Ana Paula Franco

This paper studies how firm–worker agreements to underreport wages affect tax policy design. In most tax systems, firms act as third-party reporters to limit evasion, but this mechanism weakens when employers pay part of workers’ wages off the books—what I refer to here as payments under the table (PUT).
I develop a model of optimal income taxation in which PUT arises endogenously from firm–worker interactions, and a corporate tax is also in place. The model shows that the corporate tax modifies the standard optimal income tax formula through two channels: (i) a fiscal externality, as PUT cannot be deducted from firms’ taxable profits and thus raise corporate tax revenue; and (ii) a behavioral response, as higher corporate taxes reduce firms’ incentives to pay under the table and narrow the scope for workers to evade, thereby lowering the elasticity of taxable income (ETI). Together, these effects imply that the optimal income tax rate increases with the corporate tax rate. Empirically, I use matched administrative and survey data from Peru—linked using optimal transport—and find that PUT is widespread, especially among higher-income workers. Exploiting a staggered corporate tax reform, I show that the ETI declines when the corporate tax rate increases, consistent with the model’s predictions.

This paper studies the optimal design of payroll taxes and social security benefits when benefits are partially transferable between spouses. In modern dual-earner households, one partner can work informally—avoiding payroll taxes—while still receiving coverage through their spouse’s formal job. This intra-household channel changes the efficiency costs of payroll taxation and the design of benefit sharing.
I develop a partial-equilibrium model in which couples jointly choose formality, and the government sets both a payroll tax rate and a benefit transferability parameter. For any fixed transferability, the optimal tax depends on two elasticities: the standard own elasticity of formality with respect to the net-of-tax rate, and a cross-spousal elasticity capturing how one spouse’s formality responds to the other’s tax rate. Transferability activates this cross channel. When spouses’ formality decisions are strategic substitutes, reducing spouse 1’s tax rate increases their formality but raises spouse 2’s informality —since the household needs only one formal job to retain benefits. The net rise in formality is smaller than in models without household spillovers, reducing the efficiency cost of taxation and supporting a higher optimal payroll tax.
I estimate these elasticities using Chile’s Bono al Trabajo de la Mujer, which reduced payroll taxes for low-income women in a setting with full spousal transferability. Eligible women significantly increased formal participation—especially those married to informal men—while their spouses became more likely to work informally. These findings underscore the importance of accounting for household interactions in tax and subsidy design.

We study the incidence of the value-added tax (VAT) in settings with high informality. While often viewed as regressive, recent literature suggests consumption taxes may be progressive under the crucial assumptions of zero pass-through in informal markets and that low-income households shop predominantly in that sector. We provide product-level evidence on this pass-through assumption by exploiting a temporary VAT exemption in Peru. Using high-frequency price data from formal and informal vendors for food products and a Synthetic Differences-in-Differences strategy, we estimate pass-through of taxes to consumer prices by product and sector. Household survey data confirms that the bottom decile of the income distribution spends 34 percentage points more of their budget in informal markets than the top decile. Our pass-through estimates reveal significant heterogeneity: we find rates of 80-100% in formal markets, but a product-dependent 0-50% in informal markets. These varied rates can be rationalized by a theoretical framework of commodity taxation with endogenous producer prices and heterogeneous household preferences for sectoral amenities. When we combine our empirical findings on shopping behavior and product-level pass-through, the progressivity result disappears, indicating that the VAT remains a regressive instrument in this setting.

This project extends the work of Feinmann et al (2023) to document payments under the table for formal employees in other Latin American countries. At the moment, we included Argentina, Brazil, Chile, Colombia, Mexico, and Peru. We find a simple average of 15% of employees who admit to receiving PUTs for about 23% of their wages. This average masks significant heterogeneity, where Argentina has more than a quarter of formal employees receiving PUTs, while this number is less than 4% in Chile. Importantly, PUTs are sharply increasing in wages, with employees in the top wage group doubling the underreporting sharing of low-wage employees. This patterns holds for both the extensive and intensive margin, and for five out of the six countries surveyed. Despite the fact that wages and firm size are positively correlated, PUTs are strongly decreasing on firm size, measured by number of employees. However, a considerable share of employees in firms with more than 500 employees admits to receiving PUTs. Consistent across all countries, employees holding managerial positions and with frequent interaction with owners are significantly more likely to receive PUTs, even after controlling by wages and firm size. We also show that employees with less tax morale are more likely to report receiving PUTs. We provide evidence that cash, bank transfer and virtual payments are the main disbursement methods for PUTs, but with significant heterogeneity across income groups. High-wage employees are more likely to use bank transfers and virtual payments, and less likely to use cash. Finally, we also explore what regulations or taxes help to determine the amount PUT. We find that the minimum wage, social security contributions, payroll taxes, and income taxes ranked at the top. Income taxes and social security contributions are relatively more important for high-wage earners, compared to the minimum wage or extra hours, which are more relevant for low-wage employees. The end of the presentation lists the project's next steps.

This study argues that current heterogeneity in female labour force participation across elevation levels in Peru may be explained by differences in historical Spanish influence. Before conquest, men and women were equally-important in the economic sphere. After conquest, women became ”legal minors” without enough reasoning power to make economic decisions. Because of Spanish reluctance to settle at higher elevations, I argue that inclusive pre-conquest gender roles persist in those areas. Using elevation as an instrument for Spanish influence, I find that living in a district less exposed to Spanish influence significantly increases fe- male labour force participation. Results are highly robust to the inclusion of a variety of demographic, geographical, contemporary and historical covariates.

The Inca Empire was the last of a long series of highly developed cultures in pre-colonial South America. It stretched across parts of the current territories of Argentina, Bolivia, Chile, Colombia, Ecuador and the whole of Peru. The Inca Road was its 30,000-kilometer-long transportation system. The aim of this study is to identify its long-term impact on current development in Peru. Our results show that the long-run effect of the Inca Road includes increases in wages and educational attainment, a reduction of child malnutrition and an increase in children’s mathematics test scores. We also find that these effects are around 20% greater for women and explore the mechanisms that may account for this pattern.