Working Paper Series

Browse the categories to access the content of academic, scientific and opinion publications of the professors and students of the Department of Economics PUC-Rio.

Is risk good for saving? Message from the general equilibrium model

N 615, 08/08/2013

Popular press and some practitioners have warned against threats that buying risky

assets pose on agents saving for retirement, children education and other uses. This pa-

per shows that in a standard two-period general equilibrium model where some savers

have no risk-sharing motives, there exists a non-negligible set of economies (endow-

ments) and equilibria at which every economic agent is better off if some risky assets

are added to riskless securities. Numerical examples actually show that the measure of

the set of economies (endowments) with equilibrium allocations associated with trading

risky assets that are Pareto superior to when there are only riskless assets can be larger

than half the measure of the full set of economies.

Enrique Kawamura, Yves Balasko.

The Effects of Exposure to Hyperinflation on Occupational Choice

N 614, 01/08/2013

We use data on immigrants who live in the United States to study the effects of exposure to hyperinflation on occupational choice. To do so, we calculate the number of years an individual had lived under hyperinflation before arriving to the US. We find that its marginal effect on the probability of being self-employed instead of wage-earner is 0.87 percentage point. This effect depends on the age individuals had when exposed to hyperinflation. In particular, it is stronger for individuals who experienced hyperinflation at an early age, but it vanishes for those over the age of 40. These results suggest that the macroeconomic environment an individual grows up in permanently affects his economic behavior.

João Manoel Pinho de Mello, Caio Waisman, Eduardo Zilberman.

O Programa de Aceleração do Crescimento Acelera o Crescimento?

N 613, 17/07/2013

Neste artigo, introduz-se ao modelo de crescimento neoclássico a defasagem necessária para que o investimento público se consolide em capital público (processo time-to-build,0), assim como alíquotas tributárias distorcivas que se ajustam de acordo com a dívida acumulada pelo setor público. O objetivo é isolar quantitativamente o efeito do aumento do investimento público observado no Programa de Aceleração do Crescimento (PAC). Dependendo da defasagem associada ao processo time-to-build e da política de ajuste fiscal consideradas, o PAC pode ter induzido uma queda do produto entre 0,2% e 0,4% em um horizonte de até quatro anos.

Julio de Alencastro Graça Mereb, Eduardo Zilberman.

The Insurance Role of Public Employment

N 612, 01/07/2013

A public job can be seen as a source of insurance against income risk. Indeed, many public employees have job stability, which is compounded with less volatile and more compressed wages. Hence, by increasing its number of public employees, the government enhances the overall degree of insurance in the economy. In this paper, we introduce public employment in a standard incomplete markets model with overlapping generations. The aim is to explore the welfare gains or losses due to a larger government, accounting for this extra source of insurance. In a model economy calibrated to Brazil, where public employment is around 13.5 percent of the workforce, we find that if the government relies on consumption taxes to balance its budget, the optimal size of public employment is nearly flat, ranging from 8 to 12 percent of the workforce. However, if the public employment is reduced from 12 to 8 percent, welfare losses due to a reduction in the degree of insurance are 2 percent, which are compensated by welfare gains due to level and inequality effects. This insurance effect is robust to a missepecification of the production technology associated with the public sector

Anna Carolina Saba dos Reis, Eduardo Zilberman.

Characterization of equilibria at which the advantageous gift phenomenon occurs

N 611, 01/06/2013

Yves Balasko.

Heckscher-Ohlin explained by Walras

N 610, 30/05/2013

The Heckscher-Ohlin model with arbitrary number of goods, factors and

countries (consumers) and no restrictions on factor trading is shown to be

equivalent to an exchange model whose goods are the productive factors while

consumer’s indirect demands for factors are derived from their actual demands

for consumption goods. This equivalence enables one to import properties like

the pathconnectedness of the equilibrium manifold, the uniqueness of equilibrium

for sufficiently small volumes of trade and discontinuities of equilibrium

selection maps for large volumes of trade into the Heckscher-Ohlin model.

This equivalence also provides the proper theoretical background to the important

but so far purely empirical role played in international trade by the

volume of net trades in factor contents.

