public sector wages consisting of: i) a review of pay of all public sector workers to align the distribution of public sector wages with the private sector and ii) stipulating up a rule to determine the yearly growth rate of public sector wages. I set up a DSGE model with labour market frictions and heterogeneous workers to structure the discussion of the reform. I show that, in a sample of 29 developed countries for the pre-crisis period of 19952006, countries that deviated more from the rule had a larger increase in the unemployment rate and higher volatility of unemployment relative to GDP.
European Economics: Labor & Social Conditions eJournal, 2020
The size of the public sector in terms of employment and compensation has a strong life-cycle dim... more The size of the public sector in terms of employment and compensation has a strong life-cycle dimension. We establish a quantitative partial-equilibrium life-cycle model with incomplete markets, private and public sectors, and risk-averse workers, and use it to (i) calculate three dimensions of public-sector compensation: wage, pension, and job-security premia, and (ii) quantify the effects of harmonizing the compensation in the two sectors. We find that the job-security and pension's premia are important forms of compensation to public-sector workers. Harmonizing the characteristics of public employment with those of the private sector would lower the unemployment rate and reduce government costs.
This paper argues that the governmental decisions on corporate tax and public capital stock are n... more This paper argues that the governmental decisions on corporate tax and public capital stock are not independent. In order to explain this relationship, we have built a general equilibrium model of corporate tax competition where governments supply public capital and compete for corporate profits. When international tax competition drives the statutory tax rate down from 50% to 30%, public capital
The paper analyzes the determinants of four fiscal trends, observed in many developed countries o... more The paper analyzes the determinants of four fiscal trends, observed in many developed countries over the past 40 years: a decline in the corporate tax rate and public investment offset by an increase in the labour income tax and government consumption. Within a simple neoclassical growth model with a public sector, we illustrate the interdependency between the two government problems of how to spread the tax burden and how to allocate the spending. We find that investment-specific technological changes account for one third of the change in the composition of taxes and two thirds of the change of the composition on spending.
We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on... more We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on the reaction of government yield spreads before and after announcements from rating agencies (Standard & Poor’s, Moody’s, Fitch). Our results show: significant responses of government bond yield spreads to changes in rating notations and outlook, particularly in the case of negative announcements; announcements are not anticipated; bi-direction causality between ratings and spreads; spillover effects especially from lower rated countries to higher rated countries; and amplification effects for recently downgraded countries. JEL: C23; E44; G15.
Any opinions expressed here are those of the author(s) and not those of IZA. Research published i... more Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to enco...
This study maps the various alternatives to external credit ratings that are currently being used... more This study maps the various alternatives to external credit ratings that are currently being used by market participants across Europe. These include: (i) internal measures and ratings where bulk of the analysis is performed in-house by the investor using qualitative and qualitative information collected from a variety of sources; (ii) market implied ratings e.g. bonds/ equity pricing information, CDS spreads; and (iii) accountancy based measures such as profitability and leverage ratios. Third party assessments conducted by non-commercial entities such as the OECD and Central Banks are also considered as an alternative to ratings produced by Credit Rating Agencies. The study then assesses the feasibility of implementing the identified alternatives in a European context based on a consideration of criteria such as costs, market acceptability, accuracy and reliability, comparability, suitability for regulatory purposes etc. while drawing lessons from the US experience of implementing...
We show that the distinct post-crisis dynamics of United States and the Euro area can be rational... more We show that the distinct post-crisis dynamics of United States and the Euro area can be rationalized through different fiscal and monetary policy mixes. While the United States implemented an active fiscal–passive monetary policy, the Euro area implemented an active monetary–passive fiscal policy. We show that, in a financially constrained environment, this monetary dominance amplifies technology shocks and neutralizes the expansionary effects of fiscal shocks through debt deflation and real interest rate channels, leading to a deeper crisis and slower recovery.
We show that the distinct post-crisis dynamics of United States and the Euro area can be rational... more We show that the distinct post-crisis dynamics of United States and the Euro area can be rationalized through different fiscal and monetary policy mixes. While the United States implemented an active fiscal–passive monetary policy, the Euro area implemented an active monetary–passive fiscal policy. We show that, in a financially constrained environment, this monetary dominance amplifies technology shocks and neutralizes the expansionary effects of fiscal shocks through debt deflation and real interest rate channels, leading to a deeper crisis and slower recovery.
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