Essays on Macroeconomic Policy

What is the role of the government in a market economy?

Chapter 1 studies a market failure. I document a fact that in the United States over the past forty years, new business formation has concentrated in large cities. I develop a continuum geographic model where business formations endogenously occur in heterogeneous cities based on ex ante firm productivity. I show that changes in externalities can generate the spatial firm dynamism.

Chapter 2 (joint with Ali Shourideh) studies fiscal policy and reform. We explore the aggregate and distributional effects of tax competition. We develop a theory to analyze how interjurisdictional tax competition affects productivity and inequality by distorting firms’ production decisions. Our results suggest that moving toward a coordinated fiscal regime boosts aggregate and local-level productivity. Moreover, tax coordination is more favorable compared to tax competition when wage elasticity is low or when there are more superstar firms.

Chapter 3 studies industrial policy and structural change. I analyze the macroeconomic consequences of place-based industrial policies in the presence of production networks and external economies of scale. I document novel empirical evidence on the spillover effects of a specific place-based industrial policy in China. To rationalize the facts, I develop a quantitative general equilibrium trade model incorporating policies, production networks, trade, and agglomeration externalities. I take the model to Chinese data, designing a new approach that combines sorting and the exact-hat algebra in international trade theories. Results show higher externalities in targeted sectors and aggregate welfare gains through strengthening local sectoral competitiveness.

Chapter 4 (joint with Natasha Che) studies international trade and growth. We design an algo-based export recommendation system using a collaborative filtering method to study the relationship between export structure and growth performance. Our system produces export portfolio for more than 190 economies spanning over 30 years. We find that economies whose export structures are more aligned with the algorithm-recommended export structures achieve better growth performance. Our study provides empirical evidence on export diversification potential and enlights further analyses on comparative advantages.

Disclaimer: The views expressed in this dissertation are those of the author(s) and do not necessarily represent the views of the International Monetary Fund (IMF), its Executive Board, or IMF management.