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Working Paper
Regional Consumption Responses and the Aggregate Fiscal Multiplier
We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in Nielsen and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases consumer spending by $0.29. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents and incomplete markets. Our model successfully generates the ...
Briefing
How Did Pandemic UI Benefits Affect Employment Recovery in Local Industry Markets?
We analyze the employment recovery of low-wage establishments relative to the employment recovery of high-wage establishments within local labor markets, and we find a slower recovery in low-wage establishments. We associate the difference with the expanded generosity of pandemic unemployment insurance (UI) supplements, which have a larger negative effect on the job-filling rate of low-paying establishments. We use a model of labor search to translate our establishment-level observations into a disincentive effect of pandemic UI benefits at the worker level.
Briefing
How Can We Make a Progressive Tax System More Efficient?
In the U.S., income tax rates rise as households earn more. However, such a system means workers have a reduced incentive to increase their earnings. In this article, I discuss a finding from one of my papers that explores the possible effects of targeting tax rates on additional characteristics besides income.
Working Paper
Heterogeneity in labor supply elasticity and optimal taxation
Standard public finance principles imply that workers with more elastic labor supply should face smaller tax distortions. This paper quantitatively tests the potential of such an idea within a life-cycle model with heterogeneous two-member households. I find that younger and older-wealthier households have a larger labor supply elasticity than middle-aged households. The same is true for household members who are not the sole financial provider in the unit relative to primary breadwinners. To decrease inefficient distortions I study a tax system that uses information on the age, assets, and ...
Working Paper
Misallocation and Credit Market Constraints: the Role of Long-Term Financing
We measure aggregate productivity loss due to credit market constraints in a model with endogenous borrowing constraints, long-duration bonds, and costly equity payouts. Due to long-duration bonds, the model generates a realistic distribution of credit spreads. We structurally estimate our model using firm-level data on credit spreads from Thomson Reuters Bond Security Data and balance sheet data from Compustat. Credit market constraints increase aggregate productivity by 0.4% through their effect on the credit spread distribution. However, credit market constraints also interact with costly ...
Briefing
Does Infrastructure Spending Boost the Economy?
Public infrastructure investment is not like other government stimulus. Public investment acts as a typical demand stimulus but also provides important services to the private sector to assist with production of goods. This article analyzes the effects of public investment — especially highway construction, which is traditionally one of the largest components of public investment — on output. Dynamic effects turn out to be very important: Most studies find substantial benefits for the economy not in the immediate aftermath of the investment spending but a few years ahead.
Briefing
How Important Are Asset Price Fluctuations for Business Investment?
Previous recessions in the U.S. revealed to economists and policymakers that weak macroeconomic conditions may have been worsened by financial distress. Economists have theorized that this association is explained by a decline in physical asset prices that often precede recessions. When physical asset prices decline, firms pledge less-valuable assets to banks, which leads banks to reduce lending. Consequently, firms are not able to finance their investments, which reduces overall economic activity. In this article, we review more recent literature that may indicate that this mechanism is ...
Journal Article
Does Bank Lending Matter for Large Firms' Investment?
This paper analyzes how firm investment is affected by changes in bank lending. The analysis uses firm-level data on investment and bank loan issuance. To capture variations in credit availability, I use a firm's exposure to banks that experienced financial disruptions, in the spirit of Chodorow-Reich (2014). I find that firms in lending relationships with banks that sharply decreased their lending did not significantly decrease their investment compared with firms in relationships with healthier banks. In contrast, more traditional measures of bank lending show a strong correlation between ...
Working Paper
Income Volatility and Portfolio Choices
Based on administrative data from Statistics Norway, we find economically significant shifts in households' financial portfolios around structural breaks in income volatility. When the standard deviation of labor-income growth doubles, the share of risky assets decreases by 4 percentage points. We ask whether this estimated marginal effect is consistent with a standard model of portfolio choice with idiosyncratic volatility shocks. The standard model generates a much more aggressive portfolio response than we see in the data. We show that Bayesian learning about the underlying volatility ...