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Working Paper
Consumption, Wealth, and Income Inequality: A Tale of Tails
We provide evidence that the distributions of consumption, labor income, wealth, and capital income exhibit asymptotic power-law behavior with a strict ranking of upper tail inequality, in that order, from the least to the most unequal. We show analytically and quantitatively that the canonical heterogeneous-agent model cannot replicate the proper ranking and magnitudes of these four tails simultaneously. Mechanisms addressing the wealth concentration puzzle in these models through return heterogeneity lead to a mirror consumption concentration puzzle. We match the cross-sectional data on ...
Working Paper
A Fair Day's Pay for a Fair Day's Work: Optimal Tax Design as Redistributional Arbitrage
We study optimal tax design based on the idea that policy-makers face trade-offs betweenmultiple margins of redistribution. Within a Mirrleesian economy with earnings, consumptionand retirement savings, we derive a novel formula for optimal income and savings distortionsbased on redistributional arbitrage. We establish a sufficient statistics representation of thelabor income and capital tax rates on top income earners in dynamic environments, which relieson the observed distributions of both income and consumption. Because consumption has athinner Pareto tail than income, our quantitative ...
Working Paper
Tax Revolts and Sovereign Defaults
Protests and fiscal crises often coincide, with complex causal dynamics at play. We examine the interaction between tax revolts and sovereign risk using a quantitative structural model calibrated to Argentina during the Macri administration (2015-2019). In the model, the government can be controlled by political parties with different preferences for redistribution. Households may opt to revolt in response to the fiscal policies of the ruler. While revolts entail economic costs, they also increase the likelihood of political turnover. Our model mirrors the data by generating political crises ...