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Working Paper
Tax Policy Endogeneity: Evidence from R&D Tax Credits
Chang, Andrew C. (2014-11-21)
Because policymakers may consider the state of the economy when setting taxes, endogeneity bias can arise in regression models that estimate relationships between economic variables and taxes. This paper quantifies the policy endogeneity bias and estimates the impact of R&D tax incentives on R&D expenditures at the U.S. state level. Identifying tax variation comes from changes in federal corporate tax laws that heterogeneously impact state-level R&D tax incentives due to the simultaneity of state and federal corporate taxes. With this exogenous variation, my preferred estimates indicate a 1 ...
Finance and Economics Discussion Series , Paper 2014-101

Working Paper
Effects of Gentrification on Homeowners: Evidence from a Natural Experiment
Ding, Lei; Hwang, Jackelyn (2020-04-16)
A major overhaul of the property tax system in 2013 in the city of Philadelphia has generated significant variations in the amount of property taxes across properties. This exogenous policy shock provides a unique opportunity to identify the causal effects of gentrification, which is often accompanied by increased property values, on homeowners’ tax payment behavior and residential mobility. The analysis, based on a difference-in-differences framework, suggests that gentrification leads to a higher risk of delinquency on homeowners’ tax bills on average, but there was no sign of a ...
Working Papers , Paper 20-16

Working Paper
Regional Consumption Responses and the Aggregate Fiscal Multiplier
Karabarbounis, Marios; Dupor, Bill; Mehkari, M. Saif; Kudlyak, Marianna (2018-02-20)
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 $0.18. 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 ...
Working Paper , Paper 18-4

Working Paper
Do Low-Income Rental Housing Programs Complement Each Other? Evidence from Ohio
Barkley, Brett; Higgins, Amy; Richter, Francisca (2014-11-19)
We characterize rental subsidy use in units developed with construction subsidies and explore whether the subsidy overlap responds to needs unmet by a tenant-based program alone. We present a subsidy allocation model allowing for program complementarity to guide our analysis of multiple subsidy use in Low Income Housing Tax Credit (LIHTC) units. Findings for Ohio in 2011 suggest that rental assistance in LIHTC exhibits some degree of subsidy complementarity, particularly, when serving very poor households with special housing needs. We also find that very low income voucher holders who face a ...
Working Papers (Old Series) , Paper 1429

Working Paper
Entrepreneurship and State Taxation
Decker, Ryan A.; Curtis, E. Mark (2018-01-11)
Entrepreneurship plays a vital role in the economy, yet there exists little well-identified research into the effects of taxes on startup activity. Using recently developed county-level data on startups, we examine the effect of states' corporate, personal and sales tax rates on new firm activity and test for cross-border spillovers in response to these policies. We find that new firm employment is negatively?and disproportionately?affected by corporate tax rates. We find little evidence of an effect of personal and sales taxes on entrepreneurial outcomes. Our results are robust to changes in ...
Finance and Economics Discussion Series , Paper 2018-003

Journal Article
COVID-19 Challenges State and Local Government Finances
Felix, Alison (2020-05-13)
As the coronavirus pandemic wreaks havoc on the U.S. economy, state and local governments will not be immune from the pain. In the near term, governments face liquidity challenges, as many tax deadlines have been postponed. In the longer term, governments will experience large revenue declines that may lead to significant budget cuts.
Economic Bulletin , Issue May 13, 2020 , Pages 4

Working Paper
Saving for a rainy day: estimating the appropriate size of U.S. state budget stabilization funds
Zhao, Bo (2014-10-01)
Rainy day funds (RDFs) are potentially an important countercyclical tool for states to stabilize their budgets and the overall economy during economic downturns. However, U.S. states have often found themselves exhausting their RDFs and having to raise tax rates or reduce expenditures while still experiencing a downturn. Therefore, how much each state should save in its RDF has become an increasingly important policy question. To address this issue, this paper applies several new methodologies to develop target RDF levels for each U.S. state, based on the estimated short-term revenue ...
Working Papers , Paper 14-12

Working Paper
Politicians Avoid Tax Increases Around Elections
Chang, Andrew C.; Cohen, Linda R.; Glazer, Amihai; Paul, Urbashee (2021-01-29)
We use new annual data on gasoline taxes and corporate income taxes from U.S. states to analyze whether politicians avoid tax increases in election years. These data contain 3 useful attributes: (1) when state politicians enact tax laws, (2) when state politicians implement tax laws on consumers and firms, and (3) the size of tax changes. Using a pre-analysis research plan that includes regressions of tax rate changes and tax enactment years on time-to-gubernatorial election year indicators, we find that elections decrease the probability of politicians enacting increases in taxes and reduce ...
Finance and Economics Discussion Series , Paper 2021-004

Cedar Valley Kids: Addressing Local Childcare Needs Through Community Collaboration and Employer Partnerships
Ingram, Dustin; Castro, Maria (2024-06)
As part of the Chicago Fed’s Spotlight on Childcare and the Labor Market, we describe the Black Hawk County Child Care Coalition—a burgeoning alliance of community partners in northeast Iowa working to create a local solution for a local challenge. We also explain what went into recently launching the Cedar Valley Kids (CVK) childcare facility in Black Hawk County—the culmination of years of effort by the coalition to help address local childcare shortages in the wider six-county region.
Chicago Fed Insights

Working Paper
From urban core to wealthy towns: nonschool fiscal disparities across Connecticut municipalities
Zhao, Bo (2015-08-01)
Fiscal disparities occur when economic resources and public service needs are unevenly distributed across localities. There are two equity concerns associated with fiscal disparities. First, as Yinger (1986) shows, it is not considered fair to require two otherwise-identical households to pay a different amount of taxes for the same level of public services simply because they live in different towns. Second, fiscal disparities render some towns at a disadvantage in economic competition (Downes and Pogue 1992). These towns must impose a higher tax rate and/or provide a lower level of public ...
Working Papers , Paper 15-14

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