Trust Funds
The Authoritarian Predisposition and American Public Support for Social Security
David Macdonald
Political Research Quarterly, forthcoming
Abstract:
Authoritarianism, an individual-level predisposition that favors security, conformity, and certainty, has been powerfully linked with cultural conservatism and support for "strongman" politicians but weakly and inconsistently linked with public opinion toward economic issues. In examining this latter relationship, past work has tended to pose a dichotomous question, is authoritarianism associated with economic liberalism/conservatism or not? Here, I diverge from this approach and argue that authoritarianism is associated with support for one specific program -- Social Security. I argue that the unique framing of this program, which emphasizes rule-following, certainty, and deservingness, should resonate with authoritarian-minded individuals. I test this with survey data, primarily from the American National Election Studies (ANES). Overall, I find a positive and substantively significant relationship between authoritarianism and support for Social Security but not for other types of domestic social welfare spending. These findings help us better understand the correlates of mass support for Social Security as well as the policy consequences of authoritarianism. These findings also suggest that Social Security will likely remain popular in an increasingly authoritarian Republican Party.
Fiscal Multipliers and Foreign Holdings of Public Debt
Fernando Broner et al.
Review of Economic Studies, forthcoming
Abstract:
This paper explores a natural connection between fiscal multipliers and foreign holdings of public debt. Although fiscal expansions can raise domestic economic activity through various channels, they can also have crowding-out effects if the resources used to acquire public debt reduce domestic consumption and investment. These crowding-out effects are likely to be weaker when governments have access to foreign savings when selling their debt. We test this hypothesis for the US in the post-war period and for a panel of 17 advanced economies from the 1980s to the present. To do so, we assemble a novel database of public debt holdings by domestic and foreign creditors for these countries. We combine this data with standard measures of fiscal policy shocks and show that, indeed, the size of fiscal multipliers is increasing in the share of public debt held by foreigners. In particular, the fiscal multiplier is smaller than one when the foreign share is low, such as in the U.S. in the 1950s and 1960s and Japan today, and larger than one when the foreign share is high, such as in the U.S. and Ireland today.
Gender discrimination, inflation, and the business cycle
Ulrike Neyer & Daniel Stempel
Journal of Macroeconomics, forthcoming
Abstract:
Empirical evidence suggests that women are discriminated against in the labor market. We analyze the effects of taste-based and statistical gender discrimination on business cycle and inflation dynamics by including unpaid household production, two-agent households, and discriminatory firm behavior in a tractable New Keynesian model. After a negative demand shock, we find that the economic downturn is more severe in comparison to a non-discriminatory environment, as the shock implies an increase in the inefficient utilization of female and male productivity. Furthermore, the working time allocation between women and men becomes more inefficient. Moreover, we show that discrimination implies a lower transmission of expansionary monetary policy shocks on inflation. Overall, taste-based discrimination leads to larger macroeconomic distortions, while statistical discrimination implies higher intra-household inefficiencies.
Do Lenders Still Discriminate? A Robust Approach for Assessing Differences in Menus
David Hao Zhang & Paul Willen
NBER Working Paper, August 2021
Abstract:
Motivated by the assessment of racial discrimination in mortgage pricing, we introduce a new methodology for comparing the menus of options borrowers face based on their choices. First, we show how standard regression-based approaches for assessing discrimination in the menus context can lead to misleading and contradictory results. Second, we propose a new methodology that is robust these problems based on relatively weak economic assumptions. More specifically, we use pairwise dominance relationships in choices supplemented by restrictions on the range of plausible menus to define (1) a test statistic for equality in menus and (2) a difference in menus (DIM) metric for assessing whether one group of borrowers would prefer to switch to another group's menus. Our statistics are robust to arbitrary heterogeneity in borrower preferences across racial groups, are sharp in terms of identification, and can be efficiently computed using Optimal Transport methods. Third, we devise a new approach for inference on the value of Optimal Transport problems based on directional differentiation. Fourth, we use our methodology to estimate mortgage pricing differentials by race on a novel data set linking 2018--2019 Home Mortgage Disclosure Act (HMDA) data to Optimal Blue rate locks. We find robust evidence for mortgage pricing differentials by race, particularly among Conforming mortgage borrowers who are relatively creditworthy.
The AI Economist: Optimal Economic Policy Design via Two-level Deep Reinforcement Learning
Stephan Zheng et al.
