Working Paper: CEPR ID: DP12592
Authors: David Sraer; David Thesmar
Abstract: We consider a dynamic economy populated by heterogeneous firms subject to generic capital frictions: adjustment costs, taxes and financing constraints. A random subset of firms in this economy receives an empirical "treatment", which modifies the parameters governing these frictions. An econometrician observes the firm-level response to this treatment, and wishes to calculate how macroeconomic outcomes would change if all firms in the economy were treated. Our paper proposes a simple methodology to estimate this aggregate counterfactual using firm-level evidence only. Our approach takes general equilibrium effects into account, requires neither a structural estimation nor a precise knowledge on the exact nature of the experiment and can be implemented using simple moments of the distribution of revenue-to-capital ratios. We provide a set of sufficient conditions under which these formulas are valid and investigate the robustness of our approach to multiple variations in the aggregation framework.
Keywords: Firm-level experiments; General equilibrium; Policy evaluation
JEL Codes: D2; E2; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Treatment effects on distribution of revenue-to-capital ratios (D39) | Aggregate counterfactual for the entire economy (E10) |
| Increase in labor demand from growth-enhancing policy (J23) | Equilibrium wages (J31) |
| Equilibrium wages (J31) | Overall productivity (E23) |
| Distribution of revenue-to-capital ratios (D33) | Market equilibrium (D53) |
| Revenue-to-capital ratios measured in an experiment (D29) | Valid counterfactuals for broader policy applications (D78) |
| Treatment (C22) | Modification of parameters governing capital frictions, adjustment costs, and financing constraints (D24) |
| Modification of parameters governing capital frictions, adjustment costs, and financing constraints (D24) | Firm-level responses (D21) |