The earned income tax credit: recipients, labor force participation, and credit constraints
There has been a longstanding debate in the United States about how to assist low-income families. The Earned Income Tax Credit (EITC) is designed to augment income while encouraging work: The tax credit increases with earnings for low levels of household income, but declines and ultimately is phased out as incomes rise. The EITC appears to have increased labor force participation but its effects on hours worked is ambiguous. Given the low levels of net wealth of most EITC recipients, it is likely that many are credit constrained and unable to smooth their consumption patterns.
Consumption in the Great Recession: The Financial Distress Channel
During the Great Recession, the collapse of consumption across the U.S. varied greatly but systematically with house-price declines. We find that financial distress among U.S. households amplified the sensitivity of consumption to house-price shocks. We uncover two essential facts: (1) the decline in house prices led to an increase in household financial distress prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of financial distress prior to the recession was positively correlated with house-price declines at the onset of the recession. Using ...
The Payoff from the Earned Income Tax Credit
TFP, Prosperity, and the FOMC
Opinion article on TFP, Prosperity, and the FOMC.
Credit and self-employment
Limited personal liability for debts has long been justified as a tool to promote entrepreneurial risk taking by providing insurance to the borrower in the event of low returns. Nonetheless, such limits erode repayment incentives, and so may increase unsecured borrowing costs. Our paper is the first to evaluate the tradeoff between credit costs and insurance against failure. We build a life-cycle model with risky, and repeated, occupational choice in the presence of defaultable debt contracts. We find that limits to liability can encourage self-employment, and alter the timing, size, and ...
Expanding the Scope of Workforce Development
Workforce development efforts often are geared toward adult workers. But examining workforce development from the perspective of human capital theory suggests that earlier interventions may yield high returns.
Fresh start or head start? Uniform bankruptcy exemptions and welfare
The 1990's witnessed a historically unprecedented number of personal bankruptcy filings. In response, congressional debate over bankruptcy law has recently led to several proposals aimed at making it more difficult to exempt wealth in bankruptcy. In this paper, I evaluate uniform exemption policy primarily within the context of the recent congressional proposal H.R. 975. I develop an incomplete markets model where secured and unsecured assets coexist and are treated differentially in a bankruptcy proceeding. I find that exemptions are associated positively with filing rates and the amount of ...
Labor market upheaval, default regulations, and consumer debt
In 2005, bankruptcy laws were reformed significantly, making personal bankruptcy substantially more costly to file than before. Shortly after, the US began to experience its most severe recession in seventy years. While personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment, perhaps as a consequence of the reform. Moreover, in the subsequent recovery, households have been widely viewed as ?develeraging? (Mian and Sufi (2011), Krugman and Eggertson (2012)), an interpretation consistent with the largest reduction in the volume of unsecured debt in ...
Whom Will Opportunity Zones Help?
Opinion: Whom Will Opportunity Zones Help?
The supply of college-educated workers: the roles of college premia, college costs, and risk
Despite a large measured college premium, roughly one-third of all high-school graduates currently do not enroll in any form of college. Moreover, while recent increases in the premium have been accompanied by increases in enrollment, college attainment has remained flat. Our paper studies the roles played by college premia, college costs, and risk, ceteris paribus, for college enrollment and attainment in a simple quantitative model of risky college investment. Our results suggest that most U.S. high-school completers are currently inframarginal with respect to the college premium. We find, ...