UCL Department of Economics


Davide Melcangi

I am a PhD candidate in Economics at University College London. My research interests are in macroeconomics, firm dynamics and corporate finance, with a particular focus on the interaction between financial frictions and the labour market.

I am on the job market this year and will be available for interviews at the 2018 ASSA Annual Meeting in Philadelphia, the SAEe meetings in Barcelona and the RES meetings in London. 

  • macroeconomics
  • firm dynamics
  • corporate finance

"The marginal propensity to hire"


This paper studies the link between firm-level financial constraints and employment decisions, as well as the implications for the propagation of aggregate shocks. I exploit the idea that, when the financial constraint binds, a firm adjusts its employment in response to cash flow shocks. I identify such shocks from changes to business rates, a UK tax based on a periodically estimated value of the property occupied by the firm. A 2010 revaluation implied that similar firms, occupying similar properties in narrowly defined geographical locations, experienced different tax changes, allowing me to control for confounding shocks to local demand. I find that, on average, for every £1 of additional cash flow, 39 pence are spent on employment. I label this response the Marginal Propensity to Hire (MPH). I then calibrate a firm dynamics model with financial frictions towards this empirical evidence. As in the data, small and leveraged firms in the model have a greater MPH. Simulating a tightening of credit conditions, I find that the model can account for much of the decline in UK aggregate output and employment observed in the wake of the financial crisis.

  • Vincent Sterk (primary advisor)
  • Marco Bassetto
  • Morten Ravn
  • Wendy Carlin