Harvard Working Paper, August 2021
Abstract:
AI and reinforcement learning (RL) have improved many areas, but are not yet widely adopted in economic policy design, mechanism design, or economics at large. At the same time, current economic methodology is limited by a lack of counterfactual data, simplistic behavioral models, and limited opportunities to experiment with policies and evaluate behavioral responses. Here we show that machine-learning-based economic simulation is a powerful policy and mechanism design framework to overcome these limitations. The AI Economist is a two-level, deep RL framework that trains both agents and a social planner who co-adapt, providing a tractable solution to the highly unstable and novel two-level RL challenge. From a simple specification of an economy, we learn rational agent behaviors that adapt to learned planner policies and vice versa. We demonstrate the efficacy of the AI Economist on the problem of optimal taxation. In simple one-step economies, the AI Economist recovers the optimal tax policy of economic theory. In complex, dynamic economies, the AI Economist substantially improves both utilitarian social welfare and the trade-off between equality and productivity over baselines. It does so despite emergent tax-gaming strategies, while accounting for agent interactions and behavioral change more accurately than economic theory. These results demonstrate for the first time that two-level, deep RL can be used for understanding and as a complement to theory for economic design, unlocking a new computational learning-based approach to understanding economic policy.
The Charitable Tax Deduction and Civic Engagement
Andrew Hayashi & Justin Hopkins
University of Virginia Working Paper, July 2021
Abstract:
In an era characterized by inequalities of income and influence, political polarization, and the segregation of social spaces, the income tax deduction for charitable contributions would appear to abet some of our worst social ills because it allows wealthy individuals to steer public funds to their preferred charities. But we argue that now is the time to expand and refocus - not abolish - the tax subsidy for charitable giving. Previous assessments of the charitable deduction have focused on how it helps charities but ignored an essential benefit of giving: its effect on the donor. We show that the charitable deduction increases volunteerism along with financial giving, and we report new evidence that volunteerism is associated with broader civic and political engagement, including engagement with people of different cultures, races, and ethnicities. Since people tend to undervalue the social and relational goods that flow from civic participation, the charitable deduction is a helpful corrective. We also report evidence that civic engagement is unequally distributed and propose a new refundable tax credit that turns low- and middleincome households from clients of charities to donors, which can both empower them and help remedy inequalities in civic and political participation.
Diverse Policy Committees Can Reach Underrepresented Groups
Francesco D'Acunto, Andreas Fuster & Michael Weber
NBER Working Paper, September 2021
Abstract:
Increasing the diversity of policy committees has taken center stage worldwide, but whether and why diverse committees are more effective is still unclear. In a randomized control trial that varies the salience of female and minority representation on the Federal Reserve's monetary policy committee, the FOMC, we test whether diversity affects how Fed information influences consumers' subjective beliefs. Women and Black respondents form unemployment expectations more in line with FOMC forecasts and trust the Fed more after this intervention. Women are also more likely to acquire Fed-related information when associated with a female official. White men, who are overrepresented on the FOMC, do not react negatively. Heterogeneous taste for diversity can explain these patterns better than homophily. Our results suggest more diverse policy committees are better able to reach underrepresented groups without inducing negative reactions by others, thereby enhancing the effectiveness of policy communication and public trust in the institution.
Did FinTech Lenders Facilitate PPP Fraud?
John Griffin, Samuel Kruger & Prateek Mahajan
University of Texas Working Paper, August 2021
Abstract:
In the distribution of the Paycheck Protection Program's (PPP) $780 billion in funds, FinTech lenders began minimally but ramped up their market share to over 70% of originated loans by April 2021. We examine metrics related to potential misreporting including non-registered businesses, multiple businesses at residential addresses, abnormally high implied compensation per employee, and large inconsistencies in jobs reported with another government program. We assess these four metrics with five additional measures and extensive supporting analysis. FinTech loans exhibit sharp and discontinuous increases in misreporting at maximum loan thresholds and at round loan amounts. FinTech loans are more than 3.5 times as likely to be initiated by someone with a criminal background, strongly cluster in industry-county pairs to a degree that is infeasible based on U.S. Census data on establishment counts, and frequently exhibit similar loan features within lender-county pairs. Certain FinTech lenders seem to specialize in questionable loans with more than 45% of their loans experiencing at least one misreporting indicator. Few of these loans seem to have been detected by authorities or repaid. FinTech lenders with the highest misreporting in the first two rounds of the program in 2020 increase both their market share and their misreporting substantially in the third round in 2021. While FinTech lenders likely expand PPP access, this may come at the cost of facilitating fraudulent credit.
