About

I am an economist, currently working as assitant professor at DCS-FEN Universidad de Chile with research interests in Public Finance, and Econometrics.

My current research agenda focuses on the effects of corporate and dividend taxation on firms, the measurement of economic inequality, intergenerational mobility, and tax progressivity.

You can find my curriculum vitae, here.

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Working Papers

• "The Two-Sample Two-Stage Least Squares Method to Estimate the Intergenerational Earnings Elasticity"
with J. Cortés, J. Díaz, and P. Troncoso.
Revised and Resubmitted The Journal of Economic Inequality       Abstract

We show that the inconsistency of the Two-Sample Two-Stage Least Squares (TSTSLS) Intergenerational Earnings Elasticity (IGE) estimator is a two-way prediction problem involving the replication of (i) the variance of unseen parental earnings, and (ii) the endogeneity of unseen parental earnings in the equation of children's earnings. Concretely, we show that the TSTSLS estimator asymptotically recovers the OLS IGE when the first-stage R-square, i.e., the share of explained variance of parental earnings, equals the share of explained endogeneity of parental earnings in the child's earnings equation. This condition leads to two notable outcomes with respect to previous findings in the literature: (i) perfect prediction of parental earnings is a specific instance of our condition, indicating that consistency can be attained even when parental earnings are predicted imperfectly; and (ii) exogenous instruments alone are insufficient to guarantee asymptotic equivalence between TSTSLS and OLS IGE estimates. Furthermore, our condition suggests that strong first-stage instruments might amplify TSTSLS bias if they are also strongly endogenous in the child's earnings equation. This last result provides a formal criterion for choosing first-stage predictors under the assumption that TSTSLS IGE estimates exhibit upward bias. Additionally, we theoretically study the biases of the two-sample stochastic multiple imputation and cell multiple imputation (MI) procedures, identifying conditions under which MI procedures outperform the traditional TSTSLS estimator. Finally, we validate our results through an empirical Monte Carlo exercise using administrative data from the Chilean formal private sector.

• "The Effects of Free University Tuition on Enrollment and Dropout: Evidence from a Large-Scale Program in Chile"
with J. Cortés, J. Díaz, and G. Villarroel.
      Abstract

We assess the impact of a free college tuition program targeting students in the lower 50% income bracket in Chile using a RD design. We find that the policy increased tuition-free school enrollment by 4.55-7.03 pp and reduced dropout by 1.06-5.01 pp. Non-participating universities saw decreased matriculation, while vocational schools were unaffected. Top 10% GPA performers experienced increased enrollment in high-quality schools, while the bottom 40\% saw decreased enrollment. Students from voucher and public high schools had higher enrollment. The policy boosted female enrollment in majors related to technology, education, commerce, and management, and it increased recipients' intergenerational educational mobility.

• "A note on the undercover relationship between the Chotikapanich Lorenz curve and the Pareto distribution."
with J. Cortés.
      Abstract

We study the relationship between the Chotikapanich (1993) Lorenz curve and the Pareto distribution. First, we show that the Chotikapanich Lorenz curve is generated by a log-uniform distribution. Second, we show that the log-uniform distribution is a limiting case of a truncated Pareto distribution. Given this, we propose a mixture Lorenz curve model to estimate the scale parameter of the Pareto distribution, thus allowing us to identify at which point of the distribution incomes become Pareto-distributed. This model assumes that the bottom part of the income distribution is drawn from a log-uniform distribution, and the upper part as a classical Pareto distribution. Using Montecarlo simulations, we show that our model can accurately recover the threshold. With this, we estimate this model for 181 countries using data from the World Income Inequality Database. We find a negative relationship between the aggregate level of inequality (measured through the Gini coefficient) and the point where the Pareto distribution starts.

