Sergio Ocampo Díaz
I am an Assistant Professor of Economics at Western University in London, Ontario.
I hold a Ph.D. in economics from the University of Minnesota.
My research interests are macroeconomic theory and heterogeneous agent macroeconomics.
On the teaching tab you will find the syllabi of the courses I have taught, as well as additional materials for the math camp and stochastic calculus courses.
Recent Research Papers
[First Draft! March 2022] Taxing wealth and capital income with heterogeneous returns (NBER-SI Slides)
When is a wealth tax preferable to a capital income tax? We study this question theoretically in an infinite-horizon model with entrepreneurs and workers, in which entrepreneurial firms are subject to idiosyncratic productivity shocks and collateral constraints. There are two types of steady-state equilibria. The first one—which emerges under a wide set of plausible parameter values—is inefficient and exhibits capital misallocation and heterogeneous returns. The second one is efficient and exhibits homogeneous returns, but requires implausibly lax borrowing limits. In the heterogeneous returns, equilibrium replacing a capital income tax with a wealth tax increases steady-state aggregate productivity and output if (and only if) entrepreneurial productivity is positively auto-correlated. The gains result from the “use-it-or-lose-it” effect, which causes a reallocation of capital from entrepreneurs with low productivity to those with high productivity. We provide necessary and sufficient conditions for a switch to wealth taxes to imply higher average welfare, which amount to a lower bound on the capital-elasticity of output, α—around 1/3 for most parameter combinations. We then study the optimal mix when both tax instruments can be used jointly to maximize welfare. Optimal policy depends on two thresholds. When α is sufficiently high, optimal policy involves a positive wealth tax and a negative capital income tax (a subsidy); the sign flips when α is sufficiently low, and both taxes are positive between these two thresholds. Finally, we consider extensions that introduce a corporate sector, rent-seeking behavior, and endogenous entrepreneurial effort.
Use it or lose it: Efficiency gains from wealth taxation [Under Revision for the Quarterly Journal of Economics]
This paper studies the quantitative implications of wealth taxation (tax on the stock of wealth) as opposed to capital income taxation (tax on the income flow from capital) in an overlapping-generations incomplete-markets model with rate of return heterogeneity across individuals. With such heterogeneity, capital income and wealth taxes have opposite implications for efficiency and some key distributional outcomes. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, on the other hand, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the base and shifts the tax burden toward unproductive entrepreneurs. This reallocation increases aggregate productivity and output. In the simulated model calibrated to the U.S. data, a revenue-neutral tax reform that replaces capital income tax with a wealth tax raises welfare by about 8% in consumption-equivalent terms. Moving on to optimal taxation, the optimal wealth tax is positive, yields even larger welfare gains than the tax reform, and is preferable to optimal capital income taxes. Interestingly, optimal wealth taxes result in more even consumption and leisure distributions (despite the wealth distribution becoming more dispersed), which is the opposite of what optimal capital income taxes imply. Consequently, wealth taxes can yield both efficiency and distributional gains.
We evaluate the aggregate effects of development policies in environments where subsistence self-employment is prevalent. We extend a standard macro development model to include unemployment risk, which becomes a key driver of selection into self-employment. The model is consistent with the joint distribution of earnings and occupations, with the reaction of wages to labor demand shocks, and with the small micro effects of expansions in the supply of microloans on firm-level outcomes. We use the model to study the aggregate effects of various policies, such as micro-finance and targeted cash transfers. The effects on total factor productivity (TFP) are ambiguous and depend on the targeting and generosity of the policies. Our model predicts changes in TFP that range from -0.45 percent to 0.42 percent after small interventions. Subsidized loans and broad cash transfers encourage subsistence self-employment, lowering TFP. Loans at market rates and targeted transfers discourage subsistence self-employment, increasing TFP.