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English 1. Enhancement of Bankruptcy Law
Project: Enhancement of Bankruptcy Law
Coordinator: Professor Luis Henrique Braido
Description:
Theoretical and empirical economic literature provides evidence of the significant role that mechanisms like the Bankruptcy Law play in the development of the credit market and, ultimately, in the economic development of a country. For this reason, aiming to increase its effectiveness (through changes such as increased protection for secured creditors), a major reform of bankruptcy legislation was carried out in Brazil in 2005. This reform drew considerable inspiration from American law and brought positive and relevant impacts on the credit market and the productivity of companies, as evidenced by two relevant academic works: Araújo, A.P., R.V. Ferreira, and B.Funchal (2012). The Brazilian bankruptcy law experience. Journal of Economics 131 (3), 1365-1413). However, the recovery rate for creditors in the country still remains very low. According to World Bank data, there was a significant increase after the reform (from 0.2% in 2004 to 12% in 2007, remaining at the same level in 2017), but the rate stabilized at a level still well below the average of other countries (Latin America: 26%; OECD: 72%). Despite the significant advances achieved with the 2005 reform, relevant frictions may be limiting the contributions of the bankruptcy system. This project aims to build an extensive database of Brazilian bankruptcy proceedings in order to investigate potential inefficiencies in the system and propose legislative improvements capable of addressing them. The research project will be developed in partnership with Northwestern University and Kellogg School of Management, which have experienced researchers in the field and academic contributions for the evaluation of the Brazilian case.
Project: Competitive Insurance Market
Coordinator: Professor Humberto Moreira
Description:
The research's goal is to study the functioning of competitive insurance markets with multiple sources of asymmetric information between companies and consumers. Extending classical competitive insurance theory, which assumes that consumers differ only in their risk characteristics, allows us to understand the effect of various policy interventions, such as price restrictions on companies, insurance subsidies, risk adjustments, and mandates. One of the main examples of markets with information asymmetries is insurance: the total revenue from car insurance premiums paid to private insurers is extremely high. Empirical literature on the subject has long focused on identifying the presence of asymmetric information in insurance markets. These tests are appropriate across a wide range of cases. However, as correctly noted by Einav and Levin, in order to assess the size of the informational effect and discuss the effect of various policies, a deeper understanding of the sources of this informational asymmetry is required. Following this observation, several studies have identified the type of information asymmetry in various markets (Cohen and Einav, 2007, among other works). As expected, these papers found that consumers are heterogeneous in multiple dimensions, differing not only in their risk levels but also in their risk preferences. In other words, insurance markets present multidimensional private information. As pointed out by Einav and Levin (2015), advances in adverse selection market theory are needed. The main reason for this approuch is the fact that, after experiencing different policies, the best tool to predict the potential effects of different government interventions is to use models that can be solved. The absence of such models limits how much can be done with the information learned from consumer choice data, as in Cohen and Einav (2007). Recently, this area of theoretical research has received some attention: for example, insurance that can be used by insurance companies, and Azevedo and Gottlieb (2014) show that a competitive equilibrium always exists, but they do not provide an explicit characterization of the set of possible equilibria.
Project: Economic Regulation, New Business Models for Utilities, and Market Design
Coordinator: Professor Joisa Dutra
Description:
Na proper regulation should embrace and promote the convergence between energy and urban mobility in Brazil, a phenomenon that requires a complex architecture aligned with the emerging value chains ecosystems. This includes not only the electricity industry and the transportation/urban mobility sector, but also smart city service infrastructure, equipment manufacturers like batteries and electric vehicles, and various types of consumers and users. This convergence should operate under sustainable and resilient sectoral regulations, creating appropriate economic incentives and markets for trading new products arising from disruptive technologies. The theoretical foundation, in addition to classic Regulation theory, will be grounded in Market Design theory and recent developments in Data Science. The starting points will be the electricity and urban mobility sectors, which have already undergoing significant transformations due to the integration of distributed energy generation/renewable resource generation, digitalization, the Internet of Things, systems for energy measurement and efficient use, demand response programs, and the development of storage equipment (batteries) and electric vehicles. Interaction with other markets - such as electricity and natural gas - will also be a focus of the research, with an emphasis on designing appropriate economic markets for physical, financial, and derivative markets for the commodities in question.
2. Social and Economic Development
Project: Education as a Catalyst for Social Inclusion
Coordinator: Pedro Cavalcanti Ferreira
Description:
The project focus in studying the economic impacts of education, including well-being, income, consumption, as well as its effects on social inclusion, poverty, violence, among other areas. This goal of this Project is to propose measures of human related to the education of each individual (and of a nation as a whole) in order to highlight the importance of education in financial development and personal well-being (national well-being). These measures can guide optimal investment in education from both an individual and national perspective. Activities will be carried out in collaboration with educational and research institutions in the United States of America.