• "Do Firms React to Double Taxation? Evidence for Small Businesses"
with J. Cortés.
      Abstract

We assess firms' taxable income response to a dividend tax credit increase when corporate and personal taxes are integrated. To do so, we use the presence of a kink in the Canadian tax system. First, we theoretically show that, in an integrated tax system, welfare changes stemming from a rise in corporate taxes depend on two parameters: the elasticity of taxable income with respect to the corporate tax rate and with respect to the dividend tax credit. Second, to estimate both parameters, we propose an identification strategy that relies on the bunching methodology and the excess bunching difference before and after a tax reform that increased the dividend tax credit. Using Canadian administrative tax data, we estimate these elasticities and empirically show that the increase in the dividend tax credit reduced the deadweight loss associated with an increase in the corporate tax by more than 50%. Our results are robust to a battery of robustness checks, including nonparametric estimates of the counterfactual density in the bunching procedure.

• "Residual Progression in the Twentieth and Twenty-First Centuries"
with J. Cortés.
      Abstract

The power tax function is widely used to approximate the relationship between after-tax and before-tax income, with its exponent characterizing the degree of progressivity of the tax system in a comprehensible and practical way. This parameter, known as the residual income elasticity, is usually estimated by regressing the logarithm of after-tax income on the logarithm of before-tax income, necessitating compre- hensive microdata for its estimation. In this context, we propose a novel methodology to estimate residual income progression using tabulated income shares data. Importantly, this methodology allows us to estimate residual progression for the years 1913-2023 in the U.S., advancing the historical study of residual progression by more than half a century. Our estimates are based on the assumption that the tax schedule is rank-preserving, yielding a general formula for the tax function. Using this result, we show that when gross and net incomes belong to the same log-location-scale family of distributions, a power tax function emerges, with residual income being characterized by the variance of the logarithm of each income distribution. These parameters can be estimated using tabulated income shares for before- and after-tax income through NLS fitting of Lorenz curves. We validate our methodology by comparing its performance against the OLS and PPML estimators, concluding that our methodology is a suitable alternative, especially for the study of progressivity at the top of the distribution.

• "Measuring wealth inequality trends under a capitalized pension system with limited data: Evidence from Chile"
with B. Castro Nofal, and I. Flores.
      Abstract

We propose and apply a novel methodology to estimate trends in wealth inequality in a context of: i) a mandatory fully funded private and capitalized pension plan system, and ii) limited data from macroeconomic aggregates and household surveys. First, to address item non-response (for example, due to financial illiteracy) in the balance of the individual capitalized account we incorporate a micro imputation adjustment, at the individual level, using machine learning and two samples methods. Second, we propose a macro adjustment, at the distributional level, for missing wealth at the top of the wealth distribution incorporating pensions, by extending Vermeulen (2016, 2018) methodology. %to address item non-response. By combining these adjustments, we estimate wealth inequality trends for Chile, a country with a mandatory private capitalized pension system and limited wealth inequality data. Our results indicate a slight decrease in wealth inequality in Chile between 2007 and 2017, with a further reduction thereafter. We posit that this decrease may be attributed to the distributional effects of pension fund withdrawals policies due to COVID-19. Our findings remains robust across various methodological variations in our adjustment

• "Stock Returns and Tax Progressivity"
with B. Castro Nofal, J. Díaz, and E. Hansen.
      Abstract

We study the effects of tax progressivity on stock returns in the US. Using the Local Projection method and data from 1969 to 2016, we show that a tax progressivity shock reduces stock market returns and the risk premium in the first year after the shock. When we examine industry-level portfolio returns, we find negative effects on the consumer and manufacturing industries but no impact on the health and high-tech industries. Our empirical findings are robust to a battery of robustness tests and are consistent with the stock market anticipating a negative impact of tax progressivity on future GDP growth.

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Publications

• "On the robustness of the relationship between tax progressivity, growth, and inequality in the US"
with B. Castro Nofal, J. Díaz, and E. Hansen.
Economics Letters Accepted. 2024.
      Abstract

We investigate the impact of a shock in tax progressivity on GDP growth and income inequality in the US between 1969 and 2016. Employing various robustness tests, including different imputation methods for the progressivity index, as well as utilizing Vector Autoregressive and Linear Projection models for estimating impulse response functions, we find that both GDP growth and inequality decline in response to more tax progressivity. Nevertheless, only the effect on inequality remains statistically significant across our battery of robustness exercises, while the negative effect on GDP growth is robustly significant only prior to the Great Recession in 2008.

