Monica Tran Xuan

I am a Ph.D. Candidate in Economics at the University of Minnesota. I currently work as a Research Analyst at the Federal Reserve Bank of Minneapolis.

My fields of interests are Macroeconomics, International Economics, and Public Finance. My current research is related to topics of open economies and inequality.

I will be available for interviews at the 2020 ASSA Meeting in San Diego, as well as via Skype.

Contact Information:

Address: 1925 Fourth South Street, Hanson Hall 4-101, Minneapolis, MN 55455

Email: tranx888@umn.edu

Current Research

Job market paper (updated frequently)

Abstract

This paper proposes a theory of external debt accumulation based on the government’s motive for redistribution. I study a small open economy model in which taxes are distortionary and the government has a redistributive concern and faces endogenous borrowing constraints due to its lack of commitment. Given these borrowing constraints, the value of financial autarky determines the sustainable level of debt. I find that external borrowing allows for more redistribution, measured as the difference in individual utilities, than in financial autarky at the same level of efficiency cost in terms of the labor distortion. Endogenously, the government’s need to redistribute makes financial autarky costly by introducing high and volatile labor distortions. The theory can quantitatively account for the recent external debt’s buildup in Italy and the positive correlation between pre-tax income inequality and external debt across countries. The optimal austerity policies responding to a negative productivity shock are increasing external borrowing and redistribution while reducing redistribution to repay debt in the future. The magnitude of these responses varies with the underlying wage inequality.

Latest version: September 2019. First version: November 2017

Abstract

This paper studies optimal taxation in an open economy. The government has a redistributive motive and faces self-enforcing debt constraints that arise from the limited commitment of the government. Redistributive policies are proportional taxes on labor and domestic saving. The standard Ramsey results of labor tax smoothing and a zero capital tax in the limit no longer hold. Instead, optimal labor taxes decrease over time and eventually converge to a non-zero limit, and the optimal capital tax is positive in the limit. The efficient contract features front-loading distortion and back-loading efficiency, allowing the government to borrow more in the future. The model's numerical exercise shows that a stronger redistributive motive requires greater tax distortions at the beginning of time as well as a higher external debt level in the long run.

Austerity, Inequality, and Sovereign Default

Draft coming soon

Abstract

This paper explores how a government’s redistributive concern affects its austerity policies and incentive to default. I study optimal sovereign default, debt and tax policies in an Eaton-Gersovitz-Arellano model with heterogeneous agents. The government has lack of commitment in all policies. I show that the model is equivalent to a modified representative-agent setup in which the government chooses the distribution of consumption shares, and the effective risk aversion is higher. The model can account for a higher average debt-to-output ratio as well as a higher average spread than the canonical representative-agent model.