Big Dollars
Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier
Joonkyu Choi, Veronika Penciakova & Felipe Saffie
NBER Working Paper, June 2024
Abstract:
We study the role of firms' political influence on the effectiveness of government spending using ARRA as a laboratory. Through an IV approach, we show that a 10 percentage points increase in the share of politically connected spending lowers the job creation effect of stimulus by 33 percent at the state level. We exploit ex-post close state-level elections to establish that firms that contributed to winning candidates create fewer jobs after winning grants. Using a quantitative general equilibrium model, we show that politically connected spending also lowers the aggregate jobs multiplier, and that the dampening effect is rationalized by connected firms charging higher markups.
Personal Tax Changes and Financial Well-Being: Evidence from the Tax Cuts and Jobs Act
Christine Dobridge, Joanne Hsu & Michael Zabek
Federal Reserve Working Paper, May 2024
Abstract:
We estimate the effects of personal income tax decreases on financial well-being, including qualitative subjective assessments and quantitative measures. A plausibly causal design shows that tax decreases in the Tax Cuts and Jobs Act made survey respondents more likely to say they were "living comfortably" financially, with null effects at lower levels of subjective financial well-being. Estimates from a similar design using credit bureau data show that people who had larger tax decreases were modestly more likely to open new accounts, and more likely to have higher consumer credit balances. Tax decreases had effects on credit scores that are indistinguishable from zero. Results suggest that larger tax decreases improve financial well-being in ways not fully proxied by typical administrative data.
Partisan Expectations and COVID-Era Inflation
Carola Binder, Rupal Kamdar & Jane Ryngaert
NBER Working Paper, July 2024
Abstract:
We document that, during the COVID-19 era, the inflation expectations of Democrats remained strongly anchored, while those of Republicans did not. Republicans' expectations not only rose well above the inflation target, but also became more sensitive to a variety of shocks, including CPI releases and energy prices. We then exploit geographic variation in political affiliation at the MSA level to show that the partial de-anchoring of expectations had implications for realized inflation. Counterfactual exercises imply that, had all expectations become as unanchored as those of Republicans, average inflation would have been two to three percentage points higher for much of the pandemic period, ceteris paribus.
Government Litigation Risk and the Decline in Low-Income Mortgage Lending
Scott Frame et al.
Federal Reserve Working Paper, July 2024
Abstract:
We study the effect of Department of Justice lawsuits in the 2010s against large lenders for alleged fraud in the Federal Housing Administration (FHA) mortgage insurance program. The suits led to more than $5 billion in settlements and caused targeted banks and their peers to precipitously exit the FHA market. Difference-in-differences and triple differences tests exploiting geographic variation in exposure to exiting banks show a 20 percent reduction in FHA lending in heavily exposed areas. This reduction was not associated with improved underwriting standards or lower default rates. Large banks' FHA exit has significantly reduced low-income households' overall access to mortgage credit.
How Big is Small? The Economic Effects of Access to Small Business Subsidies
David Brown et al.
Census Bureau Working Paper, June 2024
Abstract:
Industry size standards that determine eligibility for small business subsidies have vastly increased over the past decade. We exploit quasi-random variation in the implementation of size standard increases to study the effects on small firms, subsidy allocation, and industry outcomes using Census Bureau microdata. Following size standard increases, revenues decline for an industry's smallest firms, and they are less likely to survive. We link these effects to a reallocation of government procurement contracts from smaller to larger firms. Consequently, industries become more concentrated and growth declines. These findings highlight the broad economic effects of changing eligibility for small business subsidies.
Paying Your Fair Share: Perceived Fairness and Tax Compliance
Brad Nathan, Ricardo Perez-Truglia & Alejandro Zentner
NBER Working Paper, June 2024
Abstract:
We provide evidence on the role of fairness for tax compliance: households are willing to pay more in taxes if they believe that other households are contributing their fair share. We conducted an information-disclosure natural field experiment in the context of property taxes in the United States. We induced exogenous shocks to households' perceptions about the average tax rate paid by other households. We find that a higher perceived average tax rate decreases the probability of filing a tax appeal. Translating our estimates into a money metric, we find that for each additional $1 contributed by the average household, a taxpayer is willing to pay an extra $0.43 in his or her own taxes.