Paid for
Government Spending and Corporate Innovation
Lei Kong
Management Science, forthcoming
Abstract:
I study the impact of government spending on corporate innovation. Using changes in U.S. Senate committee chairmanships as a source of exogenous variation in state-level federal government expenditures, I find that firms headquartered in states with increases in government spending significantly reduce their innovation output, as measured by their number of patents and the citations to these patents. These reductions are mostly concentrated in labor-intensive industries, in firms headquartered in states with lower unemployment rates, and in government-dependent industries. My findings suggest that resource diversion induced by increased government spending is a channel through which government spending may affect corporate innovation.
Did the 2017 Tax Reform Discriminate against Blue State Voters?
David Altig et al.
NBER Working Paper, April 2019
Abstract:
The Tax Cut and Jobs Act of 2017 (TCJA) made significant changes to corporate and personal federal income taxation, including limiting the SALT (state and local property, income and sales taxes) deductibility to $10,000. States with high SALT tend to vote Democratic. This paper estimates the differential effect of the TCJA on red- and blue-state taxpayers and investigates the importance of the SALT limitation to this differential. We calculate the effect of permanent implementation of the TCJA on households using The Fiscal Analyzer: a life-cycle, consumption-smoothing program incorporating all major federal and state fiscal policies. We find that the average percentage increase in remaining lifetime spending under the TCJA is 1.6 percent in red states versus 1.3 percent in blue states. Among the richest 10 percent of households, this differential is larger. Rich households in red states enjoyed a 2.0 percent increase compared to a 1.2 percent increase among the rich in blue-state households. This gap is driven almost entirely by the limitation on the SALT deduction. Excluding the SALT limitation from the TCJA results in a spending gain of 2.6 percent for rich red-state households compared to 2.7 percent for rich blue-state households.
Austerity in the Aftermath of the Great Recession
Christopher House, Christian Proebsting & Linda Tesar
Journal of Monetary Economics, forthcoming
Abstract:
Cross-country differences in austerity, defined as government purchases below forecast, account for 75 percent of the observed cross-sectional variation in GDP in advanced economies during 2010-2014. Statistically, austerity is associated with lower GDP, lower inflation and higher net exports. A multi-country DSGE model calibrated to 29 advanced economies generates effects of austerity consistent with the data. Counterfactuals suggest that eliminating austerity would have substantially reduced output losses in Europe. Austerity was so contractionary that debt-to-GDP ratios in some countries increased as a result of endogenous reductions in GDP and tax revenue.
Do Means of Program Delivery and Distributional Consequences Affect Policy Support? Experimental Evidence About the Sources of Citizens' Policy Opinions
Vivekinan Ashok & Gregory Huber
Political Behavior, forthcoming
Abstract:
Recent scholarship argues that citizens' support for specific government programs in the United States is affected by the means through which benefits are delivered as well as the distributional consequences of these policies. In this paper, we extend this literature in two ways through a series of novel survey experiments, deployed on a nationally representative sample. First, we directly examine differences in public support for prospective government spending when manipulating the mode of delivery. Second, we examine whether information about the distributional consequences of two existing government programs affects their popularity. We find that citizens have a preference for indirect spending that is independent of the distributional consequences of a given policy and identify mechanisms that may explain this view. Furthermore, we find little evidence that highlighting the regressive effects of current government programs significantly reduces the demand for their policy benefits. Our findings have implications for understanding the political calculus of policy design and the potential for public persuasion.
Government Consumption and Investment: Does the Composition of Purchases Affect the Multiplier?
Christoph Boehm
Journal of Monetary Economics, forthcoming
Abstract:
A large and conventional class of macroeconomic models predicts that short-lived government investment shocks have a smaller fiscal multiplier than government consumption shocks. I test this prediction in a panel of OECD countries using real-time forecasts of government consumption and investment to purify changes in purchases of their predicted components. Consistent with theory, the estimated government investment multiplier is near zero and the government consumption multiplier approximately 0.8. These findings suggest that fiscal stimulus packages which contain large government investment components may not be as effective at stimulating aggregate demand as commonly thought.
The Effect of Public Spending on Private Investment
Taehyun Kim & Quoc Nguyen
Review of Finance, forthcoming
Abstract:
We examine the causal impact of public-sector spending on corporate investment. Making use of population count revisions in census years as exogenous shocks to the cross-sectional allocation of federal funds, we find that increases in federal spending reduce firms' investment, R&D spending, employment growth, sales growth, and firm-level equity volatility. The effect is stronger for firms that are labor-intensive, smaller, geographically concentrated, financially constrained, or in regions with higher employment or more generous unemployment insurance benefits. We find that exogenous increases in government hiring reduce corporate hiring, and positive federal spending shocks reduce the flow of workers from the public-sector to the private sector. Overall, our results show that positive government spending reduces corporate investment by hurting firms' investment opportunity sets, and highlight the significant role of the labor market as an underlying mechanism.
