Abstract: I show that standard models overstate how much business tax cuts boost capital accumulation because they treat the demand for capital maintenance as exogenously zero. Firms adjust the capital stock through investment in new assets and maintenance of old ones, but tax law treats these margins differently. Accounting for maintenance attenuates the effects of tax cuts through two channels. First is a tax shield effect: tax cuts reduce the tax savings from maintenance deductions, so the effective cost of capital falls by less than standard models predict. Second is an input substitution effect: tax cuts make new investment relatively cheaper, causing firms to substitute away from maintenance, which makes capital depreciate more quickly. Both channels depend on the level and elasticity of maintenance demand, which I estimate using digitized Class I railroad filings and IRS industry data. In general equilibrium, I find that accounting for maintenance implies the effects of the 2017 Tax Cuts and Jobs Act on capital, output, and wages are about one-third smaller than standard estimates---approximately $240 billion less corporate capital after ten years than an equivalent model without maintenance would predict.

Abstract: Using a randomized information experiment on Italian firms, we show that the real investment response to inflation expectations depends systematically on the horizon of those expectations and on the pledgeability of capital. The tangible investment semi-elasticity with respect to expected inflation nearly doubles as the forecast horizon extends from six months to five years, and is roughly four times larger than the corresponding intangible response. These joint facts are difficult to reconcile with standard valuation or money illusion mechanisms but are consistent with a Mundell–Tobin financing channel in which firms lock in long-term nominal borrowing to fund tangible assets. 

Abstract: Standard estimates suggest U.S. importers bear the full incidence of tariffs. I show these estimates are biased upwards because low-passthrough exporters are more likely to select into avoidance behavior. Namely, these exporters avoid tariffs by rerouting exports through countries facing lower tariffs-transshipping-leaving only high-passthrough firms directly exporting to the U.S. I exploit variation in exposure to the U.S.-China trade war to estimate both intensive and extensive elasticities of transshipment. I find that a ten percentage point increase in the tariff rate increases the probability of transshipment by 10-30 percentage points and increases the share of transshipped goods by 2-11 percentage points. The effects are entirely concentrated in intermediate and capital goods, with no apparent behavioral response from consumption goods. My empirical results imply that the lower bound on estimated U.S. incidence is 85 percent, raising the possibility that some types of tariffs are no more costly on the margin than lump-sum taxes. Finally, I identify a novel channel through which domestic tax policy implicitly deters international tax avoidance. Because import costs are tax-deductible, higher corporate tax rates discourage transshipping. For that reason, the 2017 corporate tax cuts increased transshipping, costing the U.S. $2-$9 billion in tariff revenue.

Abstract: This note extends smooth local projections to panel data and uses Monte Carlo methods to explore the bias and variance properties of smooth panel local projections (SPLP). SPLP allows researchers to penalize the impulse respond toward a polynomial, while standard local panel projections (PLP) are nonparametric but result in theoretically unappealing IRFs because they are too lumpy. Relative to PLP, SPLP has appealing properties in smaller samples.

Abstract: Proponents of investment subsidies occasionally claim that subsidies increase the supply of used capital and relax financial constraints for young firms, resulting in a larger market for used capital and higher entry rates. However, that overlooks current law, under which increases in subsidies penalize the sale of used assets, so the usual intuition may reverse. To understand the competing incentives, I build an investment model featuring firms choosing whether to retain used assets or sell them to financially constrained firms. In partial equilibrium, higher subsidies reduce the supply of used assets. In general equilibrium, however, the reform alters firms’ retention decisions---by shifting the marginal product of retained capital through diminishing returns---which can either offset or amplify the direct reduction in used asset sales, yielding ambiguous effects on the equilibrium price, market size, and entry. Exploiting cross-industry variation in exposure to bonus depreciation, I test the model’s predictions using firm-level data from Compustat and industry measures of entry from the Business Dynamics Statistics. Increases in bonus reduce used capital sales and lower entry. These findings highlight an important trade-off in tax policy design, suggesting that incentives intended to spur investment may inadvertently hinder capital reallocation and firm turnover.

Abstract: Modern Money Theory (MMT) has risen to prominence in popular policy debates within macroeconomics. MMT economists argue for creating a job guarantee program, which they argue would generate price stability. Using a benchmark model of time consistency supplemented with a job guarantee, we conclude that once policymakers' incentives are considered, the job guarantee does nothing to help stabilize prices. We compare this program to a competing proposal to maintain price stability and full employment, NGDP targeting.