top of page

WORKING PAPERS

TAXATION WHEN MARKETS ARE NOT COMPETITIVE: EVIDENCE FROM A LOAN TAX - 2024 

With Rebecca De Simone

[Access paper here]  [Online Appendix]  

TAKE THE GOODS AND RUN: CONTRACTING FRICTIONS AND MARKET POWER IN SUPPLY CHAINS - 2023  (R&R American Economic Review) 

WORK IN PROGRESS

Firms in developing countries often face concentrated input markets and contracting frictions. This paper studies the efficiency of self-enforced relational agreements, a common solution to contracting frictions, when sellers have significant market power and contracts cannot be enforced through courts. To this end, I develop a dynamic contracting model with limited enforcement in which buyers can default on their trade-credit debt without legal penalties. The model is shown to be identified and is estimated using a new transaction-level dataset from the Ecuadorian manufacturing supply chain. My key empirical finding is that bilateral trade is inefficiently low in early periods of the relationship, but converges toward efficiency over time, despite sellers’ market power. Counterfactual simulations imply that both market power and enforcement contribute to inefficiencies in trade, as addressing either friction alone leads to welfare losses, whereas relaxing both frictions can lead to significant efficiency gains.

PUBLICATIONS

We use new administrative data from Ecuador to study the welfare effects of the misallocation of procurement contracts caused by political connections. We show that firms that form links with the bureaucracy through their shareholders experience an increased probability of being awarded a government contract. We develop a novel sufficient statistic—the average gap in revenue productivity and capital share of revenue—to measure the efficiency effects, in terms of input utilization, of political connections. Our framework allows for heterogeneity in quality, productivity, and non-constant marginal costs. We estimate political connections create welfare losses ranging from 2 to 6% of the procurement budget.

Media Coverage: El Telégrafo 

Video: CEPR-STEG Workshop (45 min) [Conference program]

POLITICAL CONNECTIONS AND MISALLOCATION OF PROCUREMENT CONTRACTS - Journal of Development Economics (2024)

With Javier Brugués and Samuele Giambra

[Pre-print version] [Published Version]

We study the interaction of market structure and tax-and-subsidy strategies utilizing pass-through estimates from the unexpected introduction of a loan tax in Ecuador, a quantitative model, and a comprehensive commercial-loan dataset. Our model generalizes bank competition theories, including Bertrand-Nash competition, credit rationing, and joint-maximization. While we find the loan tax is distortionary, neglecting the possibility of non-competitive lending inflates estimated tax deadweight loss by 80% because non-competitive banks internalize some of the burden. Conversely, subsidies are less effective in non-competitive settings. If competition were stronger, tax revenue would be 10% lower. Findings suggest policymakers consider market structure in tax-and-subsidy strategies.

Conference: NBER Corporate Finance Spring 2024 Meeting

HOW DO BANKS COMPETE? LESSONS FROM AN ECUADORIAN LOAN TAX With Rebecca De Simone

bottom of page