Paying for It All
A Note on Factors Influencing Trust in Government
Michael Boskin, Alexander Kleiner & Ian Whiton
NBER Working Paper, November 2025
Abstract:
Responses to surveys eliciting evaluations of trust in government, both generally and in specific areas, have varied over time and across countries. Using consistent survey data for 34 OECD countries from 2007-2023, we estimate a model of factors determining levels of trust. We employ a series of econometric techniques of increasing sophistication. The level and growth rate of real income per capita, social spending per capita, the degree of decentralization, and economic freedom all exert positive effects on trust. Inflation, unemployment, and debt per capita negatively affect trust. Additionally, higher levels of human capital and the elderly share of the population negatively affect trust. In the context of trust in government, the estimates suggest a heavier weight on inflation than on unemployment when compared to Okun’s misery index, which weights them equally. Additionally, the estimates are used to evaluate combinations of policies, e.g. debt-financed increases in social spending that affect inflation and/or unemployment, to determine the net effect on trust in government.
How Much Should We Spend to Reduce A.I.’s Existential Risk?
Charles Jones
Stanford Working Paper, September 2025
Abstract:
During the Covid-19 pandemic, the United States effectively “spent” about 4 percent of GDP — via reduced economic activity — to address a mortality risk of around 0.3 percent. Many experts believe that catastrophic risks from advanced A.I. over the next decade or two are at least this large, suggesting that a comparable mitigation investment could be worthwhile. Existing lives are valued by policymakers at roughly $10 million each in the United States. To avoid a 1% mortality risk, this value implies a willingness to pay of $100,000 per person — more than 100% of per capita GDP. If the risk is realized over the next two decades, an annual investment of 5% of GDP toward mitigating catastrophic risk could be justified, depending on the effectiveness of such investment. This back-of-the-envelope intuition is supported by the model developed here. In the model, for most of the scenarios and parameter combinations considered, spending at least 1% of GDP annually to mitigate AI risk can be justified even without placing any value on the welfare of future generations.
Regulatory Risk Perception and Small Business Lending
Joseph Kalmenovitz & Siddharth Vij
Management Science, forthcoming
Abstract:
We uncover a significant friction in small business lending: perception of risk by Small Business Administration (SBA) employees. Using novel data on SBA employees transferring across offices, we find that more current defaults on SBA loans in their previous location reduce SBA loans and job creation in their current location. The effect is independent of local economic conditions and the informational content of the nonlocal defaults, suggesting that SBA employees update their risk assessment irrationally. Our results are the first to document that regulators’ misperception of economic conditions affects the ability of small businesses to obtain access to finance.
A Sufficient Statistics Approach to Optimal Corporate Taxes
Dustin Swonder & Damián Vergara
NBER Working Paper, November 2025
Abstract:
This paper characterizes the equity–efficiency tradeoff of corporate taxation using a stylized model that draws on the corporate investment and tax incidence literatures. We derive optimal corporate tax formulas in terms of estimable reduced-form elasticities and welfare weights on workers and firm owners. While much empirical work emphasizes investment responses, these elasticities do not feature in optimal tax formulas. The elasticity of taxable profits is a sufficient statistic for the efficiency costs of the corporate tax. Higher corporate tax rates are desirable when firm owners have low welfare weights, and less desirable when taxing profits reduces wages. These empirical objects remain central across extensions, including heterogeneous production technologies, tax sheltering, international capital mobility, monopsony, and linear labor income taxes. We survey the empirical literature and find that existing estimates can support a wide range of optimal tax rates. An inverse-optimum analysis provides combinations of welfare weights of workers and firm owners that would rationalize the post-2017 US corporate tax cut as optimal.
Tax policy and business entry
Ian Sapollnik & Dustin Swonder
Journal of Public Economics, December 2025
Abstract:
This paper measures the effects of state corporate and personal income tax reforms on business entry using an event study research design. We focus on reforms that do not coincide with federal tax changes, are preceded and followed by stable tax policy, and substantially change tax burdens. Corporate tax reforms cause meaningful changes in business entry: we measure a 5-year elasticity of 2.7 with respect to the net-of-tax rate. This is driven by large effects of tax cuts. Corporate tax cuts also reduce the predicted growth potential of entrants. We do not find strong evidence of cross-border spillovers, and find no evidence that personal income tax reforms affect business entry.
Local peer effects and corporate investment
Yangming Bao & Martin Goetz
Journal of Corporate Finance, February 2026
Abstract:
We examine peer effects in corporate finance by assessing how a firm’s investment influences its neighboring peer firms’ investment. To uncover the exogenous component of investment, we exploit time variation in the increases in state corporate income taxes across the United States and utilize heterogeneity in local peer firms’ exposure to these tax increases to construct an instrumental variable. We identify a positive and robust causal effect of local peer firms’ investment decisions on firm investment. Distinguishing between physical and intangible investment, we find that peer firms’ investment in physical (intangible) capital only influences firm investment in the same type of capital, particularly when that capital is central to operations. Further evidence indicates that learning from peers is an important factor, as peer effects are more pronounced for firms with stronger learning motives.
Self-Financing Highways: Franklin Roosevelt's Land Tax Proposal
David Giesen
American Journal of Economics and Sociology, forthcoming
Abstract:
President Franklin Delano Roosevelt (FDR) championed the public capture of land value increments as a method of financing an interstate highway system that was under consideration during his presidency. This Georgist method of public finance was a convenient option for him, not an ideological choice. FDR was likely familiar with Henry George's ideas, but his support for land-based financing was pragmatic: broad-based taxes would not be needed. For FDR, capturing land value increments to fund highways was a simple way to keep the cost of federal subsidies outside the budget, so it would seem that road-building was “free” to the public. Unfortunately, this new funding scheme was attached to a public works project that lacked the sort of engineering plans required for a massive infrastructure program. The routes proposed were loosely drawn by hand by Roosevelt on a map of the United States. The nation was not ready to build an interstate highway system until the 1950s. But we can still learn lessons from the dream that Roosevelt had of building the system with a modified land tax.