Working Papers

The Macroeconomic Impact of Agricultural Input Subsidies

Governments operate agricultural subsidy programs worldwide. By introducing transaction costs into a general equilibrium heterogeneous agent model, we quantitatively evaluate the macroeconomic consequences of such policies. Agricultural input subsidies generate welfare gains up to 3.8% in consumption equivalence by redistributing resources to the poorest and providing food insurance, thereby stimulating occupational mobility. We demonstrate that transaction costs are crucial for these results, and that Malawi's large subsidy program is close to optimal. We validate the transition dynamics of the model using an event study that leverages the staggered introduction of input subsidy programs across Sub-Saharan Africa.

Trade, Misallocation, and Capital Market Integration

[Paper, Slides, Online Appendix]

- revision requested at the Journal of the European Economic Association

Focusing on the experience of New Member States entering the European Union, I study the importance of timing trade and capital market liberalization. Using a differences-in-differences design, I show that the 2001 Hungarian capital market reform changed the capital allocation across firms. Exporters with large enough equity expanded more than the average firm. I build a dynamic trade model with financial frictions and endogenous entry and exit to understand the aggregate implications of capital inflow on exporters. Allowing capital inflows magnifies existing capital misallocation, but the benefit of cheaper capital is more important for welfare, especially in the short run or when combined with trade liberalization. Following trade liberalization, the delayed implementation of capital market integration leads to one percent lower welfare gains than a concurrent integration.

Migration, Remittances and Brexit: European Labor Market Integration and Its Effects on Inequality and Convergence

[Paper, Slides, Online Appendix]

- with: Pawel Langer

After the expansion of the European Union (EU) in 2004, an increase in migration from New Member States (NMS) to other EU countries resulted in a large increase in remittances to NMS and were comparable in size to FDI or EU funds. We analyze the joint impact of remittances and migration on the integration of EU economies and their implications for welfare and inequality. Labor market integration affects labor supply directly through migration, and labor demand indirectly through remittances invested in capital stock. We develop an incomplete asset markets model with migration, where agents may save in assets related to their citizenship or to their location. We find that the addition of the remittance channel significantly boosts economic convergence between EU countries, driven primarily by growth in NMS. Thus, when evaluating labor market disintegration, NMS may experience significant welfare losses despite weak trade ties. The effects of labor market liberalization on locals is heterogeneous with increasing wealth inequality driven by richer households disproportionately benefiting from increased labor supply.

Regional Stabilization Through Factor Mobility and Government Intervention

[Paper, Slides, Online Appendix]

Contribution of transfers, capital and labor mobility to consumption smoothing is much lower within the European Union than within the United States. This paper identifies the three major smoothing channels, using a structural model and analyzing micro and macro data. I show that, while capital market frictions are important in explaining the difference between the US and the EU, labor markets still play a non-negligible role in the within-US smoothing. Moreover, if inter-regional migration were halved, consumption smoothing would drop by 8 pp., of which a third would relate to capital mobility. However, I find that within-EU capital mobility is almost unaffected by the relatively low level of European labor mobility.

Publications

The Macroeconomic Impact of Agricultural Input Subsidies

Paper, Slides, Online Appendix

- with: Karol Mazur

Governments operate agricultural input subsidy programs worldwide. Using a general equilibrium heterogeneous agent model featuring transaction costs, we quantitatively evaluate the macroeconomic consequences of such policies. Focusing on Malawi's Farm Input Subsidy Program, we find that while this large program decreases undernutrition, it reduces welfare by exacerbating misallocation and benefiting the wealthier urban population. We show that partial equilibrium analysis leads to contrary conclusions and that halving the subsidy rate or investing in infrastructure improves outcomes. Finally, we demonstrate that the microdata from Malawi and cross-country data from Sub-Saharan Africa are consistent with the predictions of our model.