Billions and trillions
Local Fiscal Multipliers and Fiscal Spillovers in the United States
Alan Auerbach, Yuriy Gorodnichenko & Daniel Murphy
NBER Working Paper, January 2019
Abstract:
We estimate local fiscal multipliers and spillovers for the United States using a rich dataset based on U.S. Department of Defense contracts and a variety of outcome variables relating to income and employment. We find strong positive spillovers across locations and industries. Both backward linkages and general equilibrium effects (e.g., income multipliers) contribute to the positive spillovers. Geographical spillovers appear to dissipate fairly quickly with distance. Our evidence points to the relevance of Keynesian-type models that feature excess capacity.
Who are "The Taxpayers"?
Vanessa Williamson
The Forum: A Journal of Applied Research in Contemporary Politics, October 2018, Pages 399-418
Abstract:
Who are the taxpayers? In political rhetoric, the taxpayer is often the hardworking counterpoint to the undeserving welfare recipient, or the long-suffering victim of government corruption and ineptitude. And yet, despite its potency as a political symbol, we know little about who is understood by the public to be among the taxpaying class. New survey data reveal that there is a large discrepancy between the population of self-described taxpayers and the population of perceived taxpayers; about 93% of US adults describe themselves as taxpayers, but they imagine that only about 69% of their peers pay taxes. In the control condition, Republicans had lower estimates of the taxpaying population, were more concerned that low-income people do not pay enough in taxes, and low-income Republicans were more likely to doubt their own status as taxpayers. After receiving information about the substantial total tax liability of low-income people, Republicans and Democrats' views of the taxpaying population converged. However, in the condition that focused on low-income Americans as net beneficiaries of the federal tax system, partisans had opposite responses. Low-income Democrats become less likely to describe themselves as taxpayers while low-income Republicans become more likely to assert their status as taxpayers. The results have implications for how and why the parties talk about tax policy, and suggest that the identity of "the taxpayer" has both an economic and a political resonance worthy of greater scholarly scrutiny.
Macroeconomic Effects of the 2017 Tax Reform
Robert Barro & Jason Furman
Brookings Papers on Economic Activity, Spring 2018, Pages 257-345
Abstract:
We use a cost-of-capital framework to analyze the long-run steady state and transition path for GDP as a result of the 2017 tax law. We predict that, for the law as written, the long-run increase in corporate productivity will be 2.5 percent, which translates into a 0.4 percent increase in GDP after 10 years - or an increase in the growth rate of 0.04 percentage point per year. If the 2019 provisions of the law are made permanent, these numbers are 4.8 percent for long-run corporate productivity, 1.2 percent for GDP after 10 years, and 0.13 percentage point for the increase in the growth rate. We perform a sensitivity analysis, and conclude that if interest rates rose as a result of fiscal crowding out, the 10th-year GDP increases would be 0.2 percent and 1.0 percent for the two scenarios, respectively. We assess the short-run impact of the 2.3 percentage point reduction in average marginal tax rates for individuals under the law. Existing empirical evidence implies that this change would raise the annual GDP growth rate for 2018-19 by 0.9 percentage point per year.
Finding the Golden Mean: Country Size and the Performance of National Bureaucracies
Marlene Jugl
Journal of Public Administration Research and Theory, January 2019, Pages 118-132
Abstract:
This article contributes to the debate on environmental determinants of public service performance by analyzing the effect of country size (population size) on public service effectiveness. It theoretically describes and empirically tests a size-induced trade-off between economies and diseconomies of scale in national bureaucracies. The main argument is that public service performance increases with size due to economies of scale, but it decreases after the optimal country size when bureaucracies become too large and cumbersome to manage. The hypothesized curvilinear effect is tested for the first time empirically in cross-sectional regression models and multilevel within-between RE models that isolate the theoretically relevant between-country effect. The results support the expected inverse U-shaped relation on a global scale and in the subsample of democracies. The findings and their implication for research and practice are discussed: Public management must adapt theoretically and practically to country size as it is a contextual factor beyond the control of managers.