Project: Environmental Economics: Deforestation, Land Use, and Climate Change
Coordinator: Francisco Costa
Description:
Tropical forest deforestation is one of the main drivers of climate change. These vast expanses of forests capture carbon from the atmosphere and play a fundamental role in the climate (dis)equilibrium worldwide. While deforestation imposes environmental costs on society as a whole, land use for productive purposes can generate income and improve the quality of life for population inhabiting tropical biomes. This is a classic problem where local private agents do not take into account the environmental externality of their actions when deciding on land use of forested areas. This relationship has direct implications for both the discussion of land use and preservation, as well as the distributive effects of deforestation prevention policies, agricultural incentives, infrastructure projects, and local development. All of these dynamics are amplified in a scenario of climate change with still uncertain impacts. In such cases, given the environmental externalities of these issues, economic theory suggests a clear space for government intervention. However, a series of questions need to be addressed. What is the impact of climate change on land use and agricultural production? How and which public policies can mitigate the effects of climate change? How and which public policies can contribute to reducing deforestation rates and promoting efficiency in land use for productive purposes? What are the redistributive effects of these policies? What is the optimal level of such interventions? This project aims to contribute to the understanding of issues related to Environmental Economics using microdata and empirical frontier methodologies. Activities will be carried out in collaboration with educational and research institutions in the United States of America, United Kingdom, and Canada.
3. Monetary Fiscal Policy
Project: Monetary Fiscal Policy
Coordinator: Professor João Victor Issler
Description:
Investigate potential improvements to monetary and fiscal policies from various perspectives, including Inflation Targeting Programs, Optimal Taxation, Open Trade in floating exchange rate regimes, and more. In Economics, expectations are crucial for the behavior of economic agents. The Central Bank of Brazil possesses the best and most comprehensive database of expectations in the world, which has spiked the interest of researchers both within and outside Brazil. This is a long-term project aimed at understanding and enhancing the efficiency of monetary policy using an expectations database. The initial focus is on inflation expectations data, which are vital for the implementation of monetary policy. We aim to understand how expectations are formed, their key determinants, dynamics, and more. Activities will be conducted in collaboration with educational and research institutions in the United States of America, Portugal, Spain, France, and the United Kingdom.
Project: Finance Theory and Empirical Finance
Coordinator: Professor Cecília Machado
Description:
To study finance theories and empirical finance with the aim improving the efficiency of the national financial system, drawing from the successful experiences of other countries in terms of business environment and regulatory framework. In finance, it is important to explore the interaction between macroeconomic and financial environments as the foundation of finance theory, as economic agentes make decisions about both consumption and savings simultaneously. Therefore, this has macroeconomic implications related to consumption and financial implications regarding how to transfer wealth from one period to another, i.e., how to save. Integrated studies of this nature are relevant to the population as recent global crises originated in the financial sector. Activities will be conducted in collaboration with educational and research institutions in the United States of America, Portugal, Spain, France, and the United Kingdom.
Project: Macroeconomic Theory and Policies
Coordinator: Professor Aloisio Araujo
Description:
The inflation targeting regime, introduced in Brazil in 1999, has been an crucial ally in ensuring monetary stability. However, the recent fiscal deterioration, where the gross debt went from 50% of GDP in 2013 to an estimated 80% in 2020 according to projections from the Brazilian Institute of Economics (IBRE), poses a challenge to the success of the Central Bank’s action. This fiscal trajectory will reduce the capacity to coordinate inflation expectations at lower levels and limit the scope of monetary policy. The proposed project aims to develop a model that allows the evaluation of the optimal level of international reserves that maximizes the measure of a country's welfare. To acquire foreign assets, the country issues public debt denominated in the local currency. Therefore, to maintain a certain level of international reserves, the country incurs interest payments on public debt and benefits from interest received on foreign assets. The choice of na level of international reserves that takes into account the difference between domestic liability and external asset interest rates helps to prevent the worsening of the fiscal deficit in economies with fragile fiscal situations. The intertemporal approach of the Cole and Kehoe (2000) model provides a framework for this study. In this case, there is a government that consumes the only good in the economy, issues debt denominated in domestic currency to local creditors, and also acquires foreign assets. Furthermore, the government can finance itself externally in foreign currency, and the accumulation of international reserves, serving as a liquidity cushion for the economy, affects the price of these bonds in the international market by reducing sovereign risk premium. Thus, there is a trade-off between the cost of accumulating reserves and the reduction in the country's default risk, which not Only affects returno n government bounds but also those of domestic companies accessing credit in the international financial market.
Project: Labor Market, Taxation, Social Security, and Economic Development: Theory, Evidence, and Reform Proposals
Coordinator: Professor Felipe Iachan
Description:
This work aims to answer how and to what extent informality and tax evasion affect the design of efficient tax policies. In particular, we are concerned with understanding how payroll taxes should be levied and, therefore, what reforms could be proposed when the goal is to reduce the economic distortions generated by tax evasion. The contributions of this work can be summarized as follows: (i) Empirical evidence on tax evasion and payroll taxation: explore how the degree of tax evasion (and/or informality) relates to tax revenue. Identify regularities between evasion and important sectoral characteristics. (ii) Theoretical contribution to fiscal policy literature: this work also aims to to make a theoretical contribution to the question of optimal taxation and tax evasion, proposing a model that explain the behavior observed in empirical evidence. (iii) Taxation and evasion in Brazil: the study aims to assess the impacts of various policies of tax exemptions and tax burdens on payroll in the presence of evasion and informality and use this information to propose improvements in the tax system. Activities will be conducted in collaboration with educational and research institutions in the United Kingdom.