Dollars at 250
The Bright Side of Tax Evasion
Wladislaw Mill & Cornelius Schneider
Economic Journal, forthcoming
Abstract:
This paper investigates whether tax evasion opportunities can increase tax revenue. Past theoretical discussions have presented mixed outcomes as to whether allowing taxpayers to opt into uncertainty could indeed enhance overall tax revenues. In this study, we conducted a series of original real-effort experiments in an online setting with almost 6,000 participants to test this hypothesis empirically. Our findings show significant positive labour supply responses to the opportunity to evade (increased labour supply by 30%). More importantly, the expected tax revenue significantly and substantially increased by up to 40%. Strikingly, this effect persists when comparing effective tax rates: Lowering effective tax rates through probabilistic enforcement (the opportunity to evade) is more efficient than simply lowering statutory tax rates. Our findings suggest that the opportunity for tax evasion can increase tax revenues beyond what a corresponding decrease in nominal rates would achieve.
Unlocking Mortgage Lock-In: Equilibrium Effects in a Spatial Housing Ladder Model
Julia Fonseca, Lu Liu & Pierre Mabille
NBER Working Paper, May 2026
Abstract:
Mortgage borrowers are "locked in": forgoing moves to hold on to low rates. Lock-in reduces both housing supply, through households who do not sell, and demand, through households who do not buy elsewhere, evidenced by a 40% drop in U.S. existing home sales between 2022 and 2024. We show that mortgage lock-in raises net housing demand: missing downsizers stay in larger homes, particularly in expensive areas, demanding more housing and offsetting a third of the aggregate house price decline caused by higher rates. Using individual-level mortgage data, we provide causal evidence that lock-in disproportionately reduces moves down the housing ladder. We design a spatial housing ladder model with long-term mortgages, which generates a distribution of locked-in rates and a causal effect on mobility consistent with the data, and use it to study the equilibrium effects of lock-in. A temporary rate hike causes lock-in, increasing aggregate house prices by 4.4% and rents by 1.5% relative to a counterfactual without lock-in, while mortgage borrowers' mobility falls by 25%. A $10k tax credit to starter-home sellers modestly increases mobility but raises trade-up home prices. We estimate a cost of $650k per marginal move, indicating that demand-based housing policies are poorly targeted responses to lock-in in our model.
Government litigation risk and the decline in low-income mortgage lending
Scott Frame et al.
Journal of Financial Economics, July 2026
Abstract:
This study examines the effect of Department of Justice lawsuits in the 2010s against large lenders for alleged fraud in the Federal Housing Administration (FHA) mortgage insurance program. The suits led to over $5 billion in settlements and caused targeted banks and their peers to precipitously exit the FHA market. Difference-in-differences and triple-differences tests exploiting geographic variation in exposure to exiting banks show an 18% reduction in FHA lending in heavily exposed areas. This reduction was not associated with improved underwriting standards or lower default rates. Large banks’ FHA exit has significantly reduced low-income households’ overall access to mortgage credit.
Measuring the cost of building infrastructure over time: Very hard to do well
Leah Brooks
Regional Science and Urban Economics, forthcoming
Abstract:
To determine whether constructing infrastructure in the United States is becoming increasingly expensive, as much recent research suggests, we need a reliable way to measure the cost of building infrastructure over time. In this paper, I outline the components of an ideal measure for such a cost. I then highlight three features -- adjusting for quality changes, the inclusion of markups, and the inclusion of costs incurred by the administrative apparatus of the government -- that plague measurements of cost. Expenditure-based measures have the potential to capture all costs, including those incurred in-house by the government, but suffer from difficulty in measuring a constant quality unit. Price- or cost-based measures are better at measuring a constant quality unit, but often fail to include very substantial costs borne by government in excess of funds paid to private contractors. I illustrate these issues with the example of US Interstate highways, explaining each measure’s strengths and deficiencies. I conclude by discussing where researchers can make the most valuable contributions in measuring the costs of transportation infrastructure.
When Does Automating AI Research Produce Explosive Growth? Feedback Loops in Innovation Networks
Tom Davidson et al.
NBER Working Paper, April 2026
Abstract:
AI labs are increasingly using AI itself to accelerate AI research, creating a feedback loop that could lead to an intelligence explosion. We develop a general semi-endogenous growth model with an innovation network, where research and automation in one sector increase the productivity of research in other sectors, and derive a clean analytical condition under which growth becomes superexponential ("explosive"). We find that automating research can offset diminishing returns to ideas by activating two reinforcing channels: a technological feedback loop across research sectors, and an economic feedback loop in which higher output finances further research. Growth becomes explosive if the combined strength of technological and economic feedback loops overcomes diminishing returns. In a simple simulation calibrated to trends in AI progress, fully automating software research and modest (5%) automation in other sectors generates a singularity within six years. Bottlenecks do not overturn the result if task automation advances sufficiently fast.
Tax revenue from realized capital gains
Paul Ehling, Stathis Tompaidis & Chunyu Yang
Review of Finance, May 2026, Pages 863-886
Abstract:
The tax rate on capital gains of equity has varied substantially over time and correlates negatively with realized capital gains and tax revenue. In our model, investors who anticipate the dynamics of the tax rate in their bond–equity mix realize greater gains when realized equity returns are higher, the capital gains tax rate is lower, and capital losses carried forward are larger. Simulating a calibrated population of investors produces model data consistent with tax revenue from capital gains realizations. Our model can inform the policymaker’s choice of the capital gains tax rate.
