Public overspending in higher education

We study the trade-off between governmental investments in pretertiary and tertiary education from an efficiency point of view. We develop a model comprising agents with different incomes and abilities, public and private schools, and public universities that select applicants based on an admission exam. Reallocating governmental resources from tertiary to pretertiary education may positively affect aggregate production and human capital if some conditions are satisfied. For instance, in an economy with a high proportion of credit-constrained students, a reallocation of expenditure toward public schools benefits many students, compensating for the negative effect of a decrease in public university investments. We also quantitatively investigate the optimal allocation of public investment between pretertiary and tertiary education, and we find that a 10% increase in productivity of public investments in pretertiary education could increase the optimal GDP between 2.1% and 3%

Social Security Reforms, Retirement and Sectoral Decisions

In many countries, the regulations governing public and private pension systems, hiring procedures, and job contracts differ. Public sector employees tend to have longer tenures and higher wages compared to workers in the private sector. As such, social security reforms can affect both retirement decisions and sectoral choices. We study the effects of social security reforms on retirement and sectoral behavior in an economy with multiple pension systems. We develop a life-cycle model with three sectors - private formal, private informal and public - and endogenous retirement. In a model calibrated to Brazil, we quantitatively assess the long-run effects of reforms being discussed and implemented across countries. Among them, we study the unification of pension systems and increasing the minimum retirement age. We find that these reforms affect the decision to apply to a public job, the profile of savings over the life cycle, and informality. In the long run, these reforms lead to higher output and capital, reduced informality, and average welfare gains. They also drastically reduce the social security deficit

Capital Misallocation and Economic Development in a Dynamic Open Economy

Some countries such as Canada, Italy, and Mexico have experienced a higher growth rate of capital per worker but a lower growth rate for GDP per worker when compared to the United States. This paper tries to reconcile this apparent contradiction in a dynamic open economy model. In the model, capital accumulation and exogenous technology adoption jointly generate output growth. In this environment, sectors with higher import participation have, ceteris paribus, a lower markup over production costs that in equilibrium implies a higher production level. Furthermore, when either sectoral import participation or sectoral productivity changes, capital allocation across sectors is affected, altering the actual rate of return on capital and triggering capital accumulation at a rate that differs from the long-run rate of technology adoption. We calibrate the model for the Mexican economy for 1995-2011. The results show that sectors with a reduction in TFP (total factor productivity) increased capital participation in the aggregate capital formation from 93.5% to 95.7% in the period. Furthermore, if the sectoral productivities had remained constant at the initial level in a counterfactual exercise, the aggregate output would be higher than its initial level, with capital accumulation increasing 74% and driving the rise in GDP

Reforms in the natural gas sector and economic development

This paper investigates the short- and long-term effects of increased competition in the provision of natural gas. We build a dynamic general equilibrium model with monopolistic distribution of natural gas and calibrate it to 12 major Brazilian local distribution companies. We find that reductions in the price of natural gas can lead to sustained and significant increases of natural gas in the energy mix. A 5% reduction in the price of natural gas leads to a median increase in the consumption of natural gas of 5.5%, with moderate GDP gains between 0.03% and 0.16%. Our model not only highlights the mechanisms for energy transitions but also shows that moderate declines in natural gas prices can lead to sustained long-term increases in the share of natural gas consumption

Tax Reforms and Network Effects

This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model with multiple sectors with market power. Industries are connected through input-output linkages, and changes in taxation are not confined within industries. We calibrate the model to Brazil, a country with a highly distorted tax system. The revenue-neutral tax reform generates gains of 7.8% of GDP and 1.9% of welfare. Just eliminating VAT rate dispersion leads to a 5.9% increase in GDP. Due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall

Natural Disasters and Financial Technology Adoption

This paper investigates the adoption of financial technology, with a specific focus on the introduction of a new instant payment technology called PIX by the Brazilian Central Bank. To assess adoption patterns, we use Brazilian data and leverage the occurrence of natural disasters in Brazilian municipalities as an exogenous variation. Our empirical findings indicate that adopting the new payment technology increases after a natural disaster, with increases in transaction volume ranging from 6.4% to 8.9% after eight months. Furthermore, we document that changes in other banking transactions do not drive these findings. We also conduct a series of analyses to confirm the robustness of our results in the context of the COVID-19 pandemic, the seasonality of tourist cities, and the number of bank branches

Privatization in the natural gas sector: a general equilibrium analysis

A broad literature highlights efficiency gains due to cost reduction after privatizations in the energy sector. However, to the best of our knowledge, this literature does not develop general equilibrium models, which are fundamental to account for post-privatization gains from a regional perspective. This paper evaluates the increase in efficiency necessary to make the privatization of a natural gas local distribution company (LDC) worthwhile in a state-level fiscal sense. We propose a general equilibrium model representing a regional economy supplied by a monopolistic LDC, whose ownership is shared between the private sector and federal and state governments and calibrate it for 13 of the major Brazilian LDCs. We find that the necessary unit cost reduction varies substantially across LDCs and depends on the level of underpricing when the asset is sold. The necessary unitary cost reductions range from 1.6% to 64% when we consider the median level of underpricing found in the literature

Minding the gap between schools and universities

During the 2000s decade, governments in South America reallocated per-student public expenditures from tertiary to basic education, potentially alleviating the economic gap between students in public schools and public universities. To investigate the welfare and macroeconomic effects of such types of policies, we build and calibrate a general equilibrium model using Brazilian data from the beginning of the 2000s. We find that the optimal utilitarian policy allocates per-student public expenditures equally across education stages, benefits almost the entirety of households, delivers significant welfare gains to the poorest families, and cuts back income inequality. We also use our framework to investigate economic differences between Brazil and the United States, and find that differences in the supply of vacancies in public universities is the education policy aspect that, alone, has the highest explanatory power over aggregate earnings and college attendance differences between the two countries

Bonus for firearms seizures and police performance

This paper studies the effect of monetary incentives for firearms seizures on police performance and public safety outcomes. Using data from Brazilian states, we evaluate the impact of Pernambuco's Pact for Life (Pacto pela Vida) Program, which offers a monetary bonus to police officers for firearms seizures and other outcomes. Our results indicate that the bonus has a causal and positive impact on the number of firearms seizures by police officers. Although we see a decrease in the number of crimes in Pernambuco, it is not possible to be attributed to the bonus policy

Misallocation of talent, teachers' human capital, and development in Brazil

In this study, we investigate the allocation of talent in an economy where teachers play a critical role in developing the human capital of the workforce. To this end, we formulate a Roy model with externality in the occupational choice, as the quantity and quality of teachers are key determinants of workers’ human capital. Our analysis suggests that when individuals with greater abilities opt for teaching careers, the entire workforce benefits. However, frictions in the labor and educational goods markets may lead to a suboptimal allocation of talent and hinder economic growth and development. Our model is calibrated to the Brazilian economy, and our findings reveal a negative correlation between frictions in the teacher’s occupation and per capita output in the Brazilian states. Our results indicate that eliminating friction in the labor market could result in a 16.94% increase in Brazilian income