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Working Papers
Public Good Provision and Optimal Taxation in a Hidden Savings World
Abstract I study optimal taxation and public good provision when income is unobservable but formal financial transactions are observable, so agents can save in a taxed bank account or an untaxed hidden one. Financial informality and tax evasion arise endogenously. Within concave schedules, the optimal tax is flat beyond a threshold: it deters evasion at the top while preserving incentives to save formally. Tolerating some informality among lower-income households is optimal, revealing a trade-off between redistribution and public goods provision.
Paper Slides SSRN
Debt, Inflation, and Government Reputation
Abstract I develop a dynamic game of incomplete information to explain why the correlation between public debt and inflation varies across episodes. Wage setters learn whether the government is prudent or imprudent from its policy history and form inflation expectations based on debt and reputation. Higher reputation lowers inflation and weakens the link between debt and inflation, so a credible government can sustain low inflation even with high debt. A calibration to Mexico, Colombia, Guatemala, and Thailand illustrates these dynamics.
Paper Slides
Work in Progress
Persuasion, Credibility, and Central Bank Communication
Abstract This project applies Bayesian persuasion to central bank communication. A privately informed central bank designs its messages to shape expectations, balancing persuasion, credibility, and future discipline. The goal is to provide tractable tools for analyzing forward guidance, selective disclosure, and strategic ambiguity in monetary policy.
Policy Work
Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico
With Bernabe Lopez-Martin and Daniel Samano
Inter-American Development Bank, Working Papers, 2018
Abstract Using a hidden Markov model based on Sargent et al. (2009), we study how seigniorage-financed deficits and destabilizing expectations drive inflation in Mexico. Monetized deficits account well for the high-inflation episodes and stabilizations of 1969-1994. Extending the model to the period of central bank independence after 1994, we find that the exchange rate and sovereign spreads influence aggregate prices.
Paper
Mexico's Recent Inflation History as a Result of Fiscal Deficits and Its Expectations
Abstract Replicating Sargent (JPE, 2006), I estimate a hidden Markov model of fiscal policy, inflation expectations, and inflation in Mexico from 1969 to 2016. Deficits above 5% drove the country's high-inflation episodes, and a 1% rise in expectations raised inflation by 0.56 percentage points on average. Forecasts for 2017-2021 suggest that keeping inflation under control requires moderate fiscal deficits.
Paper
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