State of Money

Kevin Lewis

January 17, 2024

Universal Basic Income: A Dynamic Assessment
Diego Daruich & Raquel Fernández
American Economic Review, January 2024, Pages 38-88

Universal basic income (UBI) is an increasingly popular policy proposal, but there is no evidence regarding its longer-term consequences. We find that UBI generates large welfare losses in a general equilibrium model with imperfect capital markets, labor market shocks, and intergenerational linkages via skill formation and transfers. This conclusion is robust to various alternative ways of financing UBI. By using observationally equivalent models that eliminate different sources of endogenous dynamic linkages (equilibrium capital market and parental investment in child skills), we show that the latter are largely responsible for the negative welfare consequences.

Personal Taxes and Firm Skill Hiring: Evidence from 27 Million Job Postings
Murillo Campello, Janet Gao & Qiping Xu
Management Science, forthcoming

Using big data on U.S. job postings, we show that firms increase skill requirements when hiring workers in states that cut personal income taxes. We trace a significant driver of this effect to companies' reallocation of skilled job postings across states based on tax differentials. The tax-induced upskilling is observed within occupations and is more pronounced for high-skill positions within firms. It is accompanied and amplified by concurrent increases in information technology expenditures at local-level establishments. In characterizing the mechanism at play, we show that job upskilling is triggered by tax changes affecting middle- and upper middle-class workers. It is pronounced for high-growth firms, for firms in tradable industries, and in urban areas, but it is mitigated among profitable firms. A narrative-based analysis helps us establish causal inferences.

Mortgage interest deductions? Not a bad idea after all
Shahar Rotberg & Joseph Steinberg
Journal of Monetary Economics, forthcoming

Mortgage interest deductions and other homeownership subsidies are widely believed to be harmful because they redistribute resources from lower-income renters to higher-income homeowners. We argue that renters actually benefit from these policies in general equilibrium for two reasons. First, the rental supply curve is relatively inelastic, which means that rents fall when these policies reduce rental demand. Second, many renters spend most of their income on housing, and these renters gain substantially from rent decreases. We calibrate a quantitative model to match empirical evidence on these factors and show they are strong enough that subsidizing homeownership actually increases welfare.

Uncertainty and Individual Discretion in Allocating Research Funds
Anna Goldstein & Michael Kearney
NBER Working Paper, January 2024

There is a long-standing tradition in public research funding agencies of distributing funds via peer review, which aggregates evaluations of proposed research ideas from a group of external experts. Despite complaints that this process is biased against novel ideas, there is poor understanding of an alternative system that may overcome this bias: the use of individual discretion. Here, we conduct the first quantitative study of how individual discretion affects a research funding portfolio. Using internal project selection data from the Advanced Research Projects Agency-Energy (ARPA-E), we describe how a portfolio of projects selected by individual discretion differs from a portfolio of projects selected by traditional peer review. We show that ARPA-E program directors tend to fund proposals with greater disagreement among experts, and they also appear to prefer proposals described in reviewer comments as "creative." These choices do not result in a significant tradeoff with short-term project performance, and they enable ARPA-E to fund more uncertain and creative research ideas, which supports the agency's mission of pursuing novel ideas for transformational energy technology.

State Taxation of Nonresident Income and the Location of Work
David Agrawal & Kenneth Tester
American Economic Journal: Economic Policy, forthcoming

Prior studies show that taxes matter for the residential locations of high-income earners. But, states raise a significant share of revenue from nonresidents. Using variation in state tax rates, we provide causal evidence on the effect of the net-of-tax rate on the location of labor supply for professional golfers. State taxes induce high-income earners to shift employment to low-tax states without a residence change. The elasticity of working in a state is 0.34, and consistent with superstar phenomenon, increases with earnings. Our results suggest a novel margin of mobility responses for top-earners: the spatial relocation of labor supply by nonresidents.