• "Intergenerational Earnings Mobility in Chile: the Tale of the Upper Tail"
with J. Cortés, J. Díaz, P. Troncoso, and G. Villarroel.
Empirical Economics Accepted. 2024.
      Abstract

This paper provides the first estimates of intergenerational earnings mobility in Chile using administrative data linking parents' and children's earnings from the formal private sector. We calculate mobility measures across the earnings distribution, revealing high mobility in the bottom 80\% and 65\% of the parents' and children's distribution, respectively. However, we observe significant persistence in the upper tail of the earnings distribution. Additionally, we identify notable gender heterogeneities in these mobility patterns. Specifically, the intergenerational mobility gender gap shows a nonlinear relationship with respect to parental earnings. Furthermore, we find that differences in mobility between the upper tail of the earnings distribution and the rest of the population are more pronounced for daughters than for sons. These findings suggest that the dynamics of gender-based mobility at the upper tail of the earnings distribution differ from those observed in the rest of the population.

• "Everything’s not lost: revisiting TSTSLS estimates of intergenerational mobility in developing countries"
with J. Cortés, J. Díaz, and P. Troncoso.
International Tax and Public Finance 31, 66–94. 2024.
      Abstract

This paper revisits the two-sample two-stage least squares (TSTSLS) method, commonly used to estimate intergenerational mobility measures without linked parent–child earnings data. First, we study the TSTSLS intergenerational earnings elasticity (IGE) by decomposing it into the IGE estimated via OLS with linked parent–child earnings data, a projection bias, and a variance bias. We propose a parsimonious procedure, the doubly corrected TSTSLS (DC-TSTSLS), to (i) eliminate the variance bias and (ii) reduce the prediction bias. Our method provides a lower bound for the IGE estimate via OLS with linked earnings data. Second, we formally study the rank-rank correlation estimated through TSTSLS by decomposing the estimator into the rank-rank correlation estimated through OLS with linked data and a projection bias. We deliver analytical conditions for when this estimate is a lower-bound of the OLS rank-rank correlation estimated using linked data. Finally, we use parent–child linked administrative data from a developing country to test our lower-bound method through an empirical Monte Carlo approach, confirming its validity. Our doubly corrected IGE and rank-rank TSTSLS estimators are informative lower bounds of their respective OLS intergenerational mobility estimates computed using linked data. Our results suggest that the following practices should be implemented when the TSTSLS method is used to estimate intergenerational mobility measures: (i) report the estimates of the rank-rank correlation computed through TSTSLS, and (ii) implement our lower-bound methodology when facing data constraints, (i.e., only a few controls are available to impute parental earnings).

• "Decentralizing the Chilean Miracle: regional Intergenerational Mobility in a Developing Country"
with J. Cortés, J. Díaz, A. Montecinos, P. Troncoso, and G. Villarroel.
Regional Studies , 57, 785-799.2023.
      Abstract

We estimate spatially disaggregated measures of intergenerational mobility in Chile through an administrative dataset linking child’s and their parent’s earnings from the formal private labour sector. We report remarkable heterogeneity as we find higher and lower upward mobility in mining and agricultural regions, respectively, corroborating Connolly et al. (2019) with the distinction that Chile is a unitary form of government, implying that factors other than institutional differences shape mobility. We also find statistically significant gender gaps in persistence in poverty, persistence in privilege, and upward mobility.

