Structured Financing
Transportation Capital and Its Effects on the U.S. Economy: A General Equilibrium Approach
Trevor Gallen & Clifford Winston
Journal of Macroeconomics, forthcoming
Abstract:
We analyze the effect of the US transportation system on economic activity by building a quantitative dynamic general equilibrium model with a taxpayer-funded transportation capital stock. We highlight stark differences between the positive welfare effects of additional infrastructure spending in the long run, and its potentially negative effects when we account for the large transition (time and delay) costs to build. We also quantify large differences between the effects of additional infrastructure spending and efficient transportation policies, such as congestion pricing and eliminating laws that artificially inflate input prices, concluding that taxpayer-funded transportation improvements that increase GDP significantly may produce smaller welfare gains than efficient policies that increase GDP modestly.
A Social Policy Theory of Everyday Borrowing: On the Role of Welfare States and Credit Regimes
Andreas Wiedemann
American Journal of Political Science, forthcoming
Abstract:
Debt has become an essential part of many people's daily lives. This article develops a new comparative political economy perspective on the relationship between welfare states and household borrowing. I argue that the ways in which welfare states distribute benefits, and credit regimes provide access to credit, affect how individuals address social risks and, as a consequence, shape patterns of indebtedness. Permissive credit regimes substitute for social policies in limited welfare states, pushing economically disadvantaged groups into debt. Alternatively, credit markets complement social policies in the provision of financial liquidity in comprehensive welfare states, protecting vulnerable groups through government benefits while allowing less-protected affluent groups to borrow money. In restrictive regimes, people instead rely on savings, expenditure cuts, and family support. I test these arguments using an original measure of credit regime permissiveness, cross-national survey data, and full-population administrative records from Denmark and panel data from the United States.
The Inflation Expectations of U.S. Firms: Evidence from a New Survey
Bernardo Candia, Olivier Coibion & Yuriy Gorodnichenko
NBER Working Paper, May 2021
Abstract:
Introducing a new survey of U.S. firms' inflation expectations, we document key stylized facts involving what U.S. firms know and expect about inflation and monetary policy. The resulting time series of firms' inflation expectations displays unique dynamics, distinct from those of households and professional forecasters. By any typical definition of "anchored" expectations, the inflation expectations of U.S. managers appear far from anchored, much like those of households. And like households, U.S. managers are largely uninformed about recent aggregate inflation dynamics or monetary policy. These results complement existing evidence on firms' inflation expectations from other countries and confirm that inattention to inflation and monetary policy is pervasive among U.S. firms as well.
The Psychology of Taxing Capital Income: Evidence from a Survey Experiment on the Realization Rule
Zachary Liscow & Edward Fox
Yale Working Paper, May 2021
Abstract:
How to tax capital income is a critical issue today. The realization rule - requiring that property usually must be sold before gains are taxed - is central to taxing capital income, but often decreases the efficiency, equity, and simplicity of the tax system. Estimates suggest that the realization rule costs the government over $2 trillion over 10 years. Given these problems, it is unclear why the rule exists for assets that are easy to value and sell. Scholars have long speculated about the role of the public's views here, but little is known empirically about them. We conduct the first survey experiment to understand the psychology of the realization rule, which has broad implications for the taxation of capital income. We have three main findings. First, respondents strongly prefer to wait to tax gains on stocks until sale: 75% to 25%. This pattern persists across a variety of other assets and policy framings: indeed, nearly half of those without stock prefer raising everyone's taxes (including their own) to taxing unsold stock gains. But the flip side is that there is surprisingly strong support for taxing gains on assets at sale or transfer, including at death, in areas where current law never taxes those gains. Second, these views change only modestly after randomized participants observe a policy debate composed of videos explaining both the pros and cons of taxing before sale, though the pro and con treatments have large effects individually. And, third, among many possible explanations of these attitudes, we find particular evidence for four: using a different mental account for unsold gains than other ways of getting richer; a tendency to support the status quo; concerns about complexity; and a desire to tax consumption, not income, in the context of capital gains.
Temptation and Incentives to Wealth Accumulation
Orazio Attanasio, Agnes Kovacs & Patrick Moran
NBER Working Paper, June 2021
Abstract:
We propose a rich model of household behavior to study the effect of two important policies: mortgage interest tax deduction and mandatory mortgage amortization. These policies have attracted some controversy, first because they are conceived to increase overall saving, an objective that the literature does not agree they can achieve, and second because they incentivize illiquid savings and may thus increase the share of 'wealthy hand-to-mouth' households. We build a life-cycle model where housing may act as a commitment device to counteract present biases arising from temptation. We show that the model matches several empirical facts, including the large share of wealthy hand-to-mouth households. We evaluate the effect of the two policies and find that they increase wealth accumulation by 7 and 10% respectively. Our results demonstrate that these policies not only induce portfolio re-balancing, as emphasized by the previous literature, but also increase savings by making commitment more accessible.
Private Equity and Financial Stability: Evidence from Failed Bank Resolution in the Crisis
Emily Johnston-Ross, Song Ma & Manju Puri
NBER Working Paper, May 2021
Abstract:
This paper investigates the role of private equity (PE) in failed bank resolutions after the 2008 financial crisis, using proprietary FDIC failed bank acquisition data. PE investors made substantial investments in underperforming and riskier failed banks, particularly in geographies where local banks were also distressed, filling the gap created by a weak, undercapitalized banking sector. Using a quasi-random empirical design based on detailed bidding information, we show PE-acquired banks performed better ex post, with positive real effects for the local economy. Overall, PE investors had a positive role in stabilizing the financial system through their involvement in failed bank resolution.