Your biggest refund, guaranteed? Internet access, tax filing method, and reported tax liability
Samara Gunter
International Tax and Public Finance, June 2019, Pages 536-570
Abstract:
The fraction of US individual income tax returns filed as hand-prepared paper returns fell from 31 to 15% between 1999 and 2004, reflecting the spread of high-speed Internet and increased use of tax preparation software. I use zip code-level Internal Revenue Service tax data from 1998 to 2007 and Federal Communications Commission Internet service provider data to examine the effect of high-speed Internet availability on tax reporting behavior. Differences-in-differences results show increased rates of itemizing, higher total value of itemized deductions, and lower tax-to-income ratios after high-speed Internet becomes available. I differentiate between access in the tax year and the filing year and show that the tax reporting effects are driven by filing year availability and that filing year Internet availability also positively predicts electronic filing. I use instrumental variables methods to explore the relationship between Internet availability-induced electronic filing on tax reporting behavior and find suggestive evidence that e-filing driven by Internet access increased itemizing rates and total value itemized and lowered tax-to-income ratios. The results suggest changes in tax filing method driven by increased computer use and Internet access helped taxpayers identify relevant deductions and credits and lowered reported tax liability.
Independent Taxation, Horizontal Equity, and Return-Free Filing
Jeffrey Liebman & Daniel Ramsey
Tax Policy and the Economy, 2019, Pages 109-130
Abstract:
Switching from joint to independent taxation of spouses in married couples would reduce marginal tax rates on secondary earners, make the tax system marriage neutral, and facilitate return-free filing through exact withholding. This switch would, however, abandon the perspective that total household income is the best measure of ability to pay. This paper investigates the vertical and horizontal equity implications of a switch from joint to independent taxation of the sort that might occur in conjunction with adoption of return-free filing. There are two main findings. First, although there are winners and losers from the reform, there are enough free parameters such that it is possible to design an independent taxation system that approximately matches the current distribution of the tax burden by income decile and thus causes little change in vertical equity. Second, because the existing treatment of married couples under the tax code is far from the ideal that would be prescribed based on strict application of utilitarian ability-to-pay principles, the horizontal equity losses under independent taxation from not taking total household resources into account are offset by other horizontal equity gains. In particular, the current system often treats one-earner couples more favorably and two-earner couples less favorably than ability-to-pay considerations would suggest, and independent taxation reduces this inequity. On net, a switch to independent taxation would produce a very small reduction in horizontal equity, a cost that is likely to be outweighed by simplicity and efficiency gains.
Heterogeneous Vertical Tax Externalities and Macroeconomic Effects of Federal Tax Changes: The Role of Fiscal Advantage
Fidel Perez-Sebastian, Ohad Raveh & Yaniv Reingewertz
Journal of Urban Economics, forthcoming
Abstract:
How do state tax rates respond to federal tax shocks? This paper presents a novel mechanism of heterogeneous vertical tax externalities across state-levels of fiscal advantage, showing that tax increases can be expansionary - even without their reinvestment. States rich in natural resources have a fiscal advantage in the inter-state competition over production factors which allows them to respond better to increases in federal taxes and, consequently, attract capital from other parts of the nation. We add heterogeneity in fiscal advantage levels to an otherwise standard model of vertical tax externalities and horizontal tax competition. The model shows that, irrespective of federal redistribution, the contractionary effect of a federal tax increase can be overturned in fiscally advantaged states, through an increase in their tax base. Using the case of the U.S., and narrative-based measures of federal tax shocks a-la Romer and Romer (2010), we provide empirical evidence for the various aspects of this mechanism. Specifically, our baseline estimates indicate that, controlling for federal transfers, a 1% increase in the GDP share of capital-related federal taxes at the beginning of a year increases the growth rate of the per capita tax base by approximately 0.7% in high fiscal advantage states at the end of it.
Do Tax Incentives Affect Business Location and Economic Development? Evidence from State Film Incentives
Patrick Button
NBER Working Paper, June 2019
Abstract:
I estimate the impacts of recently-popular U.S. state film incentives on filming location, film industry employment, wages, and establishments, and spillover impacts on related industries. I compile a detailed database of incentives, matching this with TV series and feature film data from the Internet Movie Database (IMDb) and Studio System, and establishment and employment data from the Quarterly Census of Employment and Wages and Country Business Patterns. I compare these outcomes in states before and after they adopt incentives, relative to similar states that did not adopt incentives over the same time period (a panel difference-in-differences). I find that TV series filming increases by 6.3 to 55.4% (at most 1.50 additional TV series) after incentive adoption. However, there is no meaningful effect on feature films, and employment, wages, and establishments in the film industry and in related industries. These results show that the ability for tax incentives to affect business location decisions and economic development is mixed, suggesting that even with aggressive incentives, and "footloose" filming, incentives can have little impact.
Loss-Offset Provisions in the Corporate Tax Code and Misallocation of Capital
Bariş Kaymak & Immo Schott
Journal of Monetary Economics, forthcoming
Abstract:
The corporate tax code allows corporations to write off operating losses against past or future tax obligations, resulting in effective tax rates that are firm-specific and dependent on the history of the firm's performance. Since losses partly reflect a drop in productivity, which is generally persistent, firms with higher expected productivity face higher tax rates. We analyze the distortionary effects of loss-offset provisions on investment and assess the output loss implied by the misallocation of capital. Replacing the corporate income tax with a revenue-neutral value-added tax which equates tax rates across firms leads to a 13.9 percent increase in aggregate output.