Working papers 

Fiscal Multipliers and Phillips Curves with a Consumption Network

(Francesco Beraldi and Cedomir Malgieri)
We show that households spend their marginal and their average dollar differently across sectors. Crucially, marginal expenditure is biased toward sectors employing high-MPC workers, revealing a new redistribution channel that benefits high-MPC households during expansions. We build a Multi-Sector, Two-Agent, New Keynesian model with non-homothetic preferences consistent with these findings. The new redistribution channel increases the fiscal multiplier by 10pp compared to an equivalent homothetic economy. The model also predicts steeper Phillips curves in sectors with high-MPC workers, a result we validate empirically with a novel identification strategy. The implied sectoral wage dynamics strengthen the redistribution towards high-MPC households and raise the inflationary impact of the shock by over 70 percent.

Work in progress

Risk Markups

(Sebastian Di Tella, Cedomir Malgieri, and Christopher Tonetti)

Optimal policy in an economy with misallocation depends on the origin of markups. We develop a model of heterogeneous markups generated by uninsurable persistent idiosyncratic risk. Entrepreneurs hire labor trading off expected profits against risk. Markups arise as compensation for risk and create misallocation. We microfound incomplete risk sharing with moral hazard and hidden trade. The constrained-efficient allocation can be implemented with a uniform labor subsidy (or tax) and does not affect TFP. The subsidy equals the product of (1) the aggregate markup and (2) workers’ consumption share divided by their Pareto weight. It is uniform because targeted subsidies can be exploited by entrepreneurs’ hidden actions -the boundary of the firm is not invariant to policy. The markup component reflects inefficient risk premia and the consumption-share component reflects inefficient precautionary saving. In the long-run the optimal policy is a tax with a take-home rate equal to workers’ consumption divided by labor income.