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Working Paper
Expansionary Austerity: Reallocating Credit Amid Fiscal Consolidation
We study the impact of public debt limits on economic growth exploiting the introduction of a Mexican law capping the debt of subnational governments. Despite larger fiscal consolidation, states with higher ex-ante public debt grew substantially faster after the law, albeit at the expense of increased extreme poverty. Credit registry data suggests that the mechanism behind this result is a reduction in crowding out. After the law, banks operating in more indebted states reallocate credit away from local governments and into private firms. The unwinding of crowding out is stronger for riskier ...
Working Paper
How low can you go? Charity reporting when donations signal income and generosity
Consistent with nonprofit fundraising practices, donation visibility has been shown to increase giving. While concern for status is used to explain this response, the authors argue that this explanation relies on the assumption that giving signals only income or generosity. When giving signals both attributes overall status need not increase in donations, and donation-visibility may be harmful when individuals prefer to be perceived as poor-and-generous rather than rich-and-stingy. Using an experiment the authors find that both income-status and generosity-status concerns affect behavior. ...
Report
Did the Medicaid Expansion Crowd Out Other Payment Sources for Medications for Opioid Use Disorder? Evidence from Rhode Island
Using information from the all-payer claims database for Rhode Island covering more than three-quarters of health insurance enrollees in the state from April 2011 through May 2019, this paper offers new measures of the association between the Medicaid expansion and the rate of receipt of buprenorphine and methadone for opioid use disorder (OUD). These robust measures adjust for the extent to which new Medicaid payments for these medications that started in 2014 crowded out payments from either non-Medicaid insurance or from non-insurance subsidies for the treatment of opioid abuse. We find ...
Working Paper
Preventing Controversial Catastrophes
In a market-based democracy, we model different constituencies that disagree regarding the likelihood of economic disasters. Costly public policy initiatives to reduce or eliminate disasters are assessed relative to private alternatives presented by financial markets. Demand for such public policies falls as much as 40% with disagreement, and crowding out by private insurance drives most of the reduction. As support for disaster-reducing policy jumps in periods of disasters, costly policies may be adopted only after disasters occur. In some scenarios constituencies may even demand policies ...
Report
The side effects of safe asset creation
We present an incomplete markets model to understand the costs and benefits of increasing government debt in a low interest rate environment. Higher risk increases the demand for safe assets, lowering the natural rate of interest below zero, constraining monetary policy at the zero lower bound, and raising unemployment. Higher government debt satiates the demand for safe assets, raising the natural rate and restoring full employment. While this permanently lowers investment, a policymaker committed to low inflation has no alternative. Higher inflation targets, instead, permit both full ...
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Understanding the Federal Budget
Analyze the federal budget and the differences between annual deficit spending and the national debt.
Working Paper
Public Debt Levels and Real Interest Rates: Causal Evidence from Parliamentary Elections
We use close parliamentary elections as natural experiments to estimate the debt sensitivity of interest rates. Relative to an election in which one party barely secures a majority, an election in which no party achieves a majority causes the debt-to-GDP ratio to increase by 17 percentage points, while real interest rates rise by 99 basis points. If elections only impact real rates via debt, our results imply that a one percentage point increase in the debt-to-GDP ratio causes a 5.8 basis point increase in real rates, larger than most previous estimates and suggesting potential reverse ...