Working Papers
Market Power and Innovation in the Intangible Economy
Conditionally Accepted - American Economic Review [VoxEU summary] [Online Appendix] June 2023
This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. The increasing use of intangible inputs – such as software – explains these trends because it causes a shift from variable costs towards fixed costs, which changes the way that firms produce and compete. I develop a quantitative framework with heterogeneous firms and endogenous productivity growth in which intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage. This advantage deters other firms from entering new markets and lowers the overall rate of creative destruction.
Lost in Transition: Financial Barriers to Green Growth
Working paper coming soon - Slides June 2023 (with Philippe Aghion, Antonin Bergeaud, John Van Reenen)
The rise of green patents declined after the Global Financial Crisis. We provide causal evidence that tight credit supply disproportionately affects green innovation, through its effect on young firms. To explain this, we develop a quantitative framework in which firms direct innovation towards green or polluting technologies, and become better at innovating in technologies that they have previously succeeded in. This means that mature, incumbent firms predominantly innovate in polluting technologies. When green technologies become more attractive, e.g. after the introduction of a carbon tax, young firms are responsible for a disproportionate share of the transition to green innovation. As young firms are financially constraint, a credit shock disproportionately harms their innovation, bringing the green transition to a halt.
The Hitchhiker's Guide to Markup Estimation
CFM Working Paper, July 2022 (with Basile Grassi and Giovanni Morzenti, Bocconi University)
Is it feasible to estimate firm-level markups from administrative data? Common methods to measure markups hinge on a production function estimation, but most datasets do not contain data on the quantity that firms produce. We use a tractable analytical framework, simulation from a quantitative model, and firm-level administrative production and pricing data to study the biases in markup estimates that may arise as a result. The level of markup estimates from revenue data is biased, but they do correlate highly with true markups. Revenue-based markup estimates also display similar correlations with variables such as profitability and market share.
The Multiplier Effect of Education Expenditures
Updated May 2023 [VoxEU summary] (with Julio Brandao-Roll, LSE, and Simona Hannon & Damjan Pfajfar, Federal Reserve Board).
This paper examines the short-run effects of federal education expenditures on local income. We exploit city-level variation in exposure to national changes in the $30-billion Federal Pell Grant Program, which is the largest program to help low-income students attend college in the U.S., to calculate fiscal multipliers of education expenditures. An increase in Pell grants by 1 percent of a city’s income raises local income by 2.4 percent over the next two years.
Intangible Investment and the Persistent Effect of Financial Crises on Output
CFM working paper [VoxEU summary] Updated December 2019
This paper identifies the mechanism through which financial crises exert long-term negative effects on output. Theory suggests that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. Exploiting exogenous variation in firm-level exposure to the Global Financial Crisis, I show that tight credit reduced investments in productivity-enhancement, and significantly slowed down output growth between 2010 and 2015.
Policy Shocks and Wage Rigidities: Empirical Evidence from the Regional Effect of National Shocks
Cambridge INET working paper, April 2017 (with Damjan Pfajfar, Federal Reserve Board).
This paper studies the effect of wage rigidities on the transmission of fiscal and monetary policy shocks. We calculate downward wage rigidities across U.S. states using the Current Population Survey. These estimates are used to explain differences in the state-level economic effects of identical national shocks in interest rates and taxes. In line with the role of sticky wages in New Keynesian models, we find that contractionary monetary policy and tax shocks increase unemployment and decrease economic activity in rigid states considerably more than in flexible states.
Conditionally Accepted - American Economic Review [VoxEU summary] [Online Appendix] June 2023
This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. The increasing use of intangible inputs – such as software – explains these trends because it causes a shift from variable costs towards fixed costs, which changes the way that firms produce and compete. I develop a quantitative framework with heterogeneous firms and endogenous productivity growth in which intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage. This advantage deters other firms from entering new markets and lowers the overall rate of creative destruction.
- Coverage: ECB Vice-President's Speech, Financieel Dagblad, Dutch Parliament, Haskel's Speech (Bank of England), Bank of England governor's speech
- Awards: Best Paper at OECD/EC innovation conference Concord 2019, Unicredit Job Market Paper in Macroeconomics Award 2020
Lost in Transition: Financial Barriers to Green Growth
Working paper coming soon - Slides June 2023 (with Philippe Aghion, Antonin Bergeaud, John Van Reenen)
The rise of green patents declined after the Global Financial Crisis. We provide causal evidence that tight credit supply disproportionately affects green innovation, through its effect on young firms. To explain this, we develop a quantitative framework in which firms direct innovation towards green or polluting technologies, and become better at innovating in technologies that they have previously succeeded in. This means that mature, incumbent firms predominantly innovate in polluting technologies. When green technologies become more attractive, e.g. after the introduction of a carbon tax, young firms are responsible for a disproportionate share of the transition to green innovation. As young firms are financially constraint, a credit shock disproportionately harms their innovation, bringing the green transition to a halt.
