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Working Paper
The Optimal Taxation of Business Owners
Business owners in the United States are disproportionately represented among the very wealthy and are exposed to substantial idiosyncratic risk. Further, recent evidence indicates business income primarily reflects returns to the human (rather than financial) capital of the owner. Motivated by these facts, this paper characterizes the optimal taxation of income and wealth in an environment where business income depends jointly on innate ability, luck, and the accumulated past effort exerted by the owner. I show that in (constrained) efficient allocations, more productive entrepreneurs ...
Journal Article
Modeling Behavioral Responses to COVID-19
Many models have been developed to forecast the spread of the COVID-19 virus. We present one that is enhanced to allow individuals to alter their behavior in response to the virus. We show how adding this feature to the model both changes the resulting forecast and informs our understanding of the appropriate policy response. We find that when left to their own devices, individuals do curb their social activity in the face of risk, but not as much as a government planner would. The planner fully internalizes the effect of all individuals’ actions on others in society, while individuals do ...
Journal Article
Two Approaches to Predicting the Path of the COVID-19 Pandemic: Is One Better?
We compare two types of models used to predict the spread of the coronavirus, both of which have been used by government officials and agencies. We describe the nature of the difference between the two approaches and their advantages and limitations. We compare examples of each type of model—the University of Washington IHME or “Murray” model, which follows a curve-fitting approach, and the Ohio State University model, which follows a structural approach.
Working Paper
The Optimal Taxation of Business Owners
Business owners in the United States are disproportionately represented among the wealthy and are exposed to substantial idiosyncratic risk. Further, recent evidence indicates that business income primarily reflects returns to the human capital of the owner. Motivated by these facts, this paper characterizes stationary efficient allocations and optimal linear taxes on income and wealth when business income depends on innate ability, luck, and the past effort of the owner. I first show that in stationary efficient allocations, more productive entrepreneurs typically bear more risk and the ...
Journal Article
Student debt incidence: recent data and conceptual issues
In recent years, the rising level of student debt has led to calls for increased government assistance in the form of partial or full student debt cancellation. In this Commentary, we use the 2019 Survey of Consumer Finances (SCF) to study the incidence of student debt and cancellation benefits along quantiles of household income, net worth, and our estimate of lifetime wealth. We show that student debt is highly concentrated among households with low net worth, but much more evenly distributed across income and lifetime wealth. We then highlight several challenges in using such statistics to ...
Journal Article
Improving Epidemic Modeling with Networks
Many of the models used to track, forecast, and inform the response to epidemics such as COVID-19 assume that everyone has an equal chance of encountering those who are infected with a disease. But this assumption does not reflect the fact that individuals interact mostly within much narrower groups. We argue that incorporating a network perspective, which accounts for patterns of real-world interactions, into epidemiological models provides useful insights into the spread of infectious diseases.
Working Paper
On the Optimality of Differential Asset Taxation
How should a utilitarian government balance redistributive concerns with the need to provide incentives for business creation and investment? Should they tax business profits, the (risk-free) savings of owners, or some combination of both? To address this question, this paper presents a model in which the desirability of differential asset taxation emerges endogenously from the presence of agency frictions. I consider an environment in which entrepreneurs hire workers and rent capital to produce output subject to privately observed shocks and have the ability to both divert capital to private ...
Working Paper
On the Optimality of Differential Asset Taxation
In this paper I study the optimality of differential asset taxation in an environment with entrepreneurs and workers in which output is stochastic and entrepreneurs can misreport profits and abscond with capital. I show that a stationary efficient allocation may be implemented as an equilibrium with endogenous collateral constraints, transfers to newborns, and linear taxes on profits, investment, and interest. Further, these taxes differ from one another and serve distinct purposes. The profits tax shares risk and depends solely on the severity of the misreporting friction, while the ...
Journal Article
The Evolution of Student Debt 2019–2022: Evidence from the Survey of Consumer Finances
In recent years, economists and policymakers have been interested in the burden of student debt across socioeconomic groups. In this Economic Commentary, we use the two most recent waves of the Survey of Consumer Finances, collected in 2019 and 2022, to study changes in the joint distribution of student debt and two measures of “ability-to-pay,” income and net worth. We find that between 2019 and 2022, both the fraction of families with student debt and real student debt per family were essentially unchanged, and aggregate student debt fell as a fraction of aggregate income and net worth. ...
Working Paper
Applications of Markov Chain Approximation Methods to Optimal Control Problems in Economics
In this paper we explore some of the benefits of using the finite-state Markov chain approximation (MCA) method of Kushner and Dupuis (2001) to solve continuous-time optimal control problems. We first show that the implicit finite-difference scheme of Achdou et al. (2017) amounts to a limiting form of the MCA method for a certain choice of approximating chains and policy function iteration for the resulting system of equations. We then illustrate the benefits of departing from policy function iteration by showing that using variations of modified policy function iteration to solve income ...