How Does Online Lending Influence Bankruptcy Filings?
Hongchang Wang & Eric Overby
Management Science, forthcoming
Abstract:
By providing quick and easy access to credit, online lending platforms may help borrowers overcome financial setbacks and/or refinance high-interest debt, thereby decreasing bankruptcy filings. On the other hand, these platforms may cause borrowers to overextend themselves financially, leading to a "debt trap" and increasing bankruptcy filings. To investigate the impact of online lending on bankruptcy filings, we leverage variation in when state regulators granted approval for a major online lending platform -- Lending Club -- to issue peer-to-peer loans. Using a difference-in-differences approach, we find that state approval of Lending Club led to an increase in bankruptcy filings. A complementary instrumental variables analysis using loan-level data yields similar results. We find suggestive evidence that the ease of receiving a Lending Club loan causes some borrowers to overextend themselves financially, leading to bankruptcy. Our results suggest that recent initiatives from online lending platforms to control how borrowers use loans, such as Lending Club's "balance transfer loans" that send loan funds directly to creditors, can help these platforms provide safe and affordable credit. Our study adds to the literature that examines how online platforms influence society and the economy; it contributes to the literature that examines how financial products, services, and regulations influence bankruptcy filings; and it has policy implications for online lending design and regulation.
The Business of City Hall
Kenneth Ahern
NBER Working Paper, May 2021
Abstract:
Compared to the federal government, the average citizen in the U.S. has far greater interaction with city governments, including policing, health services, zoning laws, utilities, schooling, and transportation. At the regional level, it is city governments that provide the infrastructure and services that facilitate agglomeration economies in urban areas. However, there is relatively little empirical evidence on the operations of city governments as economic entities. To overcome deficiencies in traditional datasets, this paper amasses a novel, hand-collected dataset on city government finances to describe the functions, expenses, and revenues of the largest 39 cities in the United States from 2003 to 2018. First, city governments are large, with average revenues equivalent to the 78th percentile of U.S. publicly traded firms. Second, cities collect an increasingly large fraction of revenues through direct user fees, rather than taxes. By 2018, total charges for services equal tax revenue in the median city. Third, controlling for city fixed effects, population, and personal income, large city governments shrunk by 15% between 2009 and 2018. Finally, the growth rate of city expenses is more sensitive to population growth, while the growth rate of city revenues is more sensitive to income. These sensitivities lead smaller, poorer cities' expenses to grow faster than their revenues.
Experimental evidence about property tax word aversion
Eric Brunner, Mark Robbins & Bill Simonsen
Public Budgeting & Finance, forthcoming
Abstract:
A small but growing literature suggests that simply using the word "tax" can create a visceral negative reaction among citizens. We tested tax word aversion using a representative sample of US residents who are randomly placed into experimental conditions and asked parallel questions about their support for services (approval of a tax increase or a revenue increase). The only difference between the two questions is the word "tax." We find that the use of the word "tax" lowers support by about six and eight percentage points for fire and school services, respectively. This direct test of tax word aversion is based on a strong experimental design and a sufficient number of observations (over 4000) that allow for precise impact estimates.
Benchmarking the performance of US Municipalities
Caitlin O'Loughlin & Paul Wilson
Empirical Economics, June 2021, Pages 2665-2700
Abstract:
This paper examines the performance of US municipal governments over 1997-2012, and hence prior to, during and following the financial crisis of 2007-2008. Fully nonparametric methods are employed to estimate technical efficiencies of cities utilizing recently developed statistical results. The results strongly suggest non-convexity of the local governments' production set, calling into question the results of previous studies examining municipal efficiency that do not allow for non-convexity. We find strong evidence that production sets for municipal governments are different across time and across regions of the USA. Overall, we find that municipalities in the Midwest and South on average out-performed those in the Northeast and West in terms of both efficiency and productivity, and both before and after the financial crisis.
Human Capital and the Social Security Tax Cap
Adam Blandin
International Economic Review, forthcoming
Abstract:
This article assesses the revenue potential of removing the Social Security payroll tax cap. I do so within an overlapping generations (OLG) model featuring heterogeneous agents who endogenously invest in risky human capital. Removing the tax cap leads to a sizable increase in Social Security revenues, but also produces a decrease in federal income tax revenues. Taking both Social Security and income taxes into account, removing the tax cap does not raise sufficient revenues to offset looming demographic changes. One factor limiting revenue gains is that removing the tax cap reduces aggregate output, with human capital investment playing a central role.
Personal Bankruptcy and the Accumulation of Shadow Debt
Bronson Argyle et al.
NBER Working Paper, June 2021
Abstract:
Compiling new liability-level data from the balance sheets of personal bankruptcy filers, we document that a sizable share of reported liabilities are "shadow debt," debt not reported to credit bureaus that often arises from the non-payment of goods and services. We use this new data to evaluate how debtor cash flows affect when consumers file for bankruptcy and how much debt they have at bankruptcy. We find that filers respond to a quasi-exogenous $100 increase in monthly cash flows by delaying filing by an average of one month and by increasing unsecured indebtedness by $4,000 in the months preceding filing. A large share of the additional debt incurred by delaying filers is shadow debt, and our effects are concentrated among filers without employment, health, or marriage shocks.