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Working Paper
Corporate income tax, legal form of organization, and employment
We adopt a dynamic stochastic occupational choice model with heterogeneous agents and evaluate the impact of a potential reduction in the corporate income tax on employment. We show that a reduction in corporate income tax leads to moderate job creation. In the extreme case, the elimination of the corporate income tax would reduce the non-employed population by 5.4 percent. In the model, a reduction in the corporate income tax creates jobs through two channels, one from new entry firms and one from existing firms changing their form of legal organization. In particular, the latter accounts ...
Working Paper
Interjurisdictional Competition and Location Decisions of Firms
We examine the welfare properties of alternative regimes of interjurisdictional competition for heterogenous mobile firms. Firms differ not only in terms of the degree of mobility across jurisdictions but also in terms of productivity. Alternative taxation regimes represent restraints on the discretionary powers of taxation of local governments. We find that average welfare is higher under discretionary and more efficient taxation regimes (in the sense of minimizing deadweight losses from distortionary taxation) when firms are highly mobile. In this situation, further limiting competition by ...
Working Paper
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 ...
Journal Article
Accounting for the Effects of Fiscal Policy Shocks on Exchange Rates through Markup Dynamics
This study investigates how fiscal policy shocks affect the external sector through markup dynamics in advanced and developing economies. We focus on the role of markup dynamics as a channel through which fiscal policy has a distinct effect on real exchange rates. Using panel data from 32 countries, we employ a local projection to evaluate the impact of expansionary fiscal policy shocks on real exchange rates, markups, and current accounts. Our empirical findings show distinct responses to the shocks among advanced and developing countries regarding the real exchange rate, due to different ...
Working Paper
The Role of Transfer Prices in Profit-Shifting by U.S. Multinational Firms : Evidence from the 2004 Homeland Investment Act
Using unique transaction-level microdata, this paper documents profit-shifting behavior by U.S. multinational firms via the strategic transfer pricing of intra-firm trade. A simple model reveals how differences in tax rates, both the corporate tax rates across countries and the dividend repatriation tax rate over time, affect the worldwide profit-maximizing transfer-prices set by firms for intra-firm exports and imports. I test the predictions of the model in the context of the 2004 Homeland Investment Act (HIA), a one-time tax repatriation holiday which generated a discreet change in the ...
Working Paper
Tax Policy Endogeneity: Evidence from R&D Tax Credits
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 ...
Report
The Effect of Bank Monitoring on Loan Repayment
Monitoring is one of the main activities explaining the existence of banks, yet empirical evidence about its effect on loan outcomes is scant. Using granular loan-level information from the Italian Credit Register, we build a novel measure of bank monitoring based on banks’ requests for information on their existing borrowers and we investigate the effect of bank monitoring on loan repayment. We perform a causal analysis exploiting changes in the regional corporate tax rate as a source of exogenous variation in bank monitoring. Our identification strategy is supported by a theoretical model ...
Working Paper
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 ...
Working Paper
Corporate tax cuts and the decline of the manufacturing labor share
We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 percent to 60 percent of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital-intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the ...