Working Papers
Working Papers
Embedded Files
I study the theoretical, empirical, and quantitative importance of capital maintenance for tax policy. Because maintenance is tax-deductible, there is a distortion in the cost of capital which theoretically attenuates the effects of business tax reform on aggregate outcomes. I estimate maintenance demand using novel data from freight railroads and a panel of corporate tax returns. Incorporating maintenance into a workhorse general equilibrium model of tax reform implies that the 2017 Tax Cuts and Jobs Act increased corporate capital by 2% after ten years---just 1/3 of the benchmark neoclassical prediction and $500B less than what would have been predicted by a no-maintenance model.
PDF | SSRN
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.
Draft | SSRN | R Package | R Vignette | Stata Code
Optimal Capital Taxation with Endogenous Depreciation [revision in progress, new draft soon]
Optimal Capital Taxation with Endogenous Depreciation [revision in progress, new draft soon]
Abstract. Endogenous depreciation via capital maintenance is a simple but practically important channel for the transmission of capital tax policy. In practice, tax authorities tax the return on capital net of maintenance. With endogenous maintenance allocations, this implies that capital is relatively inelastic to tax policy because depreciation moves inversely with tax changes. The strength of this channel is mediated by the maintenance elasticity of depreciation, which naturally varies by capital type. Using a simple neoclassical model, I show that abstracting from the maintenance channel is normatively non-trivial. Although an unconstrained planner would still set the tax on capital to zero in a neoclassical model with homothetic preferences, the quantitative gain is roughly 30% as large as the benchmark Lucas (1990) case. In a practically relevant case, I examine optimal differential taxation when the Ramsey planner is constrained to raise revenue from capital. I prove that the planner would prefer to tax capital more when it has a higher maintenance elasticity of depreciation and a higher return net of maintenance compared to other capital types. That implies the current system---which taxes structures at thrice the rate on equipment---would be pushed toward uniform taxation.
Works in Progress
Works in Progress
Reallocative Effects of Business Tax Reform
Reallocative Effects of Business Tax Reform
Abstract. Taking as given the current tax system, I develop a theory to study the partial and general equilibrium effects of new investment subsidies on used asset markets. Such markets are an important source of capital for financially constrained young firms. New investment subsidies unambiguously depress the market for used assets in partial equilibrium, while the effects are ex ante ambiguous in general equilibrium. 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.
The Infrastructure Growth Drag
The Infrastructure Growth Drag
Abstract. Reflecting a widespread consensus that public infrastructure investment has become increasingly inefficient, the relative price of public investment has grown at 0.4% per year for the past sixty years. I quantify the negative effect of this trend on aggregate output and growth. If public investment efficiency had remained constant, output would be about 1.5% higher, which translates to more than half of total infrastructure spending. I embed infrastructure innovation in an endogenous growth model and estimate the necessary level of R&D expenditures necessary to offset the growing inefficiency wedge. The model is disciplined by evidence from quasi-experimental variation on the response of infrastructure investment productivity to government R&D expenditures on highways.
Projects
Projects
Federal & State Tax Policy
Federal & State Tax Policy
A database of federal and state tax policies on physical investment over the period 1972-2024. Marginal effective tax rates are available by industry, industry-by-asset for equipment and structures, and by state. Access code and data here. Please cite and let me know if there are any errors.
Inflation Inequality Across Time and Space in the United States
Inflation Inequality Across Time and Space in the United States
This is a multiyear ongoing project on inflation inequality with Jon Hartley supported and distributed by the Foundation for Research on Equal Opportunity (FREOPP). Our goal is to give academics and policymakers access to real-time inflation inequality indices across nine Census divisions and the whole nation across multiple demographic groups. Our time series starts in 1978. In 2022, we published a white paper with FREOPP, Inflation's Compounding Impact on the Poor, which explored inflation inequality across the income distribution at the national level. Our data and code were released to the public in April 2022. In May 2024, we will begin releasing monthly updates and publish a short report on geographic inflation inequality. Below, we have links to our data, a companion which consolidates and adds academic flavor to the FREOPP reports, and the original reports.
Publications
Publications
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.
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