The Missing Response to Taxes: Informality
Using a natural experiment generated by the Chilean pension system, I estimate labor responses to payroll taxes. The variation affected high and low-income workers in the same magnitude. I found that vulnerable workers -low-income, less attached to the formal sector- exhibit a large elasticity, while high-income workers show no response. In addition, middle-age workers are the ones that respond more. This pattern of the elasticity of taxable income has important consequences for pension systems design.
The Dynamics of Financial Advice (with Joaquin Poblete)
Financial advice, stock recommendations specifically, is a repeated cheap-talk game. Advisors have private soft information that they give to investors through recommendations. We show that in a repeated cheap-talk game, an advisor with private information about stocks will always send informative messages no matter how biased and how low her reputation is. These recommendations will be more informative during booms than busts of the economic cycle. Also, due to short-sell restrictions, recommendations are over-optimistic, and sell recommendations are more informative. These findings provide a novel explanation for empirical regularities of stock recommendations and postulate new, yet untested, empirical predictions.