Luigi Maria Briglia

A substantial fraction of U.S. households experience wealth decline, often transitioning into hand-to-mouth (H2M) status despite no clear income shocks. Standard models attribute these transitions to transitory income fluctuations, yet expenditure risk (ER) - persistent, unpredictable spending shocks - explains a larger share of downward wealth transitions. Using PSID data (1999-2021) and a flexible expenditure model, ER is identified as the primary driver of H2M transitions, surpassing transitory income risk. A heterogeneous-agent model incorporating ER successfully replicates these patterns, highlighting the role of expenditure shocks in shaping household wealth dynamics beyond standard income risk mechanisms.

How should governments design progressive labor-income taxes when workers can shift labor supply into untaxed informal work? Using household surveys for Brazil, Colombia, Mexico, and Peru, we document steep gradients in informality, employment, and unemployment across the income distribution. We analyze non-linear tax schedules in a heterogeneous-agent model with search frictions, savings, and an endogenous formal-informal labor-supply margin. Progressivity operates through an inclusion margin at the bottom - negative income taxes increase formal attachment - and an evasion margin at the top, where higher marginal tax rates shift labor supply into the untaxed sector. These opposing forces imply that both welfare and formality are hump-shaped in progressivity; in a calibration to Mexico, the welfare-maximizing degree of progressivity is about five times the current level.

We embed extreme-value preference shocks in an otherwise standard consumption-savings problem. Under log utility, the value function and consumption density admit closed forms: the consumption share follows a Beta distribution whose dispersion rises with wealth, matching a robust empirical pattern in PSID micro data. When households can ignore the episodic opportunities generated by these shocks, a selection mechanism emerges: poor households opt out and behave as in the standard model, while wealthy households exercise the opportunities and save more. This wealth-dependent amplification of precautionary saving concentrates the stationary wealth distribution in the right tail without heterogeneous discount factors, stochastic returns, or bequest motives. In a calibrated heterogeneous-agent economy, a single EV-dispersion parameter disciplined by the consumption-error profile accounts for 51-67% of the increase in top wealth shares through the selection channel alone.