Sovereign Risk and Economic Activity: The Role of Firm Entry and Exit ~ Accepted at JPE Macro
(with Gaston Chaumont and Givi Melkadze)
Abstract: We quantify the role of firm entry and exit in shaping the output costs of sovereign debt crises. Empirically, higher sovereign risk correlates with less firm entry and more exits. We find evidence of credit frictions explaining the sovereign risk-entry relationship and the sovereign risk-exit relationship for small firms. We develop a model with sovereign risk, financial frictions, and endogenous firm dynamics. Calibrated to the Portuguese debt crisis, the model predicts that sovereign risk largely explains the observed entry and exit dynamics. The extensive margin accounts for about 35-64% of the medium-run and most of the long-run persistent output fall.
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Presented at: RIDGE December Forum 2024, Emory University 2024, York University 2023, Kent Macro Workshop 2023, University of Rochester 2022, Wharton 2022, the Federal Reserve Bank of Atlanta, SEA 2021, MEA 2022, Midwest Macro 2022, NASMES 2022, SED 2022, EEA/ESEM 2022, Lisbon Macro Workshop 2022, LACEA/LAMES 2022, and AEA/ASSA 2023, Auburn University
Quantifying the Allocative Efficiency of Capital: The Role of Capital Utilization ~ Published at JME
(with Poorya Kabir and Eugene Tan)
Abstract: Higher dispersion of log average revenue product of capital (ARPK) is commonly associated with lower capital allocative efficiency. We show this is a result of the assumption that capital utilization is fixed. However, when capital utilization is endogenous, higher capital allocative efficiency is associated with lower dispersion of log average revenue product of capital services (log difference between revenue and utilized capital), not ARPK. Furthermore, contrary to the standard relationship, increases to capital allocative efficiency is associated with higher ARPK dispersion when such improvements arise from greater utilization flexibility. We provide evidence supporting the mechanism and demonstrate counterfactuals where allocative efficiency gains are accompanied by higher ARPK dispersion. Lastly, we apply our framework to study the impact of a capital market liberalization reform in India. We estimate the reform improved allocative efficiency by 0.04%, but counterfactual analysis neglecting the response of utilization would have concluded efficiency gains of 5.25%.
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Presented at: SED Winter Meetings 2024, UC Santa Cruz 2024, UC Santa Barbara 2024, University of North Carolina – Chapel Hill 2024, ASSA 2024, Queen’s University 2024, Western University 2024, Wharton 2023, Lisbon Macro Workshop 2023, Theories and Methods in Macroeconomics (T2M) 2023, National University of Singapore 2023, University of Toronto 2022
Entry Decision, the Option to Delay Entry, and Business Cycles ~ Published at RED
Abstract: This paper demonstrates that the option to delay entry plays a key role in shaping the business cycle behavior of new firms. Using a model calibrated to U.S. firm dynamics, I show that this timing option endogenously generates a countercyclical opportunity cost of entry: during recessions, elevated risk of failure increases the value of waiting, which raises the effective cost of entry. I provide empirical evidence consistent with firms strategically delaying entry in response to changing aggregate conditions. Quantitatively, this channel significantly amplifies firm selection at entry and nearly doubles the cyclical volatility of new firm creation. Overall, variation in the number and composition of entrants accounts for 18% of aggregate employment fluctuations—a contribution more than halved in a model without the option to delay. Ignoring this channel may also lead to misleading predictions about how new firm entry responds to policy interventions.
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Presented at: University of Bristol 2024, Boston University 2022, Wharton 2022, EEA-ESEM 2022, SED 2021, ES World Congress 2020, EEA 2019, EESWM 2019, Auburn University, I-85 Macroeconomics Conference 2019, Midwest Macro at Vanderbilt University 2019, EGSC at Washington University in St. Louis 2019, GCER Alumni Conference 2019, the Federal Reserve Bank of St. Louis, University of Virginia, Auburn University, 6th Lindau Meeting on Economic Sciences 2018
Born Different: Entrepreneurship through Inventor Mobility, Innovation, and Growth
(with Salomé Baslandze)​
Abstract: Large productivity differences across firms reflect substantial ex-ante heterogeneity at entry, yet the origins of this heterogeneity remain poorly understood. This paper shows that innovating spinouts -- firms formed by inventors leaving incumbent innovators -- are a key endogenous source of high-growth entrepreneurship and aggregate productivity growth. Using inventor mobility in patent data, we document that spinouts systematically outperform other entrants throughout their life cycle, their performance is strongly linked to parent-firm technological strength, and their formation temporarily depresses parent-firm innovation. We develop a Schumpeterian growth model that endogenizes spinout formation and the fundamental tradeoff between knowledge diffusion, creative destruction, and appropriability. Closely disciplined by rich micro-level data, the model implies that spinouts account for a disproportionate share of high-growth firms and nearly forty percent of aggregate productivity growth, but that inventor departures also impose sizable costs on incumbents, generating a fundamental policy tradeoff. Policy counterfactuals show that relaxing non-compete restrictions raises aggregate growth and welfare and amplifies the effectiveness of entry subsidies.
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Presented at: I-85 Macroeconomics Workshop 2025, SF Fed Growth Meeting 2026, University of Houston 2026, Conference on Public Policies for Innovation - London Business School 2026, UC Santa Barbara 2026
Education Subsidies, Tax Design, and Earnings Inequality: A Cross-Country Analysis
(with Oliko Vardishvili and Fuzhen Wang)
Updated version!
Abstract: Earnings inequality is substantially higher in the U.S. than in Continental Europe. Existing work attributes this gap to cross-country differences in tax progressivity, operating through continuous human capital investment. We show that the extensive margin of college attainment explains a substantial share of the gap and shifts the relative importance of policy channels from progressivity toward higher-education subsidies. In a general-equilibrium model with discrete college choice calibrated to seven countries, subsidies explain about one-third of the gap, while progressivity contributes little. The reason is that a large wage premium makes college attainment more sensitive to education costs than to taxation. We further show that these findings have direct implications for U.S. policy: college affordability shapes how the race between education and technology translates into earnings inequality.