Yves Balasko.

Social demand functions in general equilibrium

N 609, 29/05/2013

Social demand functions result from the budget constrained maximization of “social

preferences” or “other regarding preferences.” These preferences are non-selfish

in the sense that they also depend on other consumers’ wealth. This paper addresses

the robustness to wealth externalities of the classical general equilibrium model with

finite numbers of goods and consumers. The existence of equilibrium, the genericity of

regular economies and, at those regular economies, the finite odd number of equilibria

and the local continuity of equilibrium selection maps, and finally the identification

(or diffeomorphism) of the equilibrium manifold with a Euclidean space are shown

to be satisfied independently of the size of those wealth externalities provided total

resources are variable

Yves Balasko.

Informal Labor and the Cost of Social Programs: Evidence from 15 Years of Unemployment Insurance in Brazil

N 608, 27/05/2013

It is widely believed that the presence of a large informal sector increases the efficiencycosts of social programs in developing countries. We develop a simple theoretical model of optimal unemployment insurance (UI) that specifies the efficiency–insurance tradeoff in the presence of informal job opportunities. We then combine the model with evidence drawn from 15 years of uniquely comprehensive administrative data to quantify the social costs of the UI program in Brazil. We first show that exogenous extensions of UI benefits led to falls in formal–sector reemployment rates due to offsetting rises in informal employment. However, because reemployment rates in the formal sector are low, most of the extra benefits were actually received by claimants who did not change their employment behavior. Consequently, only a fraction of the cost of UI extensions was due to perverse incentive effects and the efficiency costs were thus relatively small — only 20% as large as in the US, for example. Using variation in the relative size of the formal sector across different regions and over time in Brazil, we then show that the efficiency costs of UI extensions are actually larger in regions with a larger formal sector. Finally, we show that UI exhaustees have relatively low levels of disposable income, suggesting that the insurance value of longer benefits in Brazil may be sizeable. In  sum, the results overturn the conventional wisdom, and indicate that efficiency considerations may in fact become more relevant as the formal sector expands.

François Gerard, Gustavo Gonzaga.

Evaluating a National Anti-Firearm Law and Estimating the Causal Effect of Guns on Crime

N 607, 15/03/2013

We report two results. First, we evaluate the impact of a nationwide anti-firearm legislation passed

by the Brazilian Congress in December 2003 (Estatuto do Desarmamento, henceforth ED). Our identification

strategy hinges on the hypothesis that the law had stronger impact in places where gun prevalence was

higher in the baseline. We find evidence that homicides (reduced form) and firearms prevalence

(mechanism or first-stage) dropped faster in places with higher gun prevalence after the 2003. Using our

preferred estimates, the ED saved between 2,000 and 2,750 lives from 2004 through 2007 in cities with

more than 50,000 inhabitants in the state of São Paulo. Second, assuming the ED causes homicide only

through its impact on firearms prevalence, we recover a causal estimate of the impact of firearms on

homicides. One standard deviation in the prevalence of firearms reduces homicides by quarter of a

standard deviation. We find no impact of both ED and firearms on property crime in general or on


João Manoel Pinho de Mello, Daniel Ricardo de Castro Cerqueira.

Capital controls in Brazil: Effective?

N 606, 31/01/2013

We analyze the impact of the controls and restrictions on capital inflows that Brazil has adopted

since late 2009. We document that these measures had some success in segmenting the Brazilian

and global financial markets, as measured by wedges between onshore and offshore prices of

similar fixed and variable income assets. However, that failed to translate into significant

changes in the exchange rate, at least in the immediate aftermath of these measures, suggesting

limited success in mitigating real appreciation. But capital controls/restrictions may have

contributed to the sizable depreciation of the real in 2012, possibly amplifying the effect on the

exchange rate of cuts in the interest policy rate during that period.  (revisto em 8/2014)

Marcos Chamon, Márcio Gomes Pinto Garcia.

