WORKING PAPERS
TAXATION WHEN MARKETS ARE NOT COMPETITIVE: EVIDENCE FROM A LOAN TAX - 2023
With Rebecca De Simone
HOW DO BANKS COMPETE? LESSONS FROM AN ECUADORIAN LOAN TAX With Rebecca De Simone
RETAIL PRICING IN MEXICO AND THE US With Francisco Garrido, Emilio Gutierrez, Adrian Rubli, and José Tudón
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.
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 between 2 to 6% of the procurement budget.
Media Coverage: El Telégrafo
POLITICAL CONNECTIONS AND MISALLOCATION OF PROCUREMENT CONTRACTS - 2023 (R&R Journal of Development Economics)
With Javier Brugués and Samuele Giambra
[Access paper here]
TAKE THE GOODS AND RUN: CONTRACTING FRICTIONS AND MARKET POWER IN SUPPLY CHAINS - 2023 (Submitted)
We explore how lender market structure affects the efficiency and equity of financial taxation, an important revenue source and policy tool for governments worldwide. Using a natural experiment—the unexpected introduction of a loan transaction tax in Ecuador—we employ pass-through estimates, a quantitative model, and a comprehensive commercial loan dataset to investigate this issue. Our model broadens the scope of traditional bank competition theories by allowing for a range of competitive behaviors, including joint profit maximization, credit rationing, and Bertrand-Nash competition. Contrary to the common assumption of fully competitive differentiated lending markets, we find little evidence to support pure Bertrand-Nash competition or credit rationing. Instead, our results are more consistent with joint profit maximization among banks. While we find that loan taxes are indeed greatly distortive, neglecting the possibility of uncompetitive lending inflates estimated tax deadweight loss by approximately 80 to 120%. This distortion occurs because non-competitive banks internalize a portion of the tax burden. Conversely, subsidies are less effective in non-competitive settings. Findings suggest policymakers consider the interplay between market structure and tax-and-subsidy strategies.