Rising Income Tax Complexity
Youssef Benzarti & Luisa Wallossek
NBER Working Paper, December 2023

This paper provides novel estimates on the cost of filing taxes over time and in different countries. First, we ran a survey of US taxpayers. We find that taxpayers perceive that tax complexity and filing costs have been increasing and that the majority would be willing to pay for simplifying the tax system and adopting pre-populated tax returns. Second, we use word counts of the tax codes in several countries dating as far back as the early 1980's as a proxy for tax compliance costs. This measure shows that compliance costs have been steadily increasing.

Did the Tax Cuts and Jobs Act stimulate capital expenditures? A firm-level approach
John Bitzan, Yongtao Hong & Fariz Huseynov
Applied Economics, forthcoming

We investigate whether the Tax Cuts and Jobs Act (TCJA) of 2017 motivated firms to increase capital investments. Using a unique approach that identifies firm-level tax benefits and incentives introduced by the TCJA, we find that firms that realized tax benefits increased their investment in fixed assets in the following year. Specifically, as a result of the change, an increase in forecasted earnings and an increase in nonrecurring tax benefits stimulated growth in capital investments. We also find that the investment-inducing effect of the TCJA was larger for firms with a higher cost of capital and for those with better alignment between management and shareholder interests. Although our study is not able to explain the long-term consequences of TCJA, it improves upon the previous literature demonstrating that the mixed findings of previous studies may be the result of the unequal distribution of tax benefits among firms.

The Introduction of the Income Tax, Fiscal Capacity, and Migration: Evidence from U.S. States
Traviss Cassidy, Mark Dincecco & Ugo Antonio Troiano
American Economic Journal: Economic Policy, forthcoming

We evaluate how fiscal capacity and migration respond to the introduction of the individual income tax, drawing on new panel data on U.S. states from 1900 to 2010. We find that states that introduced the income tax experienced a 12 percent increase in total revenue per capita in the near term, a 15 percent increase in the medium term, and a 17 percent increase in the long term. However, the introduction of the income tax did not significantly change the absolute level of revenue over the long term, at least for post-World War II adopters. To explain this difference in the per capita and absolute results, we show that the introduction of the income tax induced significant outmigration to non-income tax states by middle- and high-earning households.

Infrastructure Inequality: Who Pays the Cost of Road Roughness?
Lindsey Currier, Edward Glaeser & Gabriel Kreindler
NBER Working Paper, December 2023

Which Americans experience the worst infrastructure? What are the costs of living with that infrastructure? We measure road roughness throughout America using vertical acceleration data from Uber rides across millions of American roads. Our measure correlates strongly and positively with other measures of road roughness where they are available, negatively with driver speed, and we find road repair events decrease roughness and increase speeds. We measure drivers' willingness-to-pay to avoid roughness by measuring how speeds change with salient changes in road roughness, such as those associated with town borders and road repaving events in Chicago. These estimates suggest the roughness of the median local road in the US generates welfare losses to drivers of at least 31 cents per driver-mile. Roads are worse near coasts, and in poorer towns and in poorer neighborhoods, even within towns. We find that a household that drives 3,000 miles annually on predominantly local roads will suffer $318 per year more in driving pain if they live in a predominantly Black neighborhood than in a predominantly White neighborhood. Road roughness modestly predicts subsequent road resurfacing in New York City, but not in three other cities, which suggests that repaving is only weakly targeted towards damaged roads. Surveys from 120 towns and cities across the US suggest many reasons why resurfacing seems to be weakly targeted.

Local sales tax exportation: The impact of commuters, tourists, and college students on the tax base
Whitney Afonso & Jeremy Moulton
Public Budgeting & Finance, forthcoming

Local sales tax bases are determined by factors including businesses, residential populations, and nonresidential visitors. This paper capitalizes on the COVID-19 pandemic, using the sudden absence of in-commuters, tourists, and college students to estimate the contributions these populations have on the sales tax base in North Carolina's 100 counties. The findings suggest that losing one in-commuter results in a loss of roughly $1000 a month in taxable sales. Similarly, the loss of one hotel night booking results in a loss in taxable sales of approximately $525. This translates, for the median county, to exporting 17% to in-commuters and 12% to tourists. The impact on the loss of a residential college student is less clear.


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