Job Market Paper
A law that created a new intergovernmental transfer caused a significant and unexpected change in local public spending in Mexico. I combine this natural experiment with a close elections discontinuity design to estimate the effect of government spending on private-formal employment. I show spending shocks appear to deter the growth of private-formal employment significantly. An increase of 10 percentage points in the growth rate of local spending leads to a decline of 9 percentage points in the growth rate of formal private jobs. This effect is not explained by public sector enlargement, increases in productivity, nor increases in corruption. Two main factors behind the decline in employment are reallocation towards informal-intensive sectors and reductions of the labor force.
Intergovernmental transfers are an important source of local public revenues in developing countries. This paper exploits statutory variation in the formula used to assign a large earmarked transfer across local governments in Mexico to identify the effects of transfers on local investment in social infrastructure and income distribution. Results show a significant effect of transfers on the aggregate delivery of social infrastructure (electricity, sewerage, piped water) and housing quality, but no robust effects on monetary poverty. The non-effect on monetary poverty is explained by the bulk of the monetary gains of these investments being captured by non-poor residents in poor places, leading to higher local income inequality. These results reveal that even when earmarked there could be unintended unequalizing consequences of intergovernmental transfers.
We study the dynamics of wage inequality in Latin America in the last two decades. We find a consistent trend reversal in wage inequality in the region since the early 2000s: wage inequality fell across all countries in a way not predicted by the trends each country had experienced in the 1990s. The decline in wage inequality is explained by a disproportional expansion in the real hourly wage among low-paid workers, reducing both lower and upper tail inequality. About 40 percent of the observed reduction in wage variance was a response to the more equal wage structure, while the rest derived from a reduction in wage dispersion among workers with similar observable traits. The equalization of the wage structure in the 2000s is correlated with a reduction in the wage premium across education, experience, and place of residence groups. The reduction in the gender gap contributed, to a lesser extent, to the trend reversal.
Work in progress
Innovation is a widely acknowledge determinant of economic growth, and it is currently is disproportionately concentrated in a few large-productive cities. Can policy spur innovation in lagged economic areas? This paper answers this question using data on innovation-related spending from the department of defense and administrative records on the universe of patents during the last three decades, 1980-2010. We find that defense spending does not increase the number of patents registered. Still, it does improve the quality of those patents. The results are more substantial in middle-sized cities, suggesting that innovation spending must be targeted to places that have other amenities that complement innovation.