Essays in Macroeconomics and Economic Growth

This dissertation has three chapters. First chapter is joint work with Ufuk Akcigit, Seyit Cilasun, Javier Miranda and Nicolas Serrano-Velarde. It studies the use and economic impact of credit card debt on small business performance. Beginning in January 2021, over less than two years, credit card usage by small U.S. businesses nearly doubled, interest payments rose by 60%, and delinquencies reached 2.8%. In this paper, we utilize near real-time QuickBooks data from over 1.6 million small businesses and a targeted survey to highlight the critical role that credit card financing plays in small business activity. We find, first, monthly credit card payments were up to three times higher than loan payments during this time. Second, we use targeted surveys of these small businesses to establish credit cards as a key financing source in response to firm-level shocks, such as uncertain cash flows and overdue invoices.  Third, we highlight the critical role of credit cards as a key financial transmission mechanism. Following the Federal Reserve’s rate hikes in early 2022, banks cut credit card supply, leading to a 15.75% drop in balances and a 10% decline in revenue growth, as well as a 1.5% decrease in employment growth among U.S. small businesses. These higher rates also rendered interest payments unsustainable for many, contributing to half of the observed increase in delinquencies. Lastly, a simple heterogeneous firm model with a cash-in-hand constraint illustrates the significant macroeconomic impact of credit card financing on small business activity. 

In the second chapter, I ask whether bureaucrats in developing countries can identify and selectively promote high-growth startups? How much additional gain does selective targeting provide over uniform startup subsidies? I develop a quantitative endogenous growth model of selective targeting in which the entry and growth of different startup types responds heterogeneously to the government’s ability to filter and select startups. To estimate this selection ability and quantify the resulting gains, I build a novel dataset of startup selections and rejections from an online startup registry and bureaucratic board meeting minutes, as well as novel patent application data and hand-collected income statements, in the context of the Startup India Program—one of the largest such policies, launched in 2016. I find substantial variation in selection ability across components of the program: startup labeling selects below average-quality firms and distorts exit decisions, whereas provisions of R&D benefits by incubators and tax-holiday approvals by a bureaucratic board successfully identify innovative, high-growth startups. The latter double the benefits-to-cost ratio relative to uniform subsidies. I also derive implications for optimal program design by evaluating counterfactual policies that vary the duration and composition of subsidies.

Lastly, in the third chapter which is joint work with Calvin He, I study the welfare costs and benefits of deficit-financed fiscal policy. Deficit-financed fiscal policy plays a crucial role in alleviating the effects of short-run business cycle fluctuations. However, its benefits must be weighed against the costs of future taxation required to service the additional debt. In this paper, we analyze this welfare trade-off by decomposing and quantifying the channels through which fiscal policy impacts aggregate welfare in a Heterogeneous Agent New Keynesian (HANK) model. Our decomposition and quantification shows that, beyond macroeconomic stabilization and redistribution, deficit-financed fiscal policy generates welfare benefits largely through two mechanisms: i) a self-financing channel, and ii) a liquidity channel. We apply our decomposition to create policy ranking measures like Benefits-to-Cost Ratio and the Marginal Value of Public Funds within the HANK model. Using these measures, we compare and rank various fiscal policies—including targeted transfers, mortgage principal relief, moratoriums, and unemployment insurance—based on their overall welfare benefits and 'bang for buck'.