• "Intergenerational Privileges and Public Provision of Public Goods: evidence from Chile’s Constitutional Process"
with J. Cortés, J. Díaz, and P. Troncoso.
The Journal of Economic Inequality, 21, 47–8. 2023.
      Abstract

The intergenerational earnings elasticity (IGE) is widely recognized as a measure of the degree of transmission of privileges or disadvantages from a parent to his child in society. This paper develops a simple theoretical model that predicts a lower provision of public goods given an increase in the IGE. We test this model empirically using the results of the 2020 Chilean national plebiscite, which asked for the replacement of the standing constitution imposed in 1980 by Pinochet’s military dictatorship and that enshrined the subsidiary, market-oriented role of the Chilean state. Our estimates suggest the existence of a positive association between the IGE and the share of the vote against a new constitution that would potentially allow deep reforms in the healthcare, education, and pension systems. Additionally, we find a positive relationship between the share of the vote for a partially democratically elected writing body --- rather than a fully elected one --- and the IGE. These results are robust to the inclusion of additional socioeconomic variables and to the use of alternative measures of intergenerational persistence, such as the rank-rank correlation and top-quintile transition probabilities. These findings are consistent with our model and suggest that sectors of society exhibiting higher degrees of economic persistence also show greater reluctance towards egalitarian reforms of redistributive institutions.

• "Nonlinear risks: a unified framework"
with R. Pastén.
Theory and Decision , 95, 11–32. 2023.
      Abstract

We study the conditions under which increasing risk raises the optimal control variable when the budget constraint is nonlinear. In contrast to the case when the budget constraint is linear, nonlinearities alter the risk attitudes of the economic agent; that is, the agent’s risk behavior is driven by the interaction between the shape of the utility function and the shape of the budget constraint. This paper complements the classical literature with linear payoff functions in two important ways. First, we derive necessary and sufficient conditions for unambiguous comparative statics of changes in risk when the budget constraint is nonlinear. Second, we highlight the critical role of the coefficients of technological improvement and cross-prudence in technology derived from the nonlinear budget constraint in a similar form to that in which the coefficient of relative risk aversion and the coefficient of relative prudence are derived from the utility function. We show several applications of this theory, including the worker’s decision to work in-person during a pandemic.

• "Pollution in Times of Economic Uncertainty: a Perverse Tragedy of the Commons?"
with R. López and R. Pastén.
Economic Analysis and Policy, 75, 209-225. 2022
      Abstract

We explore the effect of raising economic uncertainty on local and global carbon emissions. Most economic models under uncertainty focus on the effect of risk on the supply of a control variable (e.g., emissions). Here we explore the effect of risk on both the supply and demand of local and global carbon emissions and, therefore, on their equilibrium shadow prices. We show that in addition to the consumers ́ level of risk aversion and prudence coefficient, an additional parameter not included in standard models, the elasticity of substitution between pollution and conventional inputs, plays a key role as a determinant of local and global emissions. An important implication of the analysis is that, under various specifications widely used for preferences and production technologies, a damning vicious cycle between increasing economic uncertainty and global pollution emissions is likely to occur.

• "Gini and Undercoverage at the Upper tail: a simple approximation" International Tax and Public Finance 29, 443–471. 2022.
      Abstract

This paper investigates the impact of top-distribution undercoverage on the Gini coefficient. First, we show that failing to correct for underreporting and nonresponse at the top does not necessarily result in an underestimated Gini coefficient. Then, we establish analytical conditions under which the Gini coefficient of the uncorrected distribution is higher than the Gini coefficient of the true distribution, i.e. the distribution that incorporates underreporting and/or nonresponse. In addition, we propose a Gini approximation based on the Atkinson approximation G=G*⋅(1−Sp)+Sp to correct for underreporting at the top. Under plausible assumptions, the approximation proposed is very close to the real Gini coefficient. We also show that before correcting for underreporting we need to first address the issue of nonresponse as otherwise the approximation may be strongly upper biased. Finally, this work proposes a procedure to estimate the fraction of nonrespondents at the very top under the assumption that underreported incomes belong to individuals with incomes higher than those reported in a household survey. To evaluate the proposed methodologies, this paper uses Chile and Canada as examples, where we include undistributed business profits—an underreported source of income—to measure income inequality.

