Research

Publications

1. Inheritance, Entrepreneurship, and Estate Taxation
   Journal of Economic Dynamics and Control, Volume 189, 2026, Pages 105359.
   Abstract

   This paper studies the joint roles of inheritance and entrepreneurship in shaping wealth inequality using a heterogeneous agent, general equilibrium overlapping generations model. The analysis is disciplined by new empirical evidence from the Survey of Consumer Finances on how inheritances relate to observed wealth among very wealthy households. In the data, among households in the richest 1% of the wealth distribution, only about 6% have received inheritances that account for at least half of their net worth, and more than half report receiving no inheritance at all. When disciplined by these facts, the calibrated model implies that inheritances play only a limited role in generating extreme wealth, even when accounting for their interaction with entrepreneurship. Using the calibrated model, the paper evaluates estate tax reforms and finds that their effects on wealth concentration are smaller than commonly believed.

Working Papers

1. Taxing Top Incomes in a World of Entrepreneurs
   Abstract

   This paper studies the aggregate effects of top income taxation in an economy where entrepreneurs accumulate firm productivity over time and choose when to incorporate. I identify two novel distortions of entrepreneurial decisions. The first is the productivity accumulation effect. A higher top tax rate discourages entrepreneurs from expanding their businesses when further growth would push them into the top income bracket. As a result, they slow productivity accumulation even before becoming top income earners. The second is the incorporation timing effect. Highly able entrepreneurs reach the top income bracket quickly, making slower firm growth an unattractive response to higher taxation. Instead, they accelerate productivity accumulation and incorporate earlier, realizing the value of their firms as capital gains rather than continuing to earn profits subject to higher personal income taxes. This induces them to transfer younger firms with less accumulated productivity to the corporate sector. Together, these distortions reduce aggregate output and alter the allocation of firms between the entrepreneurial and corporate sectors. In the calibrated economy, raising the top marginal income tax rate to the revenue-maximizing rate of 0.58 reduces aggregate output by 2.9%. The welfare-maximizing tax rate is only 0.41.
2. Learning in the Shadows: Informality and Entrepreneurship in Brazil (with Roberto Lagos Mondragon)
   Rej&R at International Economic Review
   Abstract

   We examine the role of the informal sector in shaping entrepreneurial dynamics. Using Brazilian data, we document two novel empirical facts. First, around one-third of high-income entrepreneurs operate their businesses in the informal sector, and they closely resemble their formal sector counterparts across a range of characteristics. Second, high-income entrepreneurs are more likely to transition into the formal sector over time. These observations raise a central question: Why do these highly productive individuals choose to start out informally and only later formalize? To interpret these findings, we develop a quantitative model featuring imperfect information and learning. Individuals choose between wage employment and entrepreneurship without fully knowing their business potential. Within this framework, the informal sector endogenously arises as a cost-effective platform for entrepreneurial experimentation. Individuals operate informally to gradually learn about their business quality. Entrepreneurs who discover they are highly productive subsequently transition into the formal sector to expand production and access financial markets. The calibrated model replicates the observed transition patterns from informality to formality and generates policy counterfactuals consistent with historical reforms in Brazil. Specifically, the model shows that reducing entry costs alone has limited effects on formalization. In contrast, combining entry-cost reductions with temporary tax relief leads to substantially larger declines in informality. Importantly, the resulting increase in formal-sector firms is driven primarily by the formalization of existing informal businesses rather than by the creation of new formal firms.
3. Single Motherhood and Occupational Choice in the Informal Economy
   Abstract

   This paper documents a novel occupational pattern among women in the informal sector. Using nationally representative Brazilian household survey data, I show that in the informal sector, self-employed women work fewer hours and earn more per hour than wage employees, yet most informal sector women remain wage workers. This occupational choice puzzle is especially pronounced among single mothers with dependent children. The key trade-off is that the shorter hours and higher hourly returns associated with self-employment come with greater downside income risk and upfront financing needs. These costs are particularly difficult for single mothers to bear as they face child related consumption commitments without a partner’s earnings to cushion income shocks or help finance entry. I develop and structurally estimate an occupational choice model that captures this trade-off and use it to compare income insurance, credit support, and childcare policies targeted at single mothers in the informal sector.

Work in Progress

1. Safety Net or Trap: Informal Sector Employment over the Business Cycle (with Irisa Zhou)
   Abstract

   The informal sector is often viewed as a buffer during economic downturns, absorbing workers displaced from the formal sector and mitigating unemployment spikes. Using panel data from Continuous National Household Sample Survey (PNADC) between 2012 to 2018, we examine the short‐ and long‐term consequences of informal employment in Brazil across the business cycle and establish several new empirical facts. We observe that informal sector expands during recession, consistent with the literature, indicating that informal sector acts as a buffer for workers. Our new finding is that a brief spell in the informal sector, lasting at most one quarter, increased the probability of formal re‐entry relative to unemployment. However, prolonged informal employment sharply reduced re‐entry probabilities into formal sector, with this scarring effect persisting after controlling for individual characteristics. To interpret these patterns, we develop a directed search model with human capital depreciation, where depreciation depends on employment type and spell length. The framework captures the observed dual role of the informal sector as both a short‐term safety net and a long‐term trap. When designing labor market policies, our findings show that “when” to act is as important as “what” to do. Preserving the short‐term benefits of the informal sector requires timing as well as targeting, a dimension the literature has largely overlooked.
2. Informality as an Exit Margin: Firm Dynamics and Formal-Informal Transitions (with Jesica Torres)
   Abstract

   In this paper, we use Mexican establishment census data to study firms' transitions between the formal and informal sectors. We document frequent transitions in both directions, suggesting that formality is not an absorbing state and that informality is not necessarily a permanent firm characteristic. We explore a mechanism in which de-formalization serves as an alternative to exit. Following adverse productivity shocks, formal firms may return to informality to avoid the costs of formal operation and survive. This mechanism has implications for firm selection, the cleansing effect of exit, and firm life-cycle growth in developing countries with large informal sectors.