Fiscal years

Kevin Lewis

January 01, 2020

The U.S. Public Debt Valuation Puzzle
Zhengyang Jiang et al.
NBER Working Paper, December 2019


The market value of outstanding federal government debt in the U.S. exceeds the expected present discounted value of current and future primary surpluses by a multiple of U.S. GDP. When the pricing kernel fits U.S. equity and Treasury prices and the government surpluses are consistent with U.S. post-war data, a government debt valuation puzzle emerges. Since tax revenues are pro-cyclical while government spending is counter-cyclical, the tax revenue claim has a higher short-run discount rate and a lower value than the spending claim. Since revenue and spending are co-integrated with GDP, the long-run risk discount rates of both claims are much higher than the long Treasury yield. These forces imply a negative present value of U.S. government surpluses. Convenience yields for Treasurys are much larger than previously thought and/or U.S. Treasury markets have failed to enforce the no-bubble condition.

Tax Prices and Charitable Giving: Projected Changes in Donations Under the 2017 TCJA
Jonathan Meer & Benjamin Priday
NBER Working Paper, November 2019


We estimate the tax price elasticity of charitable giving using newly-available data from the Panel Study of Income Dynamics spanning 2001-2017. We find that households that always itemize are less sensitive to changes in the tax treatment of donations than households that switch itemizing status. We apply these results to the provisions of the Tax Cut and Jobs Act of 2017, taking into account the marginal propensity to donate from the increase in disposable income expected for most households, and predict significant reductions in charitable giving.

On Constitutionalizing a Balanced Budget
Joe Amick, Terrence Chapman & Zachary Elkins
Journal of Politics, forthcoming


Do constitutional rules that mandate a balanced budget promote fiscal discipline? Although such rules are at the heart of austerity debates across the world, we know surprisingly little about their consequences. We leverage original data on constitutional budget provisions and analyze their effect on governments’ primary budget balances. We find that constitutional rules that require balanced budgets are robustly associated with fiscal discipline. The constitutional effect remains even after controlling for statutory balanced-budget rules. Furthermore, the effect strengthens as constitutions become more difficult to amend, and under conditions of borderline solvency - two implications consistent with a constitutional impact. The results will be surprising to those who appreciate both the strong pressures against fiscal discipline and the creativity of governments in devising strategies to evade spending limits. These findings are among the first cross-national, over-time study of the impact of constitutional budget commitments and, therefore, provide a reference point for policy debates surrounding financial crises in many national contexts.

The perceived impact of tax and regulatory changes
Carmen Sanchez & Thomas Gilovich
Journal of Applied Social Psychology, forthcoming


People believe that shared events, events that impact everyone to the same degree, will nonetheless impact them more than others. Across four studies we examined whether this impacts people's reactions to proposed changes to tax and regulatory policies. We found that participants thought that tax (Study 1a and 1b) and regulatory (Study 2) changes would have more of an impact on their own lives than on the lives of people in their same financial situation. We then examined whether these findings are the product of a broad focalism bias or its narrower relative, egocentrism. Because we observed the bias both when participants were asked about their own financial situation or that of someone else, the former appears to be the better explanation (Study 3). We discuss the implications of this bias for people's willingness to embrace policy proposals designed to advance the common good.

Do Property Tax Incentives for New Construction Spur Gentrification? Evidence from New York City
Divya Singh
Columbia University Working Paper, December 2019


Recently, many cities have proposed property tax incentives on new construction to counteract rising rents. However, to date, there is little empirical evidence on their local effects. This paper uses a natural experiment in New York City to estimate the local effects of new tax-exempt residential construction. In 2006, the city government decided to make property tax incentives on new construction less generous, but only starting in 2008. Developers rushed to build and claim incentives before the deadline in response. I instrument the number of new units developed within 150 meters from a rental building by the baseline number of vacant parcels available within the same distance. Using a new dataset of rents and investment at the level of a building, I find that the existing rental building’s rent increased by 2.3% in response to an additional tax-exempt unit built within a 150 meters radius. I provide evidence consistent with the hypothesis that new residential investment rendered neighborhoods more desirable by attracting affluent households and facilitating the entry of businesses and consumption amenities. Overall, the results indicate that tax-exempt new construction spurred gentrification.

The impact of state intervention and bankruptcy authorization laws on local government deficits
Lang Yang
Economics of Governance, December 2019, Pages 305-328


Local governments in the United States can file for bankruptcy to restructure their debt if allowed by state laws. While some states legislate an unconditional authorization, others conditionally permit local filings, do not give authorization, or intervene in local crises. This paper investigates the impact of state policy adoption on local governments’ revenue to expense ratio, a measure of deficit. While bankruptcy authorizations do not show an impact at the mean, a median locality decreases the revenue-expense ratio after the state adopts an authorization unconditional on state intervention, suggesting a moral hazard effect. Localities with conditionally high deficits, however, increase the ratio upon the adoption of a conditional authorization, possibly because they want to avoid being subjective to conditions placed by states.

The Impact of Tax and Expenditure Limitations on User Fees and Charges in Local Government Finance: Evidence from New England
Pengju Zhang & Yilin Hou
Publius: The Journal of Federalism, Winter 2020, Pages 81-108


American local government financing shifted from taxation toward user fees and charges (UFCs) in the late 1970s, with substantial efficiency and equity implications. Normatively, the shift aligns with the benefit principle; positively, the shift is often attributed to tax revolts. We test the two associations via a difference-in-differences design and a fiscal stringency measure of tax and expenditure limitations (TELs); we also test the moderating effects of overrides on TELs. Our results confirm that state-imposed TELs caused the shift in local public finance; the results are robust to change of sample and empirical strategy. This article helps explain the relationship between tax revolts and non-tax revenue and provides evidence that fiscal constraints imposed by a higher level government on a constituent level can have significant effects, including effects beyond the intent of the constraints’ framers.

The Impacts of the USDA Broadband Loan and Grant Programs: Moving Toward Estimating a Rate of Return
Ivan Kandilov & Mitch Renkow
Economic Inquiry, forthcoming


In this article, we evaluate the rate of return to government efforts to promote broadband. Specifically, we estimate the impact of USDA's broadband loan and grant programs on the average payroll per worker using zip code level data from the Zip Code Business Patterns for the period from 1997 to 2007. Our results indicate that two of the smaller broadband programs (the Pilot loan program and the broadband grants program) likely had no effect on local payroll per workers. On the other hand, the largest program in terms of funding and coverage (the current broadband loan program) likely had a positive impact. Our estimate implies that a $1 per capita increase in a particular zip code's one‐time receipt of the current program broadband loan results in a $0.92 increase in payroll per worker annually. Our calculated point estimates of the benefit: cost ratios for this broadband program range from 1.98 to 2.99, depending on assumptions about the time frame over which benefits accrue. However, the confidence intervals are wide enough to include the possibility that the costs outweigh the benefits.


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