• "The Distribution of COVID-19 Related Risks"
with P. Baylis, P. Beauregard, M. Connolly, N. Fortin, D. Green, S. Gyetvay, C. Haeck, T. Molnar, G. Simard-Duplain, H. Siu, M. teNyenhuis and C. Warman.
Canadian Journal of Economics 55, 172-213. 2022.
      Abstract

We document two COVID-19–related risks, viral risk and employment risk, and their distributions across the Canadian population. The measurement of viral risk is based on the VSE COVID-19 Risk/Reward Assessment Tool, created to assist policy-makers in determining the impacts of pandemic-related economic shutdowns and re-openings. Women are more concentrated in high-viral-transmission-risk occupations, which is the source of their greater employment loss over the first part of the pandemic. They were also less likely to maintain contact with their former employers, reducing employment recovery rates. Low-educated workers face the same viral risk rates as high-educated workers but much higher employment losses. This is largely due to their lower likelihood of switching to working from home. For both women and the low-educated, existing inequities in their occupational distributions and living situations have resulted in them bearing a disproportionate amount of the risk emerging from the pandemic. Assortative matching in couples has tended to exacerbate risk inequities.

• "The Effects of Ambiguity on Entrepreneurship"
with C. Bonilla.
Journal of Economic and Management Strategy. 30, 63–80. 2021.
      Abstract

We incorporate ambiguity (Knightian uncertainty) into a classic model of entrepreneurship to analyze, among other things, its effects on the optimal level of business startups, the relation between total assets and the size of the entrepreneurial investment, the effects of increasing ambiguity on developing new ventures, and the decision to self-select into entrepreneurship for an indifferent decision maker. We first show that, under the monotone-likelihood ratio property, the introduction of ambiguity negatively affects the optimal entrepreneurial investment, something that is consistent with most experimental evidence about entrepreneurial choice under ambiguity. Then, we show that the classical explanations for the positive correlation between total assets and business startups based on decreasing absolute risk aversion preferences and prudent behavior can be challenged when ambiguity is incorporated into the analysis, and we provide the conditions that guarantee that the traditional comparative static result under risk is replicated under ambiguity. We also show that increases in ambiguity aversion reduce entrepreneurial activities. Finally, we discuss our results under alternative ways of modeling ambiguity.

• "The exponential Pareto model with hidden income processes: evidence from Chile"
with J. Díaz and P. Tapia.
Physica A: Statistical Mechanics and its Applications. 561, 125196. 2021.
      Abstract

Building on the two-class income model (Banerjee and Yakovenko, 2010), this paper proposes a new methodology to estimate the income distribution that accounts for hidden sources of income, such as retained earnings. We promote and illustrate this methodology with a case study of the Chilean economy. Our results reveal that after including the hidden sources of income, economic inequality in Chile has remained relatively constant over the last 15 years.

• "The Tax Paradox and Weak Neutrality"
with E. Figueroa and R. López.
Southern Economic Journal. 86, 1150-1169. 2020.
      Abstract

We introduce the concept of weak tax neutrality that establishes that the relationship between the tax rate and the user cost of capital may be non-monotonic. We show that most existing corporate tax systems allow for weak neutrality. That is, given the tax allowances permitted by these systems, it is possible that neutrality may arise for at least one positive corporate tax rate. Moreover, we show the practical relevance of weak neutrality in realistic situations where there are several asset types and heterogeneous levels of firms' debt ratios.

• "The Persistent Effect of Socioeconomic Status on Education and Labor Market Outcomes"
with with J. Correa, M. Lorca., R. Morales and F. Parro.
Applied Economics Analysis. 27(79), 62-90. 2019.
      Abstract

This paper aims to study the effect of family socioeconomic status (SES) on academic and labor market outcomes. The authors used a rich data set of administrative records for test scores, individual background and adult earnings of a cohort of agents, covering a period spanning the agents' upper-secondary education and their early years in the labor market. The authors find that students with the highest SES obtained a 1.5 standard deviations higher score in the college admission test than students who had the same academic outcomes in the eighth grade test but belong to the lowest SES. Similarly, among students that obtained the same scores in the college admission test, those with the highest SES earned monthly wages 0.7 standard deviations higher than those with the lowest SES. The findings highlight that family socioeconomic background continues to influence outcomes during individuals’ upper secondary education and early years in the labor market.

