Working Papers

Abstract. Tax-deductible capital maintenance attenuates the effect of capital tax policy on capital accumulation. The strength of this channel is mediated by the effect of maintenance on depreciation, which naturally varies by capital type. Although standard macroeconomic analyses of tax policy ignore this channel, I show that this omission is positively and normatively non-trivial. Theoretically, I show that that as long as maintenance is tax deductible and depreciation technologies vary by capital type so that maintenance demand varies as well, uniform tax changes are non-neutral. Consequently, optimal policy features larger tax distortions on capital types with higher maintenance elasticities of depreciation and higher demand for maintenance. Quantitatively, this means prevailing tax policy on equipment and structures---in which the marginal effective tax rate on structures is three times higher than on equipment---is substantially less uniform than optimal. Empirically, I provide new estimates of depreciation functions for equipment and structures using a novel smooth local projections approach with a long panel of manufacturing data. Finally, I evaluate the quantitative significance of the maintenance channel using the empirical estimates.

Abstract. I study the welfare cost of deviating from the Friedman rule along the income distribution. As a first step, I provide a structural framework for studying heteroge- neous agent money demand in the context of a shopping time model with idiosyncratic risk. With that framework, I estimate money demand curves for low-, middle-, and high-income households using microdata from the Survey of Consumer Finance over the period 1989-2019. Low-income money demand is perfectly interest-inelastic, while middle-income demand is roughly as elastic as aggregate money demand and half as elastic as high-income money demand. Using these demand curves, I quantify the welfare cost of deviating from the Friedman rule. Numerically, a 5% nominal interest rate costs 0.54%, 0.66%, and 0.76% of consumption for low-, middle-, and high-income households, respectively.

Works in Progress

Capital Maintenance and Tax Policy Analysis

Abstract. Empirical and quantitative tax policy analyses typically assume that the depreciation rate is a technical parameter. However, because capital maintenance is tax-deductible and affects the depreciation rate, depreciation is a function of tax policy and hence is an economic parameter. Because virtually all tax policy analysis centers on some variant of the user cost of capital, this casts doubt on the validity of such analyses when they fail to incorporate the endogeneity of depreciation to tax policy. This paper quantifies the importance of that insight for tax policy analysis and makes three contributions. First, I show how to implicitly estimate the maintenance elasticity of depreciation. Second, I provide new estimates of the maintenance elasticity using cross-sectional variation in exposure to 21st century tax policy with both industry and firm-level evidence. Finally, I discuss the quantitative relevance of model misspecification for both structural and reduced-form tax policy analysis. Conservatively, the elasticity of the investment rate with respect to user cost is underrated by 40% when depreciation is incorrectly assumed exogenous. 

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.

A Note on Smooth Local Panel Projections

Abstract. Panel local projections are increasingly used in both microeconomic and macroeconomic research. The impulse responses they generate are unbiased but are typically not smooth. Following the work of Barnichon and Brownlees (2019) on smooth local projections in time series, I provide a corresponding estimator for panel data: smooth local panel projections (SLPP). I show the utility of SLPP for estimating impulse responses with microdata through the lens of several examples and demonstrate bias-variance properties with Monte Carlo simulations. Finally, I provide an R package.

Draft and R Package coming soon


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

This is a multiyear 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.

Ratio of price levels between the Pacific region and Upper Midwest (geographic inflation inequality) and between the bottom and top income deciles (income-based inflation inequality). The blue line combines the two.


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.