Idiosyncratic Health Risk in Mexico: The Insurance Effect of Seguro Popular
Joint work with Javier Gurierrez
Work in progress
Idiosyncratic Labor Income Risk in Mexico: Evidence from MOTRAL
Joint work with Sandra Avalos-Trujillo and Mariana Juarez
Work in progress
Social Insurance, Social Assistance and Labor Supply in Latin America
Joint work with Luis-Enrique Vivas-Martinez and Julio Leal-Ordoñez
Draft coming soon
Non-Contributory Pensions, Labor Supply and Savings in Latina America
Joint work with Laura Juarez and Catalina Amuedo-Dorantes
Draft coming soon
Informality and Social Security
Joint work with Marina Mendes-Tavares
Draft coming soon

In developing countries the majority of workers work in the informal sector, according to Bacchetta, Ernst, and Bustamante (2009), 52.2% of employed workers in Latin America work in the informal sector, the same estimate to Africa is 55.7%, while to Asia is 78.2%.1 In most developing countries informal workers work in risky and low-quality jobs.2 They do not pay labor income tax, neither contribute to social security. In general they have limited access to the social welfare system and to insurance mechanisms. However, being an informal worker is not a an arbitrary neither a permanent choice. Workers in developing countries usually switch many times during their career between the formal and the informal sector. In this paper, we investigate how the design of social security, taxes and transfers influence the decision of workers to choose between formal and informal employment. In order to address this question, we develop a dynamic general equilibrium model, in the spirit of Huggett and Ventura (1999), considering also the informal sector. Our main exercise is to quantify the impact of changes in the social security system in workers retirement decision and also on their decision of working in the formal or informal sector.

The Effect of Non-Contributory Pensions on Saving in Mexico
Joint work with Laura Juarez and Catalina Amuedo-Dorantes
Accepted at Economic Inquiry

This paper examines the effects of non-contributory pension programs at the federal and state levels on Mexican households’ saving patterns using micro data from the Mexican Income and Expenditure Survey. The federal program by itself appears to reduce the saving rate of households whose oldest member is either 18 to 54 or 65 to 69. State programs by themselves have no significant effects on household saving rates in the smallest localities, but in larger localities they may reduce the saving of households with members in their sixties. The combination of both types of programs generally does not have statistically significant effects on households’ aggregate saving, probably because each program seems to affect different population strata. No significant effects are found for households whose oldest member is age-eligible (70 and older). Within specific investment categories, evidence is found of increases in human capital and in durable and financial goods for some age groups. Finally, the paper provides evidence on household-level labor supply responses.

Cross-subsidies, and the elasticity of informality to social expenditures: the case of Mexico’s Seguro Popular
Joint work with Julio Cesar Leal-Ordoñez
Working paper version available here
Review of Income and Wealth, December 2016

How is the size of the informal sector affected when the distribution of social expenditures across formal and informal workers changes? How is it affected when the tax rate and the generosity of these transfers changes? We use a search frictions model with an informal sector, (ex-post) heterogeneous workers, and conditional taxes and transfers to address these questions. In our model, formal jobs are “better” than informal jobs, but harder to get. Taxes are proportional to the wage, while transfers are lump sum, implying a cross-subsidy from high-income to low-income workers. We calibrate the model to Mexico and perform counterfactuals. We find that the size of the informal sector is quite inelastic to changes in taxes and transfers. This is due to frictions, and due to the fact that the marginal worker weighs two opposing forces: changes in taxes (negative) vs. changes in transfers (positive). These two forces act simultaneously leaving reservation wages roughly unchanged. Our results are consistent with the empirical evidence on the recent introduction of Seguro Popular.

The Productivity Cost of Sovereign Default: Evidence from The European Debt Crisis
Joint work with Esteban Colla and Jose María Da-Rocha
Economic Theory, December 2015, pp. 1-23
Working paper version available here

We calibrate the cost of sovereign defaults using a continuous time model, where government default decisions may trigger a change in the regime of a stochastic TFP process. We calibrate the model to a sample of European countries from 2009 to 2012. By comparing the estimated drift in default relative to that in no-default, we find that TFP falls in the range of 3.70-5.88%. The model is consistent with observed falls in GDP growth rates and subsequent recoveries and illustrates why fiscal multipliers are small during sovereign debt crises.

Taxes, Transfers and the Macroeconomy
Paper available here
Chapter contribution to "Contemporary Topics in Macroeconomics," Ed. COLMEX

Taxes and transfers are widespread institutions among middle income and high income countries. In this chapter I survey main aggregate features of such institutions and features of the labor market. To study the relation between taxes and transfers and labor market outcomes I survey some important results in the literature. The main selection criteria for this survey is the use of general equilibrium models.

Social Security and Retirement across the OECD
Journal of Economic Dynamics and Control, Volume 47, October 2014, Pages 300–316
Working paper version available here

Employment to population ratios differ markedly across Organisation for Economic Cooperation and Development (OECD) countries, especially for people aged over 55 years. In addition, social security features differ markedly across the OECD, particularly with respect to features such as generosity, entitlement ages, and implicit taxes on social security benefits. This study postulates that differences in social security features explain many differences in employment to population ratios at older ages. This conjecture is assessed quantitatively with a life cycle general equilibrium model of retirement. At ages 60-64 years, the correlation between the simulations of this study’s model and ob- served data is 0.67. Generosity and implicit taxes are key features to explain the cross-country variation, whereas entitlement age is not.

Taxes, Transfers and Employment in an Incomplete Markets Model
Joint work with Richard Rogerson
Journal of Monetary Economics Volume 57, Issue 8, November 2010, Pages 949–958
Working paper version available here

We assess the consequences of increases in the scale of tax and transfer programs in the context of a model with idiosyncratic productivity shocks and incomplete markets. We contrast the outcomes for both hours worked and welfare relative to the results obtained in a stand-in household model, featuring no idiosyncratic shocks and complete markets. Our main finding is that the impact on hours remains very large, but the welfare consequences are very different. The analysis also suggests that tax and transfer policies may have large effects on average labor productivity via selection effects on employment.