Living on the Edge: Youth Entry, Career and Exit in Drug-Selling Gangs

N 605, 01/01/2013

We use data from a unique survey of members of drug-trafficking gangs in favelas (slums) of Rio de

Janeiro, Brazil, to characterize drug-trafficking jobs and study the selection into gangs, analyzing what

distinguishes gang-members from other youth living in favelas. We also estimate wage regressions for

gang-members and examine their career path: age at entry, progression within the gangs’ hierarchy, and

short- to medium-term outcomes. Individuals from lower socioeconomic background and with no

religious affiliation have higher probability of joining a gang, while those with problems at school and

early use of drugs join the gang at younger ages. Wages within the gang do not depend on education, but

are increasing with experience and involvement in gang-related violence. The two-year mortality rate in

the sample of gang-members reaches 20%, with the probability of death increasing with initial

involvement in gang violence and with personality traits associated with unruliness

Rodrigo Reis Soares, Leandro Siqueira Carvalho.

Let´s do it again: bagging equity premium predictors

N 604, 01/10/2012

The literature on excess return prediction has considered a wide array of estimation schemes, among them unrestricted and restricted regression coefficients. We consider bootstrap aggregation (bagging) to smooth parameter restrictions. Two types of restrictions are considered: positivity of the regression coefficient and positivity of the forecast. Bagging constrained estimators can have smaller asymptotic mean-squared prediction errors than forecasts from a restricted model without bagging. Monte Carlo simulations show that forecast gains can be achieved in realistic sample sizes for the stock return problem. In an empirical application using the data set of Campbell, J., and S. Thompson (2008): “Predicting the Equity Premium Out of Sample: Can Anything Beat the Historical Average?”, Review of Financial  tudies 21, 1511-1531, we show that we can improve the forecast performance further by smoothing the restriction through bagging.

Eric Hillebrand, Tae-Hwy Lee , Marcelo Medeiros.

Abertura, competitividade e desoneração fiscal

N 603, 01/09/2012

Tendo em vista o padrão de comércio da economia brasileira, o aumento paulatino da

participação de bens importados na oferta de produtos industriais no País é simples e

inexorável decorrência lógica do processo de abertura. Mas a resistência política a esse

aumento de participação das importações vem sendo exacerbada pela perda de

competitividade da indústria de transformação que, só muito recentemente, deixou de

ser associada exclusivamente ao câmbio.

Passou agora a ser percebido com mais clareza que o aumento persistente do Custo

Brasil – decorrente, em boa parte, da elevação sem fim da carga tributária e das

deficiências dos três níveis de governo no desempenho das funções que lhes cabem –

vem tendo papel crucial na perda de competitividade. E certamente foi um grande

avanço que, afinal, o governo tenha entendido que algum esforço de desoneração fiscal

se tornara imprescindível. O que é lamentável é que as medidas de desoneração para

fazer face à perda de competitividade da indústria tenham sido tão mal concebidas.

Sem condições de conciliar seu projeto político com um programa de redução

horizontal, efetiva e substancial da carga tributária, o governo vem manipulando uma

política espalhafatosa e pouco transparente de desoneração da folha que, em meio a

muita poeira, pouco desonera. Em vez de simples redução da alíquota de contribuição

patronal, o que vem sendo oferecido é uma injustificável mudança de base fiscal.

Contribuição paga sobre faturamento e não mais sobre a folha de pagamento, com

alguma desoneração embutida na troca, e alíquotas fixadas setor a setor, na medida da

estridência do protesto de cada um. Arranjo peculiar e primitivo que pode transformar

o sistema tributário nacional numa colcha de retalhos ainda mais caótica do que já é.

Rogério Ladeira Furquim Werneck.

Estimating High-Dimensional Time Series Models

N 602, 07/08/2012

We study the asymptotic properties of the Adaptive LASSO (adaLASSO) in sparse,

high-dimensional, linear time-series models. We assume both the number of covariates in the

model and candidate variables can increase with the number of observations and the number of

candidate variables is, possibly, larger than the number of observations. We show the adaLASSO

consistently chooses the relevant variables as the number of observations increases (model selection

consistency,0), and has the oracle property, even when the errors are non-Gaussian and conditionally

heteroskedastic. A simulation study shows the method performs well in very general

settings. Finally, we consider two applications: in the first one the goal is to forecast quarterly

US inflation one-step ahead, and in the second we are interested in the excess return of the S&P

500 index. The method used outperforms the usual benchmarks in the literature.

