Entrepreneurship and State Taxation
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 ...
Because of Monopolies, Income Inequality Significantly Understates Economic Inequality
In social science research, household income is widely used as a stand-in for, or approximation to, the economic well-being of households. In a parallel way, income-inequality has been employed as a stand-in for inequality of economic well-being, or for brevity, "economic-inequality." But there is a force in market economies, ones with extensive amounts of monopoly, like the United States, which leads income-inequality to understate economic-inequality. This force has not been recognized before and derives from how monopolies behave. Monopolies, of course, raise prices. This reduces the ...
Do long-haul truckers undervalue future fuel savings?
The U.S. federal government enacted fuel efficiency standards for medium and heavy trucks for the first time in September 2011. Rationales for using this policy tool typically depend upon frictions existing in the marketplace or consumers being myopic, such that vehicle purchasers undervalue the future fuel savings from increased fuel efficiency. We measure by how much long-haul truck owners undervalue future fuel savings by employing recent advances to the classic hedonic approach to estimate the distribution of willingness-to-pay for fuel efficiency. We find significant heterogeneity in ...
Asymmetric firm dynamics under rational inattention
We study the link between business failures, markups and business cycle asymmetry in the U.S. economy with a model of optimal firm exit under rational inattention. We show that the model's predictions of lagged, counter-cyclical and positively skewed markups together with counter-cyclical exit rates are consistent with the empirical evidence. Moreover, our model uncovers a new mechanism that links information processing with the business cycle. It predicts counter-cyclical attention to economic conditions consistent with survey evidence.
Pay, Employment, and Dynamics of Young Firms
Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, ...
COVID-19 Is a Persistent Reallocation Shock
Drawing on data from the firm-level Survey of Business Uncertainty, we present three pieces of evidence that COVID-19 is a persistent reallocation shock. First, rates of excess job and sales reallocation over 24-month periods have risen sharply since the pandemic struck, especially for sales. We compute these rates by aggregating over monthly firm-level observations that look back 12 months and ahead 12 months. Second, as of December 2020, firm-level forecasts of sales revenue growth over the next year imply a continuation of recent changes, not a reversal. Third, COVID-19 shifted relative ...
Monopolies Inflict Great Harm on Low- and Middle-Income Americans
Today, monopolies inflict great harm on low- and middle-income Americans. One particularly pernicious way they harm them is by sabotaging low-cost products that are substitutes for the monopoly products. I'll argue that the U.S. housing crisis, legal crisis, and oral health crisis facing the low- and middle-income Americans are, in large part, the result of monopolies destroying low-cost alternatives in these industries that the poor would purchase. These results would not surprise those studying monopolies in the first half of the 20th century. During this period extensive evidence was ...
The Welfare Costs of Misaligned Incentives: Energy Inefficiency and the Principal-Agent Problem
In many settings, misaligned incentives and inadequate monitoring lead employees to take self-interested actions contrary to their employer's wishes, giving rise to the classic principal-agent problem. In this paper, I identify and quantify the costs of misaligned incentives in the context of an energy efficiency appliance replacement program. I show that contractors (agents) hired by the electric utility (the principal) increase their compensation by intentionally misreporting program data to deliberately authorize replacement of non-qualified refrigerators. I provide empirical estimates of ...
The Economic Effects of Trade Policy Uncertainty
We study the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. We construct three measures of TPU based on newspaper coverage, firms' earnings conference calls, and aggregate data on tari rates. We document that increases in TPU reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms' export participation decisions. In the model as in the data, news and increased uncertainty about higher future ...
A unified approach to measuring u*
This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators, such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach, which employs reduced-form models and DSGE models, relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a ...