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Working Paper
Implications of Student Loan COVID-19 Pandemic Relief Measures for Families with Children
The initial years of the COVID-19 pandemic and the resulting economic fallout likely posed particular financial strain on U.S. households with children, who faced income disruptions from widespread jobs and hours cuts in addition to new childcare and instruction demands. One common expense for many such households is their student loan payment. The Coronavirus Aid, Relief, and Economic Security (CARES) Act included provisions to curb the impacts of these payments, which have been extended several times. These measures were not targeted and thus applied independent of need. This chapter ...
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 ...
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
Relationship lending in the interbank market and the price of liquidity
We empirically investigate the effect that relationship lending has on the availability and pricing of interbank liquidity. Our analysis is based on a daily panel of unsecured overnight loans between 1,079 distinct German bank pairs from March 2006 to November 2007, a period that includes the 2007 liquidity crisis that marked the beginning of the 2007/08 global financial crisis. We find that (i) relationship lenders are more likely to provide liquidity to their closest borrowers, (ii) particularly opaque borrowers obtain liquidity at lower rates when borrowing from their relationship lenders, ...
Working Paper
Risk Management for Sovereign Debt Financing with Sustainability Conditions
We develop a model of debt sustainability analysis with optimal financing decisions in the presence of macroeconomic, financial and fiscal uncertainty. We define a coherent measure of refinancing risk, and trade off the risks of debt stock and flow dynamics, subject to debt sustainability constraints and endogenous risk and term premia. We optimize both static and dynamic financing strategies, compare them with several simple rules and consol financing to demonstrate economically significant effects of optimal financing, and show that the stock-flow tradeoff can be critical for ...
Working Paper
Top Income Concentration and Volatility
Measures of income concentration?such as the share of income received by the highest income families?may be biased by pro-cyclical volatility in annual income. Permanent income, though, can smooth away such volatility and sort families by their usual economic resources. Here, we demonstrate this bias using rolling 3-year panels of IRS tax records from 1997 to 2013 as a proxy for permanent income. For example, one measure of 2012 income concentration?the share of income received by the top 0.1 percent?falls from 11.3 percent to 8.9 percent when families are organized by permanent income ...
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Financial life after the death of a spouse
The death of a spouse results in a considerable decline in average income for the surviving spouse. The Social Security survivors benefits program compensates the surviving spouse, most often a woman, for almost all of the lost income, allowing them to work less, but many widows who are not yet eligible for the program struggle to meet their financial needs.
Working Paper
Implications of Student Loan COVID-19 Pandemic Relief Measures for Families with Children
The initial years of the COVID-19 pandemic and the resulting economic fallout likely posed particular financial strain on U.S. households with children, who faced income disruptions from widespread jobs and hours cuts in addition to new childcare and instruction demands. One common expense for many such households is their student loan payment. The Coronavirus Aid, Relief, and Economic Security (CARES) Act included provisions to curb the impacts of these payments, which have been extended several times. These measures were not targeted and thus applied independent of need. This chapter ...
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 ...
Working Paper
On the Optimality of Differential Asset Taxation
How should a government balance risk-sharing and redistributive concerns with the need to provide incentives for investment? Should they tax firm profits or individual savings, or simply levy lump-sum transfers? I address these questions in an environment with entrepreneurs and workers in which output is subject to privately observed shocks and firm owners can both misreport profits and abscond with a fraction of assets. When frictions in financial markets restrict private risk-sharing, the stationary efficient allocation may be implemented in a competitive equilibrium with collateral ...