Marcelo Medeiros, Eduardo F. Mendes.

Water Scarcity and Birth Outcomes in the Brazilian Semiarid

N 601, 01/07/2012

This paper analyzes  the impact of rainfall fluctuations during the gestational period on health at birth.

We concentrate on the semiarid region of Northeastern Brazil to highlight the role of water scarcity as a determinant of early life health.  We find  that negative rainfall shocks are robustly correlated with higher infant mortality, lower birth weight, and shorter gestation periods. Mortality effects are concentrated on intestinal infections and  malnutrition, and are  greatly minimized when the local public health infrastructure is sufficiently developed (municipality coverage of piped water and sanitation). We also find  that effects are stronger during  the fetal period (2o. trimester of gestation,0), for children born during the dry season, and for mortality in the first 6 months of life. The results  seem to be driven by water scarcity per se, and not by reduced agricultural production. Our estimates suggest that expansions in public health infrastructure would be a cost-effective way of reducing the response of infant mortality to rainfall shocks in the Brazilian semiarid.

Rudi Rocha, Rodrigo Reis Soares.

The Welfare Cost of Homicides in Brazil: Accounting for Heterogeneity in the Willingness to Pay for Mortality Reductions

N 600, 01/06/2012

This paper estimates the health dimension of the welfare cost of homicides in Brazil

incorporating age, gender, educational, and regional heterogeneities. We use the marginal

willingness to pay approach from the “value of life” literature to assign monetary values to the

welfare cost of increased mortality due to violence. The results indicate that the present

discounted value of the welfare cost of homicides in Brazil corresponds to roughly 78% of the

GDP or, measured in terms of yearly flow, 2.3%. The analysis also indicates that reliance on

aggregate data to perform such calculations, without taking into account the relevant dimensions

of heterogeneity, can lead to biases of the order of 20% in the estimated social cost of violence.

Daniel Ricardo de Castro Cerqueira, Rodrigo Reis Soares.

Spillovers from Conditional Cash Transfer Programs: Bolsa Família and Crime in Urban Brazil

N 599, 01/02/2012

This paper investigates the impact of Conditional Cash Transfer (CCT) programs on crime. Making use of a unique dataset combining detailed school characteristics with time and geo-referenced crime information from the city of São Paulo, Brazil, we estimate the contemporaneous effect of the Bolsa Família program on crime. We address the endogeneity of CCT coverage by exploiting the 2008 expansion of the program to  adolescents aged 16 and 17. We construct an instrument that combines the timing of expansion and the initial demographic composition of schools to identify plausibly exogenous variations in the number of children covered by Bolsa Família. We find a robust and significant negative impact of Bolsa Família coverage on crime. The evidence suggests that the main effect works through increased household income or changed peer group, rather than from incapacitation from time spent in school.

Laura Chioda, João Manoel Pinho de Mello, Rodrigo Reis Soares.

Targeting the Poor: A Macroeconomic Analysis of Cash Transfer Programs

N 598, 13/12/2011

This paper introduces cash transfers targeting the poor in an incomplete markets

model with heterogeneous agents facing idiosyncratic risk. These transfers change the

degree of insurance in the economy and a ect precautionary motives asymmetrically,

leading the poorest households to decrease savings proportionally more than their

richer counterparts. In a model economy calibrated to Brazil, once the cash transfer

program is adopted, wealth inequality and social welfare increase, poverty decreases,

while employment and income inequality remain about the same. Imperfect access to

nancial markets is important for these results, whereas whether the program is funded

with lump sum or distortive taxes is not.

Eduardo Zilberman, Tiago Couto Berriel.

Bye, Bye Financial Repression, Hello Financial Deepening: The Anatomy of a Financial Boom

N 594, 01/10/2011

João Manoel Pinho de Mello, Márcio Gomes Pinto Garcia.

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