Household expectations and the release of macroeconomic statistics
Carola Conces Binder
Economics Letters, forthcoming
Abstract:
Households were surveyed in the days immediately before and after the June release of the Consumer Price Index (CPI). The CPI release was associated with an 11 percentage point increase in the likelihood that a respondent heard news about inflation, with a larger increase for highly-numerate respondents. Inflation expectations only of highly-numerate respondents rose with the CPI release.
The impact of place-based poverty relief: Evidence from the Federal Promise Zone Program
Carl Kitchens & Cullen Wallace
Regional Science and Urban Economics, forthcoming
Abstract:
We investigate the impact of targeted, federal spending in an economically depressed urban area by exploring the effects of the Los Angeles Promise Zone (LAPZ), one of the first-round designations of the Department for Housing and Urban Development's Promise Zone program. The place-based program sought to identify and assist struggling areas by providing them with primary access to grants from multiple federal agencies. With an understanding that improvements in local conditions are likely capitalized in housing values, we leverage parcel-level property data and estimate the change in property values for property inside the LAPZ compared to nearby, similar properties just outside of the Promise Zone boundary. We find that property values within the LAPZ differentially increased by approximately 6-11 percent (3-5 percent using an alternative estimator (DDNNM)) following the awarding of Promise Zone status in 2014, an increase of at least $50,000 on average. We show that this increase in property value stems from increases in land value, rather than through property improvements. In our discussion of the results, we explore potential mechanisms and consider welfare implications.
Venture Capitalists' Access to Finance and Its Impact on Startups
Jun Chen & Michael Ewens
NBER Working Paper, September 2021
Abstract:
Although an extensive literature shows that startups are financially constrained and that constraints vary by geography, the source of these constraints is still relatively unknown. We explore intermediary financing constraints, a channel studied in the banking literature, but only indirectly addressed in the venture capital (VC) literature. Our empirical setting is the VC fundraising and startup financing environment around the passage of the Volcker Rule, which restricted banks' ability to invest in venture capital funds as limited partners (LPs). The rule change disproportionately impacted regions of the U.S. historically lacking in VC financing. We find that a one standard deviation increase in VCs' exposure to the loss of banks as LPs led to an 18% decline in fund size and about a 10% decrease in the likelihood of raising a follow-on fund. Startups were not completely cushioned from the additional constraints on their VCs: capital raised fell and pre-money valuations declined. Overall, VC financing constraints manifest as fewer, smaller funds that change investment strategy and experience increases in bargaining power. Last, we show that the rule change increased the likelihood startups move out of impacted states, thus exacerbating the geographic disparity in high-growth entrepreneurship.
Municipal Takeovers: Examining State Discretion and Local Impacts in Michigan
Sara Hughes, Andrew Dick & Anna Kopec
State and Local Government Review, forthcoming
Abstract:
State interventions during municipal financial emergencies can play a critical role in ensuring the continuation of public services and preventing municipal bankruptcy but have often been applied unevenly. Using a case study of municipal takeovers in Michigan, we examine their predictability based on financial stress indicators and effects on drinking water services. We find financial stress alone does not explain takeover decisions, and that a city's reliance on state revenue and racial and economic context play a role. Cities that have been taken over are more likely to experience drinking water privatization and rate increases than similarly financially stressed cities. The malleable definition of financial distress and discretion in implementation allow takeover policies to be applied unevenly, creating additional challenges for already distressed communities. Decision makers should seek alternative approaches to municipal financial emergencies that address underlying causes while minimizing the potential for bias and significant changes to public services.
Financial Factors and the Propagation of the Great Depression
Gustavo Cortes, Bryan Taylor & Marc Weidenmier
Journal of Financial Economics, forthcoming
Abstract:
We investigate the role of forward-looking financial factors in propagating the Great Depression. We find that a new hand-collected bank stock index is better at predicting the onset of the Great Depression than the aggregate stock market or failed bank deposits. The bank stock index explains almost one-third of the fluctuations in industrial production after five years. Analysis disaggregated at each Federal Reserve district shows that bank stocks capture forward-looking information about debt defaults and credit. Our results suggest that future studies of the credit channel during the Great Depression should incorporate bank stocks to better identify the impact of credit crunches on economic activity.