• "Fundamental Accrued Capital Gains and the Measurement of Top Incomes"
with E. Figueroa and R. López.
Journal of Economic Inequality. 14, 379–394. 2016.
      Abstract

Most previous studies of income inequality have either ignored capital gains or have used taxable realized capital gains to estimate top incomes. Neither of these approaches is fully satisfactory. We apply for the first time a new methodology that allows us to account for fundamental accrued capital gains as part of the top incomes in a theoretically consistent manner. We estimate the shares of the super-rich in Chile showing that accrued capital gains have a large impact on these estimates. Also, the top income shares estimated using fundamental capital gains appear to exhibit a more stable and presumably more plausible time profile than estimates based on capital gains derived from asset market variations.

• "Top Income Measurement and Undistributed Profits"
with E. Figueroa and R. López.
Economics Letters. 134, 138-140. 2015.
      Abstract

We develop a method that allows transforming retained business profits in a particular year into business-accrued capital gains of the same year. These capital gains thus estimated can be simply added to other sources of personal income of top earners to obtain a consistent measure of their total income.

• "Effects of Fiscal Policy on Private Consumption"
with J. Correa, C. Ferrada and F. Parro.
Applied Economics Letters. 21, 776-781. 2014.
      Abstract

We use a new narrative measure of fiscal shocks to study how private consumption reacts to government spending increases. Our fiscal shocks arise from three announcements of expansionary fiscal rule deviations in a small and open economy where fiscal policy follows a structural-balance fiscal rule. All those deviations were announced to be mainly on the spending side. We find a negative response of private consumption in the face of those announcements. Our findings are consistent with the existence of consumers expecting some irreversibility in government spending increases and, as a consequence, a rise in future taxes to make the newly announced fiscal spending path consistent with the intertemporal government budget constraint.

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Work in Progress

• "The Evolution of Wealth Inequality in Canada Between 1982 and 2011: evidence From Personal Income Tax Records"
with G. Simard-Duplain

• "Unicorns and IPO"
with H. Contreras, H. Lopez, and B. Lesana.

• "Optimal tax progressivity under hidden consumption"
with B. Castro Nofal, and A. Micco.

• "A Re-distributional corrected social accounting matrix"
with M. Delgado, and D. Vasquez.

• "The effect of property taxes on house prices: evidence from border discontinuities in Chile"
with J. Cortes, S. Maldonado, S. Truffa, and C. Viaretti.

• "The Intergenerational Mobility Gender Gap in a Developing Country"
with J. Cortés, J. Díaz, J. Rodriguez, P. Troncoso, and G. Villarroel.

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Teaching

Faculty of Business and Economics, University of Chile

Undergraduate level

Lecturer: ENTAX 300 - Taxation I: The economics of Taxation, 2023-2024.
Lecturer: ENMEC 301 - Quantitative Methods I, 2022-2024.
Lecturer: ENMEM 205 - Mathematical Methods III, 2013-2015.
Lecturer: ENMEM 260 - Advanced Mathematical Methods, 2014-2015.
Lecturer: ENMEM 255 - Mathematical Methods IV, 2013-2014.
Lecturer: ECMIC 155 - Introduction to Microeconomics, 2014-2015.

Graduate level

Lecturer: ENFIN 820 - Public Finance and Inequality, 2023-2024
Lecturer: ENTAX 600 - The economic analysis of Taxation, 2023-2024
Lecturer: ENSTA 603 - Advanced Empirical Methods, 2014.

Vancouver School of Economics, University of British Columbia

Undergraduate level

Lecturer: ECON 451 - Economics of Public Expenditures, 2021
Teaching Assistant: ECON 326 - Methods of Empirical Research, 2017-2018.
Teaching Assistant: ECON 317 - Poverty and Inequality, 2018.
Teaching Assistant: ECON 325 - Introduction to Empirical Economics, 2017-2018.