Essays in Macroeconomics of Emerging Markets
type: CreativeWork
description: Chapter 1. Law enforcement and the size of the informal sector. I assemble new cross-country evidence showing that contrary to the standard view, the relationship between the size of the informal sector and tax rates is, at best, ambiguous. Law enforcement and informality also show no clear relation. Motivated by these findings, I augment a standard two-sector (formal and informal) small open economy model with endogenous law enforcement that depends on the size of the informal sector (measured by its assets) and government expenditure. I use a micro-dataset from Colombia to show that both taxes and law enforcement are necessary to match the the size of the informal sector observed in the data. In the absence of law enforcement, tax evasion incentives imply a counterfactually large informal sector. However, law enforcement motivates households to reduce the supply of capital to the informal sector, hence decreasing the probability of detection. The dependence of the latter on government expenditure creates a non-linearity between tax rates and the size of the informal sector through a Laffer curve. The model implies that lowering tax rates would not necessarily reduce the size of the informal sector since there is a trade-off with the capability of law enforcement. Chapter 2. New shocks across countries: An empirical investigation. We estimate the role of news shocks to total factor productivity, foreign interest rates and commodity terms of trade in explaining the variance of output and other macro aggregates in a large sample of countries. To correct for the small-sample bias of the variance decomposition estimates we develop a Bootstrap-after-Bootstrap method. We find that the mean difference of variance share of output explained by news shocks between developing and developed countries is: I) Negligible for news shocks to total factor productivity. II) Positive for news shocks to foreign interest rates (6 p.p) and to commodity terms of trade (8.3 p.p). Using cro…
abstract: Chapter 1. Law enforcement and the size of the informal sector. I assemble new cross-country evidence showing that contrary to the standard view, the relationship between the size of the informal sector and tax rates is, at best, ambiguous. Law enforcement and informality also show no clear relation. Motivated by these findings, I augment a standard two-sector (formal and informal) small open economy model with endogenous law enforcement that depends on the size of the informal sector (measured by its assets) and government expenditure. I use a micro-dataset from Colombia to show that both taxes and law enforcement are necessary to match the the size of the informal sector observed in the data. In the absence of law enforcement, tax evasion incentives imply a counterfactually large informal sector. However, law enforcement motivates households to reduce the supply of capital to the informal sector, hence decreasing the probability of detection. The dependence of the latter on government expenditure creates a non-linearity between tax rates and the size of the informal sector through a Laffer curve. The model implies that lowering tax rates would not necessarily reduce the size of the informal sector since there is a trade-off with the capability of law enforcement. Chapter 2. New shocks across countries: An empirical investigation. We estimate the role of news shocks to total factor productivity, foreign interest rates and commodity terms of trade in explaining the variance of output and other macro aggregates in a large sample of countries. To correct for the small-sample bias of the variance decomposition estimates we develop a Bootstrap-after-Bootstrap method. We find that the mean difference of variance share of output explained by news shocks between developing and developed countries is: I) Negligible for news shocks to total factor productivity. II) Positive for news shocks to foreign interest rates (6 p.p) and to commodity terms of trade (8.3 p.p). Using cro…
author: Acosta Henao, Miguel
keywords: Econometrics, Economics, Growth and Development, Macroeconomics, emerging markets, informality, news shocks, capital controls
date published: 2020-06-01T07:00:00Z
date modified: 2026-07-24T01:58:31Z
provider: City University of New York - Graduate Center
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: The Graduate School and University Center of The City University of New York