Overdrawn
Are demographic developments undermining intergenerational compacts?
Torben Andersen
Journal of Population Economics, November 2025
Abstract:
Intergenerational compacts of the pay-as-you-go type provide scope for interactions between overlapping generations. Spurred by demographic changes, the desirability of the compact, not least the pension part, has been questioned. Importantly, the compact comprises not only the well-known backward or implicit savings part for the old (pensions and health care) but also a forward or implicit borrowing part for the young (education). The forward part has an implicit borrowing rate, and the backward part has an implicit savings rate, and both should be considered when assessing the attractiveness of the compact. This paper explains and quantifies these two implicit rates of return and shows how they depend on demographics using data for the United States and Denmark as representative of demographic trends in high-income countries. The implicit savings rate displays a downward trend, but so does the implicit borrowing rate, and it is systematically lower than the savings rate. Hence, while the backward part of the compact is challenged, the forward contract has become more attractive, and the entire compact remains attractive despite ongoing demographic trends.
Missing Home-Buyers and Rent Inflation: The Role of Interest Rates and Mortgage Underwriting Standards
Alessia De Stefani
IMF Working Paper, January 2026
Abstract:
Using property-level data from the American Housing Survey (AHS), I document a novel channel through which rising mortgage rates fuel rent inflation. A regression-discontinuity design around the Federal Housing Finance (FHA) mortgage payment-to-income (MTI) threshold, combined with counterfactual MTI simulations show that the surge in mortgage rates between 2022 and 2023 pushed a substantial mass of prospective first-time buyers above common mortgage underwriting limits, reducing renter-to-owner transitions. Exploiting city-level variation in the shares of constrained first-time buyers combined with unit-level data on (hedonic) rent price changes, I show that this shift resulted in a reallocation of shelter demand into the rental sector, materially contributing to 2023 rent inflation. These effects were more pronounced in smaller units and among lower-income renters -- highlighting an important distributional dimension of monetary tightening.
Do Lower Mortgage Rates Benefit First-Time Homebuyers?
Leonel Diego Drukker
University of California Working Paper, January 2026
Abstract:
This paper investigates the mortgage channel of monetary policy transmission to home purchasing behaviors of first-time home buyers and incumbent homeowners. Between 2009 and 2019, the first-time home buyer share of home purchases fell from 35% to 22%, a period in which mortgage rates fell from nearly 7% to 3.5%. First, I construct a new mortgage rate-specific monetary policy shock to use as an IV for mortgage rate changes which predicts future mortgage rates better than existing monetary policy shocks. Next, I provide empirical evidence for three new findings: 1) transacted house prices respond to monetary policy-induced mortgage rate changes within a matter of weeks, indicating a rapid housing demand response to mortgage rates; 2) a negative 25 basis point mortgage rate shock lowers the first-time buyer share of home purchases by 77 b.p. in the first three months after the shock; 3) these results are more pronounced in areas with higher shares of high LTV-constrained borrowers which tend to be areas with more severe housing crises. Finally, I construct a lifecycle model with a housing ladder, heterogeneous agents, and a system of housing-related taxes calibrated to my empirical findings. I find that a one-time unanticipated negative one p.p. transitory shock to mortgage rates causes potential first-time home buyers to face 0.05% consumption-equivalent welfare losses.
Till the IRS Do Us Part: (Optimal) Taxation of Households
Hans Holter, Dirk Krueger & Serhiy Stepanchuk
University of Pennsylvania Working Paper, January 2026
Abstract:
This paper argues that a progressive tax system combined with individual taxation of married couples can generate more revenue than the current household-based U.S. system, especially when the extra revenues do not induce negative labor supply effects through increased government transfers. A progressive system that taxes individuals rather than couples jointly leads to larger labor force participation and higher average human capital, creates more "fiscal space", Laffer curves are higher and welfare is potentially higher. In our model with one- and two-earner households, human capital and an extensive margin labor supply decision, the peak of the Laffer curve is 12 percentage points higher with an individual-based, progressive tax system than with the current U.S. tax system. The maximum revenue is attained with 60% more progressivity than the current system, and at an average tax rate of 41%. Progressive taxation, when imposed on individuals rather than households, lowers the average tax rate for individuals with low income that are close to the participation margin. At the same time it creates a positive income effect on the labor supply of these individuals by reducing the net income of their higher earning spouses and limiting their net earnings potential in the case of a high temporary labor productivity. Whereas steady state welfare under a joint tax system is maximized when the tax system features no progressivity at all, under individual-based taxation the optimal tax system features significant tax progressivity (albeit slightly less than the current U.S. status quo), and welfare gains relative to this status quo of 4.9% in consumption-equivalent variation. Cohorts born during the transition realize significant welfare gains from this reform.
