Economist at Federal Reserve Bank of Chicago

Gustavo de Souza

Gustavo de Souza

Economist at the Chicago FED.

I received my PhD from the University of Chicago in 2021. Former Postdoctoral fellow at the IIES.  

In my research, I use micro-data to estimate macroeconomic models and derive policy implications. My research interests are in macroeconomics, labor economics, development, and public finance. 

Publications

What is the most cost-efficient way to impose trade sanctions against Russia?

Journal of Monetary Economics

Trade sanctions are a common instrument of diplomatic retaliation. To guide current and future policy, we ask: What is the most cost-efficient way to impose trade sanctions against Russia? To answer this question, we build a quantitative model of international trade with input-output connections. Sanctioning countries simultaneously choose import tariffs to maximize their income and to minimize Russia’s income, with different weights placed on these objectives. We find, first, that for countries with a small willingness to pay for sanctions against Russia, the most cost-efficient sanction is a uniform, about 20% tariff against all Russian products. Second, if countries are willing to pay at least US$0.7 for each US$1 drop in Russian welfare, an embargo on Russia’s mining and energy products – with tariffs above 50% on other products – is the most cost-efficient policy. Finally, if countries target politically relevant sectors, an embargo against Russia’s mining and energy sector is the cost-efficient policy even when there is a small willingness to pay for sanctions.

Working Papers

Developing countries rely on technology created by developed countries. This paper demonstrates that such reliance increases wage inequality but leads to greater production in developing countries.

Developing countries rely on technology created by developed countries. This paper shows using model and data that the dependence of developing countries on technology made by developed countries increase wage inequality but leads to higher production in developing countries. I study a Brazilian innovation program that taxed the leasing of international technology to subsidize innovation. Exploiting heterogeneous exposure, I show that the innovation program led firms to replace technology licensed from developed countries by in-house innovations. The replacement of international technology by national technology led to a decline in employment and in the share of high-skilled workers in the firm. I explain these facts with a model of directed technological change and cross-country technology transactions. Firms in a developing country can either innovate or lease technology from a developed country. These two technologies endogenously differ in productivity and skill bias due to factor supply differences in the two countries. I show that the difference in skill bias and productivity can be identified with closed-form solutions by the effect of the innovation program on the firm’s expenditure share and employment. Calibrating the model to reproduce these elasticities, I find that increasing the share of firms patenting in Brazil by 1 p.p. decreases the skilled wage premium by 0.02% and production by 0.2%.

In developing countries, innovation subsidies drive firm growth by facilitating firm entry into high-tariff markets with domestically produced versions of foreign goods.

I study the effect of an innovation subsidy on the growth of firms in a developing country. Using administrative microdata for Brazil and difference-in-differences, I find that innovation subsidies drive firm growth by facilitating firm entry into high-tariff markets with domestically produced versions of foreign goods. After receiving an innovation subsidy, firms issue more patents, expand their workforce, and diversify their product line. However, these patents receive minimal citations, while also heavily citing foreign patents. Firms increase imports of foreign inputs and expand their product line towards products with high import tariff. Despite that, in the most conservative estimate, every $1 of innovation subsidy generated $10 in present value wages.

robots, jobs, tools

Technological progress in tools – machines that complement labor – has greatly mitigated the negative impact of robots on employment.

What is the effect of robots and tools on employment and inequality? Using natural language processing and an instrumental variable approach, we discover that robots have led to a sizable decrease in the employment and wages of low-skill workers in operational occupations. However, tools — machines that complement labor — have led to an equally large reinstatement of these workers, increasing their employment and wages. Using a quantitative model, we find that the lower prices of robots and tools over the last 20 years have reduced inequality and increased welfare without a significant effect on employment.

Voters who could benefit from welfare policies vote against them because they hold negative ideologies against redistribution.

What are the quantitatively relevant determinants of redistribution? I describe a structural method to identify different channels affecting the social choice of redistribution and estimate the counter-factual effect of institutional reforms. The method relies on a dynamic heterogeneous agents model estimated using micro-data on voting and on the support for redistribution. I found that pecuniary gains play a negligible role in shaping redistribution. Voters who could benefit from redistribution support and vote for low transfers motivated by social preferences and not pecuniary gains. Because social preferences are more important than income in predicting support for redistribution, increasing voter turnout or capping campaign contributions would have no effect on redistribution.

Can anti-dumping tariffs increase employment?

Can anti-dumping tariffs increase employment? To answer this question we compile data on all anti-dumping (AD) investigations in Brazil, which we match to firm-level administrative employment information. Using difference-in-differences, we estimate the effect of AD tariffs on trade, the protected national suppliers, and the sectors linked to these suppliers. In response to an AD tariff, imports decrease and employment increases in the protected sector. Moreover, downstream firms decrease employment, while upstream ones are not affected. To quantify the aggregate effect of these tariffs, we build a model with international trade, input-output linkages, and labor force participation. The model can reproduce the micro-elasticities we find, as well as the aggregate moments of the Brazilian economy. We show that the Brazilian AD policy increased employment by 0.06%, but they decreased welfare by 2.4%. Using tariffs, the government can increase employment by as much as 2.8%.

disabled workers, Brazil

The quota for disabled workers in Brazil increased the employment of disabled workers at a large employment and welfare cost for nondisabled workers.