Corporate Tax Enforcement Externalities and the Banking Sector
John Gallemore & Martin Jacob
University of Chicago Working Paper, November 2018
Abstract:
Governments around the world are considering increasing corporate tax enforcement efforts to mitigate base erosion and improve revenue. Whether such enforcement efforts have externalities is not well known. In this study, we examine whether corporate tax enforcement can affect banks via their corporate lending. Specifically, we hypothesize that tax enforcement efforts aimed at small and midsized enterprises (SME) can improve their governance and information environments, which in turn could lead to greater commercial loan growth and better lending decisions. Exploiting the regional structure employed by the IRS between 1992 and 1999, we find that the corporate tax audit probability for SMEs is associated with greater commercial lending growth and loan portfolio quality for regionally focused banks. We find similar evidence when exploiting the IRS reorganization from a regional to a federal-based system in 2000 as an exogenous change to tax enforcement at the district level. Our findings are consistent with the tax authority's mandate having important externalities on the banking sector via the latter's commercial lending, and suggest that the benefits to tax enforcement go beyond simply improving tax collection.
Repatriation Taxes and Foreign Cash Holdings: The Impact of Anticipated Tax Reform
Lisa De Simone, Joseph Piotroski & Rimmy Tomy
Review of Financial Studies, forthcoming
Abstract:
We examine whether an anticipated reduction in future repatriation taxes affects the amount of cash U.S. multinationals hold overseas. We find that the expected benefits of a repatriation tax reduction are positively associated with accelerated accumulations of global cash holdings once Congress proposed legislation. Additional tests examining domestic and foreign corporations, voluntary disclosures of foreign cash, and corporate payout behavior support our conclusion that observed increases in excess global cash are driven by changes in foreign cash. We also document that U.S. multinationals accumulating excess cash engage in complementary organizational and financial reporting activities designed to maximize expected tax benefits.
Tax Planning Gone Awry: Do Tax-Motivated Firms Experience Worse Tax Outcomes from Losses Compared to Other Firms?
Scott Dyreng, Christina Lewellen & Bradley Lindsey
Duke University Working Paper, October 2018
Abstract:
We study the tax outcomes associated with losses in publicly traded U.S. multinational firms. We find that tax planning using tax haven operations, which is commonly associated with relatively favorable tax outcomes for profitable firms, is associated with poor tax outcomes from losses compared to multinational firms that do not tax plan with tax haven operations. Specifically, we find that firms with tax haven operations receive significantly lower tax loss benefits in terms of both tax loss carrybacks and tax loss carryforwards. We demonstrate the striking asymmetry of the tax U.S. system, in which U.S. multinational firms are often unable to fully realize tax benefits for their losses despite provisions for tax loss carrybacks and carryforwards, and show that tax planning exacerbates this asymmetry. In addition, we note that our findings highlight a potential cost of tax avoidance: lower tax benefits from losses. We also contribute to the tax avoidance literature by providing a research design framework for studying tax outcomes during loss years.
The effects of government spending shocks: Evidence from U.S. states
Bebonchu Atems
Regional Science and Urban Economics, January 2019, Pages 65-80
Abstract:
Using panel structural VAR analyses and a recently released dataset on quarterly gross domestic product by state, this paper finds that an increase in state spending raises output, employment, and the real wage. Our baseline estimates imply that the multiplier effect of a spending increase on output is 1.3 contemporaneously and 1.2 over three years. The effects, however, vary considerably depending on the economic environment and institutional context. Specifically, we find that (i) the spending multiplier is larger during recessions than expansions (ii) the spending multiplier is relatively larger during periods of low debt than in episodes of high debt; (iii) spending shocks have relatively larger effects on states with "medium" balanced-budget requirements than those with either weak or strong balanced-budget requirements; and (iv) the spending multiplier is relatively smaller for states with either lax or strict debt restriction provisions compared to those with moderate provisions. These differences in the magnitude of the spending multiplier across states with different balanced budget rules and debt restriction provisions are rather small and not always statistically significant.
Practical Policy Evaluation
Narayana Kocherlakota
Journal of Monetary Economics, forthcoming
Abstract:
In the wake of the Lucas (1976), the study of appropriate macroeconomic policy has largely focused on the comparison of different regimes/rules. In practice, few policymakers are faced with making those kinds of choices. I examine the problem of a policymaker making but one in a sequence of similar decisions. My main result is that the policymaker's optimal response to the current state can be found by applying regression methods to past macroeconomic data. I argue that macroeconomic policy evaluation intended to be of practical value should rely less on putatively structural macroeconomic models and more on regression-based approaches.