Abstract

The dissertation consists of two research projects in macroeconomics. The first chapter studies a topic in fiscal policy and sovereign debt. I became interested in this topic during my third year of the Ph.D. program while working as a research assistant for Professor Manuelli. He recommended several papers on debt sustainability in the U.S. and Japan. I initially struggled to reconcile the coexistence of low default risk and persistent fiscal deficits in these countries. This led me to think that, in addition to the realized fiscal path, the fiscal capacity---such as the tax base---can also play an important role in shaping investors' beliefs. Discussions with my colleague Bright Quaye helped me connect these ideas by introducing informality. Using various measures of informality, I find a positive cross-country correlation between informality and sovereign default risk in Europe, but this relationship does not hold in Latin America. My initial project aimed to explain this difference. However, I realized that the two regions differ along many dimensions (e.g., default history and monetary policy), which made it difficult to isolate the key mechanism driving the difference. I therefore narrowed my focus to Europe after extensive discussions with Professor Manuelli. During the European debt crisis, Spain and Italy implemented tax-based austerity starting in 2010, and several measures indicate that informality increased thereafter. The key mechanism in this paper is that tax hikes raise informality, which weakens the tax base and makes the economy more vulnerable to rollover crisis risk. Within an optimal tax policy framework, this channel implies that lowering taxes is optimal as the economy approaches a debt crisis, as it helps reduce rollover crisis risk. However, I also find that social transfers account for a large share of government spending in Europe and are largely non-discretionary due to political constraints. Incorporating such transfers overturns this result: despite their adverse effect on rollover crisis risk, higher taxes become optimal because the government must finance these transfers. This result rationalizes the tax-based austerity implemented in Spain and Italy during the European debt crisis. The second chapter studies a macro-labor topic. I began this project during my second year of the Ph.D. program while taking a reading course under the guidance of Professor Manuelli. During this course, we read several papers documenting the slow recovery of poaching rates in the U.S. following the Great recession, which led me to ask what policies might affect the speed of that recovery. I initially focused on policies related to Pell Grants, but later shifted to more general job training policies following the professor's suggestion. Using the NLSY79, I find that individuals who have participated in job training programs in the past have better prospects for job-to-job transitions. However, the quantitative analysis shows that job training policies initially slow the recovery of poaching rates, as individuals most likely to make job-to-job transitions remain unemployed in order to participate in training and upgrade skills. This general equilibrium effect helps explain the slow recovery of poaching rates in the U.S. despite increased expenditures on job training programs during the Great recession. While job training policy has an ambiguous effect on the recovery of poaching rates, it accelerates the recovery of job-finding rates by increasing the number of high-skilled workers through job training, which in turn raises firms' incentives to post vacancies. In addition, the model's key feature---skill heterogeneity and skill upgrading through job training---allows it to capture the distinct non-employment dynamics by skill type observed in the data following the Great recession.

Committee Chair

Rodolfo Manuelli

Committee Members

Francisco Buera; Gaetano Antinolfi; Juan Sanchez; Michele Boldrin

Degree

Doctor of Philosophy (PhD)

Author's Department

Economics

Author's School

Graduate School of Arts and Sciences

Document Type

Dissertation

Date of Award

4-15-2026

Language

English (en)

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Economics Commons

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