Money on the Table
Tell Me Something I Don’t Already Know: Learning in Low and High-Inflation Settings
Michael Weber et al.
NBER Working Paper, July 2023
Abstract:
Using randomized control trials (RCTs) applied over time in different countries, we study how the economic environment affects how agents learn from new information. We show that as inflation has recently risen in advanced economies, both households and firms have become more attentive and informed about inflation, leading them to respond less to exogenously provided information about inflation and monetary policy. We also study the effects of RCTs in countries where inflation has been consistently high (Uruguay) and low (New Zealand) as well as what happens when the same agents are repeatedly provided information in both low- and high-inflation environments (Italy). Our results broadly support models in which inattention is an endogenous outcome that depends on the economic environment.
Heterogeneous responses to corporate marginal tax rates: Evidence from small and large firms
Ruhollah Eskandari & Morteza Zamanian
Journal of Applied Econometrics, forthcoming
Abstract:
Do small and large firms respond differently to tax cuts? Using new narrative measures of the exogenous variation in corporate marginal tax rates and a unique dataset of US manufacturing firms, we find that the investment of large firms is more sensitive to a marginal tax cut than that of small firms. Furthermore, we show that small firms finance their new investments almost entirely through debt, whereas large firms use both cash and debt. Following a tax cut, the tax advantage of debt financing falls relative to cash financing. This substitution effect is more pronounced for large firms and induces them to rely on cash financing to a larger extent than small firms.
Do corporate taxes affect employee welfare? Evidence from workplace safety
Daniel Bradley, Connie Mao & Chi Zhang
Journal of Accounting and Public Policy, July-August 2023
Abstract:
We examine the impact of tax policy on worker safety that exploits spatial discontinuity in treatment and control establishments stemming from state-level corporate tax changes. The granularity of our data and econometric approach allows us to exploit within-firm, across-establishment variation in worker safety shedding light on the real effects of headquarter versus plant-level decisions. Plant-level injury rates increase with tax hikes in establishment states, but not with those in headquarter states, highlighting the importance of plant-level decisions. We explore three plausible non-mutually exclusive mechanisms to help explain these findings -- safety investment, leverage, and labor stress channels. We find that in the presence of a tax hike, firms reduce safety-related investments, and the tax effect on injury rates is exacerbated for firms that increase leverage and for firms where employees work longer hours and seasonal workers are used. Overall, our findings suggest that tax increases lead to negative welfare outcomes for employees, with no similar benefit accruing for tax cuts.
Long-lived employment effects of delays in emergency financing for small businesses
Cynthia Doniger & Benjamin Kay
Journal of Monetary Economics, forthcoming
Abstract:
Delays in the provision of loans under Paycheck Protection Program due to the rapid exhaustion of initial funding had a large and persistent negative effect on employment. We estimate that increasing the size of the initial PPP funding by 10 percent could have increased employment by over 2 million jobs through the summer of 2020 and more than 1 million jobs through the fall. The implied costs per job saved are low for a stimulus program, while our effect sizes are in line with recent estimates of the effects of payment timing and the costs of external financing for small businesses. In addition, the smallest firms were most likely to face delay and we find suggestive evidence that the costs of delay were more acute for workers in these firms and for the self-employed. Heterogeneous effects are consistent with these borrowers facing greater difficulty in obtaining alternative financing and suggests that a more targeted program could have achieved even greater efficacy.
Did Pandemic Relief Fraud Inflate House Prices?
John Griffin, Samuel Kruger & Prateek Mahajan
University of Texas Working Paper, June 2023
Abstract:
Pandemic fraud facilitated by FinTech lenders exhibited significant geographic concentration, which makes it a unique setting to examine the effects of excess local stimulus cashflow on local purchases and prices. We first examine effects on a highly immovable local good -- housing. At the individual level, fraudulent PPP loan recipients significantly increase their home purchase rate after receiving the loan compared to non-fraudulent PPP recipients. At the zip code level, house prices in high fraud zip codes increase 5.7 percentage points more than in low fraud zip codes within the same county, with similar effects even after controlling for land supply, prior house price growth, teleworkability, population density, net migration, distance to central business district, and previous rates of remote work. This effect is entirely driven by fraudulent loans from FinTech lenders, and non-fraudulent lending has no such effect. Matching, synthetic controls, and an instrumental variables identification strategy based on social connections to distant zip codes yield similar results. Outside of the housing market, local PPP fraud also predicts consumer spending at the census tract level in 2020 and 2021 with a return to normal in 2022.
Emergence of subprime lending in minority neighborhoods
Eglė Jakučionytė & Swapnil Singh
Real Estate Economics, forthcoming
Abstract:
Subprime lending is concentrated in minority neighborhoods. However, the literature provides little evidence for what led to this concentration. We use the endorsement of credit scores in mortgage underwriting by the Government Sponsored Enterprises (GSEs) in 1995 to answer this question. We show that prime lenders were substituted by subprime lenders in minority neighborhoods. As a result, the share of subprime lending increased by 5 percentage points in minority neighborhoods, relative to nonminority neighborhoods. Prime lenders with a stronger relationship with the GSEs reduced their lending in minority neighborhoods more, and the level of securitization by the GSEs in minority neighborhoods also decreased.
Do tax credits benefit charities? Evidence from two states
Anubhav Gupta & Thomas Luke Spreen
Contemporary Economic Policy, forthcoming
Abstract:
This paper considers the effect of state charitable giving tax credits on the contribution revenues of eligible charities. Using event studies paired with Form 990 data, we detect no significant change in contributions to qualified nonprofits after the elimination of a $100 per taxpayer credit by Michigan. By contrast, we find a significant increase in contributions to qualified charities following the introduction of a $10,000 per taxpayer credit by North Dakota that persists for several years. The results suggest that placing a large cap on charitable giving tax credits induces stronger donor responses.
Did the U.S. Really Grow Out of Its World War II Debt?
Julien Acalin & Laurence Ball
NBER Working Paper, August 2023
Abstract:
The fall in the U.S. public debt/GDP ratio from 106% in 1946 to 23% in 1974 is often attributed to high rates of economic growth. This paper examines the roles of three other factors: primary budget surpluses, surprise inflation, and pegged interest rates before the Fed-Treasury Accord of 1951. Our central result is a simulation of the path that the debt/GDP ratio would have followed with primary budget balance and without the distortions in real interest rates caused by surprise inflation and the pre-Accord peg. In this counterfactual, debt/GDP declines only to 74% in 1974, not 23% as in actual history. Moreover, the ratio starts rising again in 1980 and in 2022 it is 84%. These findings imply that, over the last 76 years, only a small amount of debt reduction has been achieved through growth rates that exceed undistorted interest rates.