Bank concentration, product market competition and productivity growth
Lei Ye
Journal of Monetary Economics, June 2026
Abstract:
U.S. product markets have become more concentrated since the late 1990s, with higher markups, weaker entry, and slower productivity growth. This paper studies whether consolidation in the U.S. banking sector has contributed to these trends. Empirically, I show that higher bank concentration is associated with rising product market markups, lower entry, and a reallocation of market power toward large incumbents. I interpret these patterns in a quantitative endogenous growth model with imperfect bank competition and heterogeneous firms. The key mechanism is a widening loan-deposit spread: even as interest rate levels decline, greater bank market power increases the wedge between the borrowing costs faced by small bank-dependent firms and the opportunity cost of funds faced by large internally financed firms, shifting competition toward large incumbents and weakening innovation incentives. In calibrated counterfactuals, the rise in bank concentration explains about 14% of the increase in product market concentration and 5% of the slowdown in productivity growth over the post-2000 period.
Firm Investment and the User Cost of Capital: New US Corporate Tax Reform Evidence
Jonathan Hartley, Kevin Hassett & Joshua Rauh
Tax Policy and the Economy, 2026, Pages 171-206
Abstract:
The Tax Cuts and Jobs Act of 2017 (TCJA) marked the first time in 3 decades that material changes were made to the corporate tax code of the United States. Following the method of Auerbach and Hassett (1991), we use the TCJA as a natural experiment to estimate the impact of changes in user cost of capital on investment. Using cross-sectional data, we find that the user cost is associated with higher rates of investment consistent with previous studies. Bureau of Economic Analysis asset types with greater reductions in user cost of capital and marginal effective tax rate after the 2017 TCJA had greater increases in their investment rates several years after the tax reform, with individually statistically significant coefficients in half of the post-TCJA years. On average across years, we find the magnitude of a 1-percentage-point decrease in user cost is associated with a statistically significant 1.86-percentage-point increase in the rate of investment. This translates into an investment elasticity of −2.11, about 3 times the investment response assumed in Congressional Budget Office models.
Specialization in Banking
Kristian Blickle, Cecilia Parlatore & Anthony Saunders
Journal of Finance, June 2026, Pages 1531-1572
Abstract:
Using supervisory data on the loan portfolios of large U.S. banks, we document that these banks specialize by concentrating their lending disproportionately in a few industries. This specialization is consistent with banks having industry-specific knowledge, reflected in reduced risk of loan defaults, lower aggregate charge-offs, and higher propensity to lend to opaque firms in the preferred industry. Banks attract high-quality borrowers by offering generous loan terms in their specialized industry, especially to borrowers with alternative options. Banks focus on their preferred industry in times of instability and relatively lower Tier 1 capital as well as after surges in deposits.
Market Power in Mortgage Pricing: The Role of Referral Lending
Dayin Zhang et al.
NBER Working Paper, April 2026
Abstract:
Despite intense competition among mortgage lenders, borrowers face substantial price dispersion. We argue that realtor–loan officer referral networks are a key source of lender market power: by steering homebuyers toward a small set of loan officers, these networks restrict effective borrower choice even in competitive markets. Using a novel dataset linking 81,306 realtors to 102,860 loan officers across 41 states, we document that such networks are pervasive and highly concentrated -- 85% of realtors direct over 40% of their clients to fewer than four loan officers -- and that this concentration persists and even increases in markets with more lenders. IV estimates indicate that borrowers using referred loan officers pay 18.6 basis points higher mortgage rates, equivalent to $2,609 in upfront costs on the average loan of $306K. Referral lending raises rate spreads by 36.5% and accounts for half of the residual cross-sectional variation in spreads. The premium is nearly three times as large for Hispanic borrowers as for White borrowers, and is systematically higher for Black borrowers and financially constrained households. We identify two channels: referrals reduce borrowers' search intensity across lenders, and referred loan officers exercise pricing power relative to colleagues within the same institution. Efficiency gains from faster processing and reduced denial risk do not offset the additional costs.
Money for MetroCards: How a new card fee made transit riders invest more and lose more
Meiping Aggie Sun
Regional Science and Urban Economics, June 2026
Abstract:
In 2013, the New York City Metropolitan Transportation Authority (MTA) imposed a $1 card fee (surcharge) on new purchases of prepaid transit cards (MetroCards). Using a novel dataset with transaction-level card information, I show that the fee caused riders -- especially those in low-income neighborhoods and those using cash or debit (rather than credit) cards -- to put more money on new MetroCard purchases. As a result, the net outstanding balance of card deposits increased dramatically, with riders lending an extra $12 million, on a monthly basis, to the MTA. Moreover, over $20 million of the increased annual balances were never redeemed and escheated to the MTA when these cards expired. The leading explanation is related to card carrying costs. These findings have implications for the design of the fee structure of the public transit system.
Trust, Financial Literacy, and Financial Behaviors: Shaping Retirement Security
Maya Haran Rosen, Annamaria Lusardi & Olivia Mitchell
NBER Working Paper, May 2026
Abstract:
We extend the literature on the importance of trust for financial behaviors by examining trust, financial literacy, and financial behavior related to retirement security. Using the Health and Retirement Study, we show that Trust in Financial Institutions aligns with behaviors supportive of retirement security, while Trust in Government Programs does not. We further document racial/ethnic differences: for White respondents, Trust in Financial Institutions relates positively to retirement outcomes, but not for Blacks or Hispanics. Moreover, Trust in Government Programs among minority households is linked to reduced stockholding and lower wealth accumulation. These findings inform efforts to strengthen retirement security.