The Hitchhiker's Guide to Markup Estimation
CFM Working Paper, July 2022 (with Basile Grassi and Giovanni Morzenti, Bocconi University)
Is it feasible to estimate firm-level markups from administrative data? Common methods to measure markups hinge on a production function estimation, but most datasets do not contain data on the quantity that firms produce. We use a tractable analytical framework, simulation from a quantitative model, and firm-level administrative production and pricing data to study the biases in markup estimates that may arise as a result. The level of markup estimates from revenue data is biased, but they do correlate highly with true markups. Revenue-based markup estimates also display similar correlations with variables such as profitability and market share.
The Multiplier Effect of Education Expenditures
Updated May 2023 [VoxEU summary] (with Julio Brandao-Roll, LSE, and Simona Hannon & Damjan Pfajfar, Federal Reserve Board).
This paper examines the short-run effects of federal education expenditures on local income. We exploit city-level variation in exposure to national changes in the $30-billion Federal Pell Grant Program, which is the largest program to help low-income students attend college in the U.S., to calculate fiscal multipliers of education expenditures. An increase in Pell grants by 1 percent of a city’s income raises local income by 2.4 percent over the next two years.
Intangible Investment and the Persistent Effect of Financial Crises on Output
CFM working paper [VoxEU summary] Updated December 2019
This paper identifies the mechanism through which financial crises exert long-term negative effects on output. Theory suggests that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. Exploiting exogenous variation in firm-level exposure to the Global Financial Crisis, I show that tight credit reduced investments in productivity-enhancement, and significantly slowed down output growth between 2010 and 2015.
- Coverage: Mejudice, The Guardian, Wall Street Journal, Financial Times, ECB Vice-President's Remarks, Bank of England governor's speech
- Awards: CERF Cambridge Best Student Finance Paper (2018), shortlisted for ECB's Young Economist Award (2017)
Policy Shocks and Wage Rigidities: Empirical Evidence from the Regional Effect of National Shocks
Cambridge INET working paper, April 2017 (with Damjan Pfajfar, Federal Reserve Board).
This paper studies the effect of wage rigidities on the transmission of fiscal and monetary policy shocks. We calculate downward wage rigidities across U.S. states using the Current Population Survey. These estimates are used to explain differences in the state-level economic effects of identical national shocks in interest rates and taxes. In line with the role of sticky wages in New Keynesian models, we find that contractionary monetary policy and tax shocks increase unemployment and decrease economic activity in rigid states considerably more than in flexible states.
Publications
When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases
European Economic Review [replication code], September 2021 (with Travis Berge and Damjan Pfajfar, Federal Reserve Board).
This paper compares the effect of fiscal spending on economic activity across four phases of the business cycle. We show that the fiscal multiplier is higher when unemployment is increasing than when it is decreasing. Conversely, fiscal multipliers do not depend on whether the unemployment rate is above or below its long-term trend. Our findings synthesize previous, at times conflicting, evidence on the state-dependence of fiscal multipliers and imply that fiscal intervention early on in economic downturns is most effective at stabilizing output.
European Economic Review [replication code], September 2021 (with Travis Berge and Damjan Pfajfar, Federal Reserve Board).
This paper compares the effect of fiscal spending on economic activity across four phases of the business cycle. We show that the fiscal multiplier is higher when unemployment is increasing than when it is decreasing. Conversely, fiscal multipliers do not depend on whether the unemployment rate is above or below its long-term trend. Our findings synthesize previous, at times conflicting, evidence on the state-dependence of fiscal multipliers and imply that fiscal intervention early on in economic downturns is most effective at stabilizing output.
Non-refereed/policy publications
The Multiplier of the United States' Largest Scholarship Program, VoxEU, April 2022 (with Simona Hannon, Damjan Pfajfar)
Fiscal multipliers during a pandemic, Cambridge I-NET Special Feature, May 2020
Tijdens de coronacrisis hebben overheidsuitgaven veel effect op het nationaal product, ESB, May 2020
Immatriële productiefactoren kunnen groei van productiviteit afremmen, ESB, October 2019
Untouchable firms: market power, business dynamism, and productivity growth in the intangible economy, VoxEU, July 2019
De economische effecten van het Algemeen Verbindend Verklaren, ESB, September 2017 (with Rob Euwals)
Endogenous growth and the lack of recovery from the Global Crisis, VoxEU, July 2017 (with Coen Teulings)
What are the wage effects of collective bargaining extensions? CPB Bureau for Economic Policy Analysis, April 2016 (with Rob Euwals)
Fiscal multipliers during a pandemic, Cambridge I-NET Special Feature, May 2020
Tijdens de coronacrisis hebben overheidsuitgaven veel effect op het nationaal product, ESB, May 2020
Immatriële productiefactoren kunnen groei van productiviteit afremmen, ESB, October 2019
Untouchable firms: market power, business dynamism, and productivity growth in the intangible economy, VoxEU, July 2019
De economische effecten van het Algemeen Verbindend Verklaren, ESB, September 2017 (with Rob Euwals)
Endogenous growth and the lack of recovery from the Global Crisis, VoxEU, July 2017 (with Coen Teulings)
What are the wage effects of collective bargaining extensions? CPB Bureau for Economic Policy Analysis, April 2016 (with Rob Euwals)