Someone will pay
U.S. Infrastructure: 1929-2017
Ray Fair
Yale Working Paper, July 2019
Abstract:
This paper examines the history of U.S. infrastructure since 1929 and in the process reports an interesting fact about the U.S. economy. Infrastructure as a percent of GDP began a steady decline around 1970, and the government budget deficit became positive and large at roughly the same time. The infrastructure pattern in other countries does not mirror that in the United States, so the United States appears to be a special case. The overall results suggest that the United States became less future oriented beginning around 1970. This change has persisted. This is the interesting fact. Whether it can be explained is doubtful.
A Unified Welfare Analysis of Government Policies
Nathaniel Hendren & Ben Sprung-Keyser
Harvard Working Paper, July 2019
Abstract:
We conduct a comparative welfare analysis of 133 historical policy changes over the past half-century in the United States, focusing on policies in social insurance, education and job training, taxes and cash transfers, and in-kind transfers. For each policy, we use existing causal estimates to calculate both the benefit that each policy provides its recipients (measured as their willingness to pay) and the policy’s net cost, inclusive of long-term impacts on the government’s budget. We divide the willingness to pay by the net cost to the government to form each policy’s Marginal Value of Public Funds, or its “MVPF”. Comparing MVPFs across policies provides a unified method of assessing their impact on social welfare. Our results suggest that direct investments in low-income children’s health and education have historically had the highest MVPFs, on average exceeding 5. Many such policies have paid for themselves as governments recouped the cost of their initial expenditures through additional taxes collected and reduced transfers. We find large MVPFs for education and health policies amongst children of all ages, rather than observing diminishing marginal returns throughout childhood. We find smaller MVPFs for policies targeting adults, generally between 0.5 and 2. Expenditures on adults have exceeded this MVPF range in particular if they induced large spillovers on children. We relate our estimates to existing theories of optimal government policy and we discuss how the MVPF provides lessons for the design of future research.
The effect of death tax on the labour supply of donors: Evidence from TRA97
Insook Lee
Applied Economics, forthcoming
Abstract:
Exploiting estate tax cuts from the Taxpayer Relief Act of 1997 (TRA97), this paper estimates the effect of death tax on the labour supply of living potential donors. To this end, difference-in-difference with multiple imputation approach is applied to micro-level panel data. This paper finds that the estate tax cuts makes no difference in labour force participation or working hours of potential donors in a statistically meaningful way, although the TRA97 reduces marginal estate tax rates by 37.51% on average. This finding suggests that the death tax causes no meaningful distortion of living potential-donors’ labour supplies at either extensive or intensive margin.
Local Taxes and the Demand for Skilled Labor: Evidence from Job Postings
Murillo Campello, Janet Gao & Qiping Xu
Cornell University Working Paper, June 2019
Abstract:
Using big data on the near-universe of US firms' job postings, we document measurable, negative effects of local personal income taxes on the level of education, experience, and professional skills demanded by firms when hiring workers (downskilling). Tax-induced downskilling is identified both at the county level and at individual firms' local branches. It is solely driven by changes in high-income earners' tax rates. Multi-state firms internally reassign their hiring of low- vs. high-quality workers according to local personal income tax movements. The effect is more pronounced in industries that rely less on skilled labor and on local resources in the production processes, yet mitigated in firms' headquarter states and states that account for a large fraction of sales. Critically, firms cut investment and exit the labor markets of states that increase personal taxes. Our findings point to a "brain-drain" in states with high personal income taxes, showing how those taxes influence the local demand for human capital and labor market composition.
After Wayfair: What Are State Use Taxes Worth?
John Mikesell & Justin Ross
Indiana University Working Paper, May 2019
Abstract:
The U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. that states may require sellers without a physical presence to collect use taxes has generated much enthusiasm and dread among observers. We present new data on revenues from the state use tax between 2010 and 2017. We also present a unique monthly series of remote vendor use tax collections for Indiana before and after the Wayfair ruling and use the synthetic control method to derive a treatment effect of the policy change. While remote vendor registrations have tripled, we find there has been relatively modest impact on state revenue.
How Large Are the Political Costs of Fiscal Austerity?
Eric Arias & David Stasavage
Journal of Politics, forthcoming
Abstract:
There are good reasons to think that fiscal austerity can have important costs, and among these is political instability. We suggest that these political costs may be harder to identify than one might assume. Using a broad sample of countries from 1870 to 2011, we ask whether expenditure cuts are associated with increased leader turnover through either regular or irregular means. Ordinary least squares estimates suggest that there is no effect, but this may be due to a bias whereby leaders adopt austerity only when they think they can survive it. As an alternative empirical strategy, we also report instrumental variables estimates in which expenditure cuts are instrumented by exogenous trade and financial shocks, and we continue to observe a null result. Finally, we consider which interpretations of voter behavior might be consistent with our results.
Tolling Roads to Improve Reliability
Jonathan Hall & Ian Savage
Journal of Urban Economics, forthcoming
Abstract:
A significant cost of traffic congestion is unreliable travel times. A major source of this unreliability is that when roads are congested, interactions between drivers can lead to capacity unexpectedly falling. For example, collisions can close lanes and aggressive lane changers can slow traffic. This paper analyzes how tolls should be set when accounting for such endogenous reliability. We find tolls should be higher and maximum flow lower than we might naïvely expect; and that such tolls make homogeneous drivers better off, even before the toll revenue is used. Simulations suggest the socially optimal maximum departure rate is fifteen percent below that which maximizes expected throughput, and that tolling reduces private costs by almost ten percent.