I study the effect of a quota for disabled workers on the labor market and on welfare. Using a task-based model, I show that the effect of a quota will depend on the productivity of disabled workers and their labor supply elasticity. I estimate the productivity of disabled workers using variation from inspections of the quota. I find that the quota increased the hiring of disabled workers, but it reduced wage and employment of non-disabled workers, suggesting that disabled workers are of low-productivity. I estimate the labor supply elasticity of disabled workers using heterogeneous exposure across regions. I find that the quota increased the wage and labor force participation of disabled workers. Using the model calibrated to the empirical estimates, I find that the quota for disabled workers decreased welfare by 0.33% and forced the government to increase marginal taxes. However, alternatively, a subsidy for disabled workers could increase welfare by 0.29%.

work, job search, research-7157268.jpg

A larger monetary requirement increases welfare by reducing moral hazard discouraging low-pay and temporary jobs

R&R at the International Economic Review

In the US, unemployed workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement that stipulates the minimum qualifying work spell and a monetary requirement that determines a past minimum wage. This paper develops a heterogeneous agents model with history-dependent UI benefits in order to quantitatively obtain an optimal UI program design. We first conduct an empirical analysis using the discontinuity of UI rules at state borders and find that both the monetary and the tenure requirement reduce unemployment. The monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. We then use a quantitative model to rationalize these results. When the tenure requirement is long, workers tend to accept more low paying jobs to become eligible for UI sooner and to protect themselves from risk, while the monetary requirement works conversely. We show that, because it mitigates moral hazard, the monetary requirement can generate higher welfare levels than an increase in the length of the tenure requirement. 

Exogenous increase in the relative income of voters causes an increase in public goods provision, contrary to standard political economy theories.


R&R at the European Economic Review

I show that an exogenous increase in the relative income of voters causes an increase in public goods provision, contrary to standard political economy theories. I explain this result with a model of complementarity between consumption and public goods. Estimating the model to reproduce the micro-elasticities, I find that compulsory voting would decrease the government size by 7% despite reducing the average income of voters by 6%.

Upcoming Talks and Presentations

06
Jun

ERWIT

2024-06-06
All Day Event
25
Jun

BSE Summer Forum

2024-06-25
All Day Event
27
Jun

SED

2024-06-27
All Day Event

Research in Progress

Government Brain Drain


Cite

@TechReport{RePEc:fip:fedhwp:95159,
  author={Gustavo de Souza},
  title={{The Labor Market Consequences of Appropriate Technology}},
  year=2022,
  month=Sep,
  institution={Federal Reserve Bank of Chicago},
  type={Working Paper Series},
  url={https://ideas.repec.org/p/fip/fedhwp/95159.html},
  number={WP 2022-53},
  abstract={Developing countries rely on technology created by developed countries. This paper demonstrates that such reliance increases wage inequality but leads to greater production in developing countries. I study a Brazilian innovation program that taxed the leasing of international technology to subsidize national innovation. I show that the program led firms to replace technology licensed from developed countries with in-house innovations, which led to a decline in both employment and the share of high-skilled workers. Using a model of directed technological change and technology transfer, I find that increasing the share of firms that patent in Brazil by 1 p.p. decreases the skilled wage premium by 0.02% and production by 0.2%},
  keywords={appropriate technology; directed technological change; innovation},
  doi={10.21033/wp-2022-53},
}

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Cite

@TechReport{RePEc:fip:fedhwp:94914,
  author={Gustavo de Souza},
  title={{On Political and Economic Determinants of Redistribution: Economic Gains, Ideological Gains, or Institutions?}},
  year=2022,
  month=Oct,
  institution={Federal Reserve Bank of Chicago},
  type={Working Paper Series},
  url={https://ideas.repec.org/p/fip/fedhwp/94914.html},
  number={WP 2022-47},
  abstract={I describe a structural method to quantify the contribution of different elements of social choice to the level of redistribution. Estimating a DSGE model with microdata on the support for redistribution, I find that if voters disregarded their ideological views on welfare policies, redistribution in the U.S. would increase 117\%. Because ideology is a more important determinant of voting behavior than income, increasing voter turnout or capping campaign contributions would have a small effect on redistribution. Among the drivers of ideology, I find that racial animosity and distrust of the government contributes to an 80\% and 44\% smaller redistribution, respectively.},
  keywords={Redistribution; Prefereces for Redistribution; Dynamic Macro Models of Political-Economoy},
  doi={10.21033/wp-2022-47},
}

