Papers

The Effects of Tax Enforcement on the Firm Size Distribution and Aggregate Productivity (Job Market Paper) Draft
How does tax enforcement affect the firm size distribution and total factor productivity (TFP)? To answer this question, I develop a quantitative model characterized by heterogeneous agents who choose whether to be workers, entrepreneurs in the formal sector, or entrepreneurs in the informal sector. Informal entrepreneurs do not pay taxes, but face a probability of detection that is increasing in firm size. In the model, stricter tax enforcement results in lower informality and affects the firm size distribution and TFP through two mechanisms. First, some relatively unproductive agents choose to be workers rather than entrepreneurs, leading to higher average productivity and firm size through a composition effect. Second, some entrepreneurs switch to the formal sector and expand their scale compared to informal entrepreneurs of the same productivity. Using data from Brazil, I calibrate the model and estimate that a counterfactual tax enforcement that reduces the informality rate from 36% to 30% of total output - the value measured in the weighted average of the six largest Latin American economies - would account for about 9% and 28% of the observed differences in TFP and average firm size.

Work in Progress

The Aggregate Effects of Managerial Delegation