Working Papers


Inequality, Taxation, and Sovereign Default Risk [paper] [slides]

Job Market Paper

Abstract: This paper studies the impact of income inequality on sovereign spreads under elastic labor and endogenous taxation. I first document that high pre-tax income inequality is associated with high spreads both across countries and across U.S. states. I then develop a sovereign default model with endogenous progressive taxation and heterogeneous labor in productivity and migration cost. The government chooses the optimal combination of tax and debt, considering their interaction. Progressive taxes redistribute income but discourage labor supply and induce emigration, eroding the tax base and the government's ability to repay debt. Default risk increases sovereign spreads and borrowing costs. Thus, the government faces a trade-off between redistribution and spreads. In more unequal economies, the government opts for more redistribution and higher spreads. With the model calibrated to state-level data, I find that income inequality is an important determinant of spreads, generating 20 percent higher spreads compared with a model without income inequality. In a recession, more unequal economies suffer a larger increase in spreads.


Migration and Sovereign Default Risk [paper] [slides]

(joint with George Alessandria and Yan Bai)

Accepted for November 2019 Carnegie-Rochester-NYU Conference on Public Policy, July 2020 issue of Journal of Monetary Economics

Abstract: We study the role of migration in a sovereign debt crisis. Empirically, we show that a massive outflow of workers accompanied a rise in sovereign debt default risk. We develop a model with sovereign default and endogenous migration choice to understand how migration interacts with the default risk and how the interaction affects the debt crisis. In the model, the outflow of workers increases government debt burden by increasing debt-per-capita, further increasing default risk. As a result, the government decreases investment, which affects the consumption of the workers. Lower consumption, in turn, increases the probability of emigration. Compared with a model without endogenous migration, our model generates a higher default risk, lower investment, and a more in-depth and more prolonged recession. The impact of migration channel is even more substantial when the average migrant has higher levels of human capital relative to locals.

Work in Progress


  • International Spillovers of U.S. Monetary Policy: Evidence from Chinese Firm-level Data (joint with Yumei Guo and Yanbin Chen) [slides]
  • Capital Flows, Migration, and Business Cycles [slides]
  • Financial Heterogeneity and Aggregate Shocks Transmission (joint with Min Fang) [slides]