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Working Paper
Did the 2017 Tax Reform Discriminate against Blue State Voters?
The Tax Cut and Jobs Act of 2017 (TCJA) made significant changes to corporate and personal federal income taxation, including limiting the SALT (state and local property, income and sales taxes) deductibility to $10,000. States with high SALT tend to vote Democratic. This paper estimates the differential effect of the TCJA on red- and blue-state taxpayers and investigates the importance of the SALT limitation to this differential. We calculate the effect of permanent implementation of the TCJA on households using The Fiscal Analyzer: a life-cycle, consumption-smoothing program incorporating ...
Working Paper
Global Flight to Safety, Business Cycles, and the Dollar
We develop a two-country macroeconomic model that we fit to a set of aggregate prices and quantities for the U.S. and the rest of the world. In addition to a standard array of shocks, the model includes time variation in agents’ preference for safe bonds. We allow for a component of this time variation to be common across countries and biased toward dollar-denominated safe assets, and refer to this component as global flight to safety (GFS). We find that GFS shocks are the most important shocks driving world business cycles, and are also important drivers of activity in the U.S. and ...
Working Paper
Changes in the Distribution of After-Tax Wealth: Has Income Tax Policy Increased Wealth Inequality?
A substantial share of the wealth of Americans is held in tax-deferred form such as in retirement accounts or as unrealized capital gains. Most data and statistics on assets and wealth is reported on a pre-tax basis, but pre-tax values include an implicit tax liability and may not provide as accurate a measure of the financial position or material well-being of families. In this paper, we describe the distribution of tax-deferred assets in the SCF from 1989 to 2013, provide new estimates of the income tax liabilities implicit in those assets, and present new statistics on the level and ...
Working Paper
The Macroeconomic Effects of Trade Policy
We study the short-run macroeconomic effects of trade policies that are equivalent in a friction-less economy, namely a uniform increase in import tariffs and export subsidies (IX), an increase in value-added taxes accompanied by a payroll tax reduction (VP), and a border adjustment of corporate pro.t taxes (BAT). Using a dynamic New Keynesian open-economy framework, we summarize conditions for exact neutrality and equivalence of these policies. Neutrality requires the real exchange rate to appreciate enough to fully offset the effects of the policies on net exports. We argue that a ...
Working Paper
Heterogeneous Workers and Federal Income Taxes in a Spatial Equilibrium
This paper studies the incidence and efficiency of a progressive income tax in a spatial equilibrium. We use US census data to estimate an empirical spatial equilibrium with heterogeneous workers, landowners, and firms. The US income tax shifts skilled workers out of high-productivity cities, leading to a deadweight loss of 2% of tax revenue. Flattening the tax schedule significantly increases welfare inequality between skilled and unskilled workers and does not increase overall worker welfare, as the efficiency gains are captured by landowners. This suggests that progressive income taxes ...
Working Paper
Global Flight to Safety, Business Cycles, and the Dollar
We develop a two-country macroeconomic model that we fit to a set of aggregate prices and quantities for the U.S. and the rest of the world. In addition to a standard array of shocks, the model includes time variation in agents’ preference for safe bonds. We allow for a component of this time variation to be common across countries and biased toward dollar-denominated safe assets, and refer to this component as global flight to safety (GFS). We find that GFS shocks are the most important shocks driving world business cycles, and are also important drivers of activity in the U.S. and ...
Working Paper
Young Unskilled Women and the Earned Income Tax Credit: Insurance Without Disincentives?
The Earned Income Tax Credit (EITC) is the single most important transfer program in place in the United States. An aspect of the EITC that has received little attention thus far is its role as a public insurance program. Yet, the structure of the EITC necessarily protects its primary class of recipients, unskilled single mothers, against major risks they face to both wages and changes in family structure. Our study provides the first quantitative statement about the insurance provided by the EITC. We study a dynamic model of consumption, savings, and labor supply in which households face ...
Working Paper
Hidden Baggage : Behavioral Responses to Changes in Airline Ticket Tax Disclosure
We examine the impact on air travelers of an enforcement action issued by the U.S. Department of Transportation in January 2012 that required U.S. air carriers and online travel agents to incorporate all mandatory taxes and fees into their advertised fares. Exploiting cross-itinerary ticket tax variation within international city market pairs, we provide evidence that the more prominent display of tax-inclusive prices is associated with a significant reduction in tax incidence on consumers and a decline in passenger volume along more heavily-taxed itineraries. Ticket revenues are ...
Working Paper
Trade policies and fiscal devaluations
Fiscal devaluations—an increase in import tariffs and export subsidies (IX) or an increase in value-added taxes and payroll subsidies (VP)—have been shown to provide as much stimulus under fixed exchange rates as a currency devaluation. We find that if agents expect policies to be reversed and the tax pass-through is large, VP is contractionary and IX provides a modest boost. In our medium-scale DSGE model, both features are crucial in accounting for Germany’s underperformance in response to VP in 2007. These findings cast doubt on fiscal devaluations as a cyclical stabilization tool ...
Report
Assessing the Relative Progressivity of the Biden Administration’s Federal Student Loan Forgiveness Proposal
We quantify the total stock of balances eligible for the Biden Administration’s student loan forgiveness policy announced and examine which groups benefit most. Up to $442 billion in loans are eligible. Those benefiting most are younger, have lower credit scores, and live in lower- and middle-income neighborhoods. We also find that Black and Hispanic borrowers disproportionately benefit from the proposal. We then compare the distribution of beneficiaries for the announced policy to several alternative hypothetical forgiveness proposals and three existing tax credits. The additional ...