Working Papers

Abstract: This paper focuses on the role of development on informality through higher wages and expanded production possibilities. First, it documents that richer countries have smaller informal, unregistered, plants in terms of employment on average using informal plant level survey data across countries. This negative relationship holds even after controlling for plant level characteristics. Then, a dynamic-general equilibrium model with incomplete tax enforcement is developed such that formal and informal plants coexist in equilibrium. The model allows for two groups of agents operate in the informal sector: those with lower abilities than workers, and those with abilities falling between workers and formal managers. In the model, when plants become more productive, some agents operating informally choose to be workers and some of them transition into formality due to higher wages and better production possibilities, which decreases informal mean size. Quantitative results indicate that around a 30% increase in the aggregate output due to higher productivity is associated with a roughly one-quarter decline in the informal mean plant size.

joint with Gustavo Ventura

Abstract: This paper documents that senior plant managers in less-developed countries spend more time dealing with government rules and regulations than their counterparts in richer countries. These facts are interpreted through the lens of a span-of-control growth model, in which top managers run heterogeneous production plants, employing middle managers as well as production workers. The model implies that increasing the time burden on top management leads to equilibrium changes in wages, occupational sorting, the size distribution of production plants and ultimately, to a reduction in aggregate output. These consequences hold even when the time burden is symmetric across all plants. Quantitative results show that increasing the burden on managers’ time from the levels observed in Denmark to the higher levels observed in poorer countries have substantial consequences. Imposing the average time spent on regulations in Argentina reduces aggregate output by about 1/3 and mean plant size by more than 5 employees. Results contribute to rationalizing differences in plant size and output across countries via a channel hitherto unexplored in the literature.

Abstract: Using aggregate and plant-level data, I document that in the manufacturing sector, (i) richer countries tend to have more managers per plant, (ii) bigger plants have more middle managers, (iii) managers in bigger plants earn more on average, and (iv) plants hire more managers as they grow. I develop a model where plants hire more middle managers with higher wages to increase their span-of-control. I find that when size-dependent distortions decrease the mean plant size from the U.S. to South Korea, the output declines by 16.5% and the number of managers per plant falls by 41.1%.

Bribery, Plant Size and Size Dependent Distortions ( R&R at Journal of Development Economics)

Abstract: I document that small plants spend a higher fraction of their output on bribery than big plants, and that non-bribe-paying plants face higher distortions compared to bribe-paying plants. I develop a one-sector growth model in which size-dependent distortions, bribery opportunities, and different plant sizes coexist. In the model, plants are able to avoid distortions through bribery. The model parameters are calibrated with distortions and bribery opportunities in order to account for the plant size distribution as well as bribery expenditures by different plant sizes in the Turkish data. Counterfactual exercises show that size-dependent distortions become less distortionary in the presence of bribery opportunities. An increase in the size dependency of distortions has smaller aggregate effects since plants are able to circumvent distortions by paying larger bribes. Quantitatively, when bribery opportunities are present in the economy,  mean plant size and output are 7.1 and 1.2 percent higher, respectively.

Work in Progress

Informality and the Life Cycle of Plants (new version is coming soon!)

joint with Furkan Sarıkaya and Jesica Torres

We exploit data from the Mexican establishment census and show that informal plants grow along their life cycle  at significantly lower rates compared to formal plants. To quantify the aggregate losses from the marked differences in growth rates between formal and informal plants, we develop a general equilibrium model where plants grow by investing on their productivity and informality arises as a result of incomplete enforcement. In equilibrium, informal plants exhibit flatter life cycle profiles to avoid detection and thus lower their tax burden. Full enforcement of the tax while reducing the rate to keep the tax-to-output ratio constant would increase aggregate output by 8 percent relative to the benchmark. Average plant size would increase by 36\%, and the average plant would grow at a pace almost 50\% faster.


joint with Orhan Torul

The Journal of Economic Inequality,  2020, 18 (2), 239–259.

[Working Paper][Interactive]

Abstract: We investigate the evolution of Turkey’s wage, income and consumption inequalities using a cross-country comparable methodology and the Turkish Statistical Institute’s Household Budget Survey and the Survey of Income and Living Conditions micro data sets. Turkey’s wage, income and consumption inequalities all exhibit downward time trends over the 2002-2016 period. This observation aligns well with the rapid minimum wage growth over the period. While wage inequality estimates display strong countercyclicality, income and consumption inequalities exhibit rather acyclical time-series movements. While recent education premium estimates of Turkey are similar to those in the early 2000s, estimates of recent gender and experience premiums, as well as residual wage inequality are lower. Income and consumption inequality estimates exhibit similar time trends with moderate level differences, and these trends are robust to the choice of inequality metrics.

Policy Papers