Sports-Led Tourism, Spatial Displacement, and Hotel Demand
Yulia Chikish et al.
Economic Inquiry, forthcoming
Abstract:
We analyze the relationship between professional sports events and concerts held in LA's Staples Center and nearby hotel performance. Government‐led economic redevelopment projects often envision sports facilities as tourist magnets. Little evidence exists supporting links between sporting events and hotel demand. An empirical analysis exploiting exogenous daily variation in the timing of games and concerts from 2002 to 2017 shows a small positive impact on room revenue at hotels within one mile and larger room revenue decrease at hotels located one to 4 miles away. The overall impact on hotel room revenue and rooms rented was not positive. Nearby hotel room rates increased during NBA and NHL work stoppages. The city granted four new hotels built very near the arena exemptions from occupancy taxes for 20–25 years; these exemptions reduced hotel tax revenues by a minimum of $4.5 million annually and may not have been needed to spur new hotel development.
Is Tax Planning Best Done In Private?
Jeffrey Hoopes et al.
University of North Carolina Working Paper, July 2019
Abstract:
We investigate whether privately-held firms engage in more tax planning than do publicly-held firms. Private firms are commonly believed to face lower non-tax costs of tax planning relative to public firms, allowing them to engage in more tax planning. However, empirical evidence of U.S. private firm tax planning is limited, primarily because of difficulty in obtaining private firm data. We make use of detailed administrative data from the Internal Revenue Service, which cover virtually all U.S. public and private firms and allow us to examine a variety of specific tax planning measures. Contrary to conventional wisdom, we find no evidence that private corporations engage in more tax planning relative to similar-sized public corporations in the same industry. Moreover, some evidence suggests that private firms actually engage in less tax planning. These findings are not explained by firm characteristics commonly used to explain tax behavior. These results have important implications for researchers as well as for policymakers and managers.
The Impact of State-Level R&D Tax Credits on the Quantity and Quality of Entrepreneurship
Catherine Fazio, Jorge Guzman & Scott Stern
NBER Working Paper, July 2019
Abstract:
The acceleration of start-up activity is often cited as a rationale for the R&D tax credit, a key innovation policy instrument adopted increasingly by US states over the past quarter century. While there is a strong empirical base linking the R&D tax credit to increased R&D expenditures and innovation, prior work has not provided causal evidence that this policy effects the rate of formation and growth potential of new businesses. This paper combines data from the US Startup Cartography Project with the Panel Database on Incentives and Taxes to implement a difference-in-differences estimate of the impact of the R&D tax credit on the quantity and quality-adjusted quantity of entrepreneurship. Our key finding is that the R&D tax credit is associated with a significant long-term impact on both the overall quantity and quality-adjusted quantity of entrepreneurship, with the bulk of the effect materializing more than five years after the policy is enacted. These findings stand in contrast to an analysis of the adoption of state-level investment tax credits. There, we observe no long-term impact on the quantity of entrepreneurship but a marked decline in the rate of formation of growth-oriented startups over time. Combined with other evidence regarding the efficacy of R&D tax credits in spurring innovative investment, our results shed light on the potential for this fiscal policy to also stimulate the formation of growth-oriented start-ups.
Are Back-to-School Sales Tax Holidays Progressive or Regressive?
Felipe Lozano-Rojas & Justin Ross
Indiana University Working Paper, April 2019
Abstract:
Sales tax holidays are temporary suspensions of tax rates applicable to selected goods. In the United States, sales tax holidays are popular among states during “back-to-school” seasons for educational supplies and new clothing. One motivation for these policies is to provide state assistance to households with children for necessary goods. This paper investigates the distributional impact across income groups on school supplies’ and apparel purchases during these holidays for a panel of nearly 170,000 households from 2004 to 2016. Judging by conventional household income elasticities the tax savings are very progressively distributed. However, we demonstrate tax holidays to be poorly targeted if judged by the intention of arranging transfers to low income households or households with children. For instance, an equivalent cash transfer to households with children and less than $20,000 in income would have a revenue cost of five percent of what is waived by the sales tax holidays.
Does Tax Increment Financing Pass the “But-for” Test in Missouri?
Ahmed Rachid El-Khattabi & William Lester
Economic Development Quarterly, August 2019, Pages 187-202
Abstract:
The use of tax increment financing (TIF) remains a popular, yet highly controversial, tool among policy makers in their efforts to promote economic development. This study conducts a comprehensive assessment of the effectiveness of Missouri’s TIF program, specifically in Kansas City and St. Louis, in creating economic opportunities. We build a time-series data set starting 1990 through 2012 of detailed employment levels, establishment counts, and sales at the census block-group level to run a set of difference-in-differences with matching estimates for the impact of TIF at the local level. Although we analyze the impact of TIF on a wide set of indicators and across various industry sectors, we find no conclusive evidence that the TIF program in either city has a causal impact on key economic development indicators.