The Costs of Bankruptcy Misperceptions
Samuel Antill, Eleanor Jenke & Raymond Kluender
Harvard Working Paper, November 2025
Abstract:
Chapter 7 personal bankruptcy provides remarkably generous debt relief. Why do so few consumers file for bankruptcy? Surveying high-debt individuals, we show that their top concerns about bankruptcy are factually inaccurate: they dramatically underestimate the generosity of Chapter 7 and overestimate credit score consequences. In a randomized controlled trial, we correct bankruptcy misperceptions for randomly selected high-debt individuals. The effects of our information provision treatment persist for months, causing study participants to take action toward filing for bankruptcy. Thus, bankruptcy misperceptions deter filings. This finding implies that marginal filers -- whose mistaken beliefs make them indifferent between filing or not -- should realize a substantial net financial benefit from filing. In a separate natural experiment, we confirm this implication. Using novel data on prospective filers, we show that the marginal filer increases net worth by $46,971. Finally, in a stylized model, we show that fixing misperceptions can improve social welfare, without credit market consequences, by improving debt relief allocation.
Delay, Politics, and Expertise in OIRA Tax Review
Kristin Hickman & Bridget Dooling
Virginia Tax Review, Fall 2025, Pages 125-180
Abstract:
The opening months of the second Trump administration have featured a wide range of changes to federal policy accomplished through presidential executive orders. Among those changes, a lesser-known shift is the reinstatement of centralized review of tax regulations by the Office of Information of Regulatory Affairs (OIRA). For many years, most tax regulations were exempt from OIRA review. That changed in the first Trump administration when the Treasury Department (Treasury) and OIRA signed a memorandum of agreement bringing more tax regulations within OIRA's oversight sphere. In the Biden administration, Treasury and OIRA reversed course, this time clearly and unequivocally exempting all tax regulations without exception. Now the script has flipped again, as a new Trump executive order has reinstated OIRA review of tax regulations. OIRA review of tax regulations is controversial, with critics complaining of long delays in the publication of important regulatory guidance and increased political meddling in decisions that ought to be made by tax experts. This article documents the first and only effort to study OIRA review of tax regulations comprehensively and empirically by analyzing the preambles of every notice of proposed rulemaking and Treasury Decision proposing or adopting temporary and final tax regulations published from 2016 through June 2023 -- 434 documents in all, across three presidential administrations. From the data we conclude that complaints that OIRA review leads to lengthy delays and systematic politicization of tax policy are generally overblown. We additionally offer preliminary findings regarding OIRA's contributions to transparency, and potentially to regulation quality. These findings shed light on the debate about OIRA review of tax regulations and foreshadow implications of extending OIRA review to independent regulatory agencies as well.
State Versus Local Tax Enforcement Effectiveness: Evidence from Airbnb
Luis Navarro, Justin Ross & Whitney Afonso
Indiana University Working Paper, November 2025
Abstract:
The availability of local knowledge useful for enforcement of taxes is a common motivation for decentralized tax administration, a benefit to be traded away for economies of scale with centralization. However, there is limited empirical evidence that localized agencies are able to capitalize on this information advantage. This research exploits geographic variation in Colorado's level of government responsible for general local sales tax administration to investigate enforcement effectiveness relative to the state. Specifically, we employ data on Airbnb monthly listings from 2017 to 2019 to test for heterogeneity in the behavioral response to local sales tax increases. The results demonstrate larger reductions in Airbnb listings in response to sales tax increases where localities are responsible for tax enforcement, consistent with a model where local governments were more effective than the state at Airbnb detection. Further investigation indicates that local governments' advantage relative to the state was in detecting properties that were frequent listers on Airbnb.
Bank Information and Firm Growth: Microeconomic Evidence from the US Credit Market
Hans Degryse et al.
Journal of Financial Services Research, December 2025, Pages 381-422
Abstract:
We examine the effect of bank information on the growth of borrowing firms by using matched bank-firm data from the US credit market. Exploiting the structure of lending syndicates to construct proxies for banks' information acquisition, we find consistent evidence that bank monitoring spurs firms' investments in tangible and intangible assets, promoting higher growth. Conversely, little evidence exists of banks exploiting informational monopolies that could deter firm investments, even when banks hold significant credit market power. Banks' information does not appear to bias firm growth toward capital-intensive investments, but does also foster employment growth.
Appraisal quality and loan characteristics: Evidence from Newcomb-Benford Law
Hong Lee & Joseph Mason
Empirical Economics, December 2025, Pages 3721-3758
Abstract:
Leading digits in mortgage collateral value estimates are expected to approximate a logarithmic distribution, consistent with the Newcomb-Benford Law (NBL), when such values are modeled as geometric sequences or random samples drawn from heterogeneous price distributions. Using representative US datasets, we document substantial discrepancies between the observed and expected distributions of leading digits in appraisal values. The magnitude of this deviation increases with loan-to-value ratios and interest rates, while it declines with higher credit scores and safer credit classifications. We also find a systematic underrepresentation of high digits (e.g., 8 and 9) and overrepresentation of low digits (e.g., 0 and 1) in the second leading positions, and that this pattern becomes more pronounced with greater ex-ante loan risk. These findings suggest that nonconformance with NBL may stem from upward bias in appraised values, particularly in riskier lending environments.