Cite

@TechReport{RePEc:fip:fedhwp:94915,
  author={Gustavo de Souza and Haishi Li},
  title={{The Employment Consequences of Anti-Dumping Tariffs: Lessons from Brazil}},
  year=2022,
  month=Oct,
  institution={Federal Reserve Bank of Chicago},
  type={Working Paper Series},
  url={https://ideas.repec.org/p/fip/fedhwp/94915.html},
  number={WP 2022-46},
  abstract={Can anti-dumping tariffs increase employment? We compile data on all antidumping (AD) investigations in Brazil matching it to firm-level administrative employment information. Using difference-in-differences, we find that an AD tariff decreases imports and increases employment in the protected sector. Moreover, downstream firms decrease employment, while upstream ones are not affected. To quantify the aggregate effect of these tariffs, we build a model with international trade, input-output linkages, and labor force participation. We show that the Brazilian AD policy increased employment by 0.06\%, but decreased welfare by 2.4\%. Using tariffs, the government can increase employment by as much as 2.8\%.},
  keywords={Employment; Tariffs; Anti-Dumping; International Trade},
  doi={},
}

Cite

@article{DESOUZA2024103572,
title = {(Trade) War and peace: How to impose international trade sanctions},
journal = {Journal of Monetary Economics},
pages = {103572},
year = {2024},
issn = {0304-3932},
doi = {https://doi.org/10.1016/j.jmoneco.2024.103572},
url = {https://www.sciencedirect.com/science/article/pii/S0304393224000254},
author = {Gustavo {de Souza} and Naiyuan Hu and Haishi Li and Yuan Mei},
keywords = {Trade sanctions, Tariffs, Tariff competition},
abstract = {What is the most cost-efficient way to impose trade sanctions against Russia? We build a quantitative model of international trade with input–output connections. Sanctioning countries choose import tariffs to simultaneously maximize their income and minimize Russia’s income, with different weights placed on these objectives. We find, first, that for countries with low willingness to pay for sanctions against Russia, the most cost-efficient sanction is an approximately 20% tariff on all Russian products. Second, if countries are willing to pay at least US$0.70 for each US$1 drop in Russian welfare, an embargo on Russia’s mining and energy products is the most cost-efficient policy.},
}

Cite

@TechReport{RePEc:fip:fedcwq:94057,
  author={Gustavo de Souza and Andre Luduvice},
  title={{Optimal Unemployment Insurance Requirements}},
  year=2022,
  month=Apr,
  institution={Federal Reserve Bank of Cleveland},
  type={Working Papers},
  url={https://ideas.repec.org/p/fip/fedcwq/94057.html},
  number={22-10R},
  abstract={In the US, workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement of a minimum work spell and a monetary requirement of past minimum earnings. Using discontinuity of UI rules at state borders, we find that the monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. In a quantitative model, the monetary requirement induces workers to stay longer in unemployment because low-paying jobs are not covered by UI. Since it mitigates moral hazard, the optimal UI design has a high monetary requirement.},
  keywords={Unemployment Insurance; UI Eligibility; Optimal UI},
  doi={10.26509/frbc-wp-202210r},
}

Cite

@TechReport{RePEc:fip:fedhwp:95159,
  author={Gustavo de Souza},
  title={{The Labor Market Consequences of Appropriate Technology}},
  year=2022,
  month=Sep,
  institution={Federal Reserve Bank of Chicago},
  type={Working Paper Series},
  url={https://ideas.repec.org/p/fip/fedhwp/95159.html},
  number={WP 2022-53},
  abstract={Developing countries rely on technology created by developed countries. This paper demonstrates that such reliance increases wage inequality but leads to greater production in developing countries. I study a Brazilian innovation program that taxed the leasing of international technology to subsidize national innovation. I show that the program led firms to replace technology licensed from developed countries with in-house innovations, which led to a decline in both employment and the share of high-skilled workers. Using a model of directed technological change and technology transfer, I find that increasing the share of firms that patent in Brazil by 1 p.p. decreases the skilled wage premium by 0.02\% and production by 0.2\%},
  keywords={appropriate technology; directed technological change; innovation},
  doi={10.21033/wp-2022-53},
}

Cite

@TechReport{RePEc:fip:fedhwp:97522,
  author={Gustavo de Souza and Haishi Li},
  title={{Robots, Tools, and Jobs: Evidence from Brazilian Labor Markets}},
  year=2023,
  month=Nov,
  institution={Federal Reserve Bank of Chicago},
  type={Working Paper Series},
  url={https://ideas.repec.org/p/fip/fedhwp/97522.html},
  number={WP 2023-42},
  abstract={What is the effect of robots and tools on employment and inequality? Using natural language processing and an instrumental variable approach, we discover that robots have led to a sizable decrease in the employment and wages of low-skill workers in operational occupations. However, tools — machines that complement labor — have led to an equally large reinstatement of these workers, increasing their employment and wages. Using a quantitative model, we find that the lower prices of robots and tools over the last 20 years have reduced inequality and increased welfare without a significant effect on employment.},
  keywords={robots; Automation; tools; Labor-augmenting},
  doi={10.21033/wp-2023-42},
}
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