Manoj Atolia
Associate Professor
Department of Economics
Florida State University
Tallahassee, FL 32306-2180
tel.: 850.644.7088, email:  matolia@fsu.edu.

Working Papers Click here for less details

Liquidity Shortages in a Model with Equilibrium Shirking
        (with Tor Einarsson and Milton H. Marquis) (Revised: September, 2011)

This paper develops a model in which idea-rich, cash-poor entrepreneurs develop risky investment projects that are subject to future stochastic funding requirements and moral hazard associated with the potential of entrepreneurs to reduce their work effort and affect the likelihood that the project will succeed. The model suggests that the incentive for the entrepreneur to shirk increases during times of economic distress, and this heightened degree of shirking in the economy exacerbates both the magnitude and duration of the subsequent economic contraction. This result occurs without signi cant additional cuts in factor employment due to shirking, but is instead the consequence of fewer projects being successfully completed due to the weakened incentives that the economic environment provides to the entrepreneurs to ensure their project's success.

Variety Trade and Skill Premium in a Calibrated General Equilibrium Model: The Case of Mexico
        (with Yoshinori Kurokawa) (Revised: September, 2010)

It can be theoretically shown that variety trade can be a possible source of increased skill premium in wages. No past studies, however, have empirically quanti?ed how much of the increase in skill premium can be accounted for by the increase in variety trade. This paper now formulates a static general equilibrium model and then calibrates it to the Mexican input-output matrix for 1987. In the calibrated model, our numerical experiments show that the increase in U.S.-Mexican variety trade can account for approximately 12 percent of the actual increase in skill premium in Mexico from 1987 to 2000.

Tax Evasion in an Overlapping Generations Model with Public Investment
        (Revised: August, 2009)

The current analysis of the impact of stricter enforcement of tax laws on tax evasion ignores the most policy revelant case where it has effects running from public revenue to public expenditure. The paper shows that existing results in the literature apply to this policy relevant case under certain restrictions on government policy. Using a dynamic general equilibrium model, it shows that the benefits of stricter enforcement are realized immediately but these immediate effects are slightly smaller than the long-run effects derived in literature. When stricter enforcement is used as a tool to raise revenue for public investment, the positive impact on growth from increased public investment is tempered by the negative general equilibrium effect on private capital accumulation.

Long-Run Growth and Welfare: The Importance of Transitional Dynamics When Assessing Alternative Fiscal Policies
        (with Bassam Awad and Milton H. Marquis) (Revised: July, 2009)

This paper analyzes the effects of distortionary taxes on growth and welfare in an endogenous growth model with a public capital externality. The model is calibrated to the U.S. economy, and experiments are run under which the tax regime is shifted from the current mix of capital income, labor income, and consumption taxes to a fiscal policy regime with complete reliance on a single source of taxation, including lump-sum tax. We find that tax policy changes that induce higher growth rate do not necessarily result in higher welfare due to different transitory effects. In fact, a shift to capital income tax while delivering highest long-run growth results in lowest welfare. Furthermore, long-run gains take many years - a generation - to start getting realized. Among different sources of taxation, we find that, in the long run, complete reliance on a consumption tax dominates the current tax regime; however, the current tax regime dominates an exclusive labor income tax, which in turn is less welfare-reducing than an exclusive capital income tax. These results are due to the fact that taxes on labor income and capital income distort investment decisions in reproducible capital, i.e., human capital and physical capital, and therefore have cumulative effects that do not result from a tax on consumption. Unlike previous studies, we account for the welfare effects of transition using optimal decision rules all along the transition path.

Trade Costs and Endogenous Nontradability in a Model of Sectoral and Firm-Level Heterogeneity
        (Revised: December, 2008)

The paper takes a first step in the direction of simultaneously incorporating sectoral and firm-level heterogeneity in the models of international trade and macroeconomics in a tractable manner: without increasing the complexity of numerical computations compared to the existing models with heterogeneity in one dimension. In a model with sectoral-heterogeneity in trade costs and firm-level-heterogeneity in productivity, introducing one source of heterogeneity at a time and piecing together the results implies that, on reduction in trade costs, more goods and more varieties of every tradable good become traded. However, in the correctly specified model with simultaneous heterogeneity in both dimensions, although more goods do indeed become tradable, but for more than 50% of the previously traded goods, the number of traded varieties falls. The model also reconciles contrasting predictions for the differences in the deviation of dometic price from the world price for the traded and nontraded goods when heterogeneity is introduced, one dimension at a time.

Productivity-Enhancing Reforms, Private Capital Inflows and Real Interest Rates in Africa
        (Revised: December, 2008)

The rise in economic growth in some countries of Africa over past two decades, powered mainly by productivity boom, has been associated with large private capital inflows despite poor integration of the African countries with the world capital markets. While these countries lack access to world capital markets, they are nonetheless highly dollarized and allowing for this fact can explain large private capital inflows and other stylized macroeconomic facts associated with the productivity-enhancing reforms in Africa. With a number of African economies poised to reap gains in productivity, as they return to stable and sound political and economic environment, the paper suggests the framework that can be used to understand the macroeconomic implications of and suggest appropriate policy responses to such gains in productivity.

Trade Policy, Poverty, and Development in a Dynamic General Equilibrium Model for Zambia
        (with Ed Buffie) (Revised: January, 2008)

Many LDCs suffer from low levels of private investment, from acute shortages of social and physical infrastructure, and from widespread poverty and underemployment. How can trade policy help combat these problems? Neoclassical trade theory objects that the premise of the question is incorrect. According to the Principle of Targeting, it is better to use other policy instruments to counteract market imperfections and to target social objectives. Instead of interfering with free trade, the government should increase domestic taxes to pay for employment subsidies, investment subsidies, transfers to the poor, and additional public investment in infrastructure. Policy makers reject this advice as impractical. Our objective in this paper is to restart the policy dialogue. We build a dynamic general equilibrium trade model that is rich in structural detail and policy instruments but not a black box. We use the model to investigate how trade policy affects poverty, underemployment, aggregate capital accumulation, and real output in Zambia. The results consistently recommend policy packages that combine an escalated structure of protection with an escalated structure of export promotion. There is no support for the view that free trade or a low uniform tariff is approximately optimal.