Research Interests:

Macroeconomics, Effects of Tax Policy, Firm Dynamics, Corporate Finance, Political Economy

Working Papers:

Capital Taxes with Real and Financial Frictions: (pdf)Slides

Abstract:

This paper studies how frictions, real and financial, affect the outcomes of capital tax policy in a dynamic, general equilibrium model. Comparative statics show tax policy can have substantially different results depending on the frictions present. Using firm level data on investment and financial policy, I estimate a model that allows for non-convexities in both the real and financial frictions firms face. With estimates of the true frictions in hand, I then conduct policy experiments, including calculating the long run effects on the aggregate capital stock and aggregate welfare from the 2003 tax cuts and from the tax proposals of President Obama. The effects of such tax policy are
found to be much larger than those in models which do not allow for non-convexities in the frictions firms face.
 

Flip-Flopping: Ideological Adjustment Costs in the United Stated Senate: (pdf)  

Abstract:

Publications: 

The Price of Pork: The Seniority Trap in the U.S. House (pdf), forthcoming, Journal of Public Economics

Abstract:

   If voters have a preference for federal spending in their own district, there exists an incentive for voters to elect candidates who can obtain federal dollars rather than candidates who might better represent them ideologically. The committee structure in the U.S. Congress, coupled with the seniority system, provides senior members with an advantage in obtaining federal outlays and thus may negatively affect the quality of office holders. Moreover, seniority implies a transfer away from districts with junior Representatives and to districts with senior Representatives, with a net transfer of zero. Since the net transfer or pork is zero, overall voter welfare is determined by the quality of the Representatives in office. Thus the seniority system can have the result of decreasing overall voter welfare.
  Using data on federal outlays and U.S. House elections, I estimate the size of the distortion on the quality of officeholders, taking into account the fact that seniority creates a dynamic linkage across periods. After estimating the parameters governing the influence of seniority on federal outlays and the parameters governing the distributions of candidate quality, I conduct several policy experiments to uncover the size of the welfare loss created by the seniority system. I find that the seniority system negatively impacts the quality of Representatives, but has little effect on the outcomes of elections. Furthermore, the most commonly proposed solution to the distortion, term limits, would have a significant, negative effect on the quality of sitting representatives. Instead of a quantity constraint (term limits), I change the relative price of seniority by way of a Pigouvian tax on seniority. Such a policy provides the first-best outcome, eliminating the wedge between candidates created by the seniority system while allowing high quality candidates to remain in office.

Political Parties and Political Shirking: (pdf), Public Choice, forthcoming

Using ADA roll call voting scores for the 1947-2006 period, I find that senators shirk in their last term. The degree of shirking is limited by political parties, which constrain the politician in his last term. The results highlight the importance of political parties in disciplining politicians when the voters cannot.

It's who you are and what you do: explaining the IT industry wage premium (pdf) (joint with Julie Hotchkiss, Melinda Pitts, and John C. Robertson, published in the Federal Reserve Bank of Atlanta Economic Review)

Abstract:

 The information technology (IT) boom dramatically boosted the rapid growth of the U.S. economy during the 1990s, contributing 1.4 percentage points of the 4.6 percent national average real gross domestic product growth from 1996 to 2000. As the IT boom went bust in 2001, however, the IT sector's influence on the economy dwindled. But a lingering effect of the IT boom may still be apparent in the wages of IT workers. This article explores the extent to which variations in wages between IT-producing and non-IT industries can be accounted for by differences in wages paid to IT-related occupations. Using data for 1996 to 2002 from the Current Population Survey's Earner Study, the authors study a sample of more than 845,000 U.S. workers aged eighteen to sixty-four. The sample is categorized according to individuals' primary job and is divided into nine industry groups--three IT-related and six non-IT-related. The analysis shows that the average wage of IT occupations is greater than for non-IT occupations irrespective of industry. Individual worker characteristics such as years of education may account for some of this wage differential. But even after such characteristics and occupational differences are controlled for, workers in IT-producing industries still enjoy a wage premium over workers in other sectors.

Works Submitted:

Political Parties as a Commitment Technology: Effects of Term Limits on Vote Share (pdf), second revision requested, Journal of Applied Economics

Abstract:

Building on Alesina's (1988, AER ) model of electoral competition, I show that term limits decrease vote share of candidates from parties less able to reward or punish candidates. Candidates suffer by not being able to credibly commit to policies that are not close to their own preferences. Assuming that the major parties can provide better discipline (e.g. by aiding in appointments to other political office, helping raise campaign funds, etc.) on their members than third parties, the implication of the model is that third party candidates will be worse off, in terms of vote share garnered, in elections for offices with term limits. The hypothesis that third parties do worse under term limits is tested using state gubernatorial elections. Data from 1977-2004 show that the vote share of third party candidates is approximately six percent lower in elections for a term-limited office when controlling for other election characteristics and regional and time trends in party popularity. The hypothesis cannot be rejected, supporting the model of political parties acting as a commitment technology by ensuring candidates follow announced platforms. 

Works in Progress:

Political Accountability and the Macroeconomy: Evidence from the OECD (joint with Anna Yurko)

Firm Dynamics and Entity Form

Taking Institutions (Somewhat) Seriously:

     Abstract:

Krussel and Rios-Rull (AER, 1999) (KR) show that the static model of Meltzer and Richards (JPE, 1981) (MR) predicts government transfers that are too large.  By making the MR model dynamic, KR find that the model can accurately predict the size of government.  I show that while MR erred in omitting the dynamics of the political and economic processes, they also erred by omitting the structure of political institutions.  By modeling the institutions that choose tax rates as a direct democracy, they over-simplify the political process, which leads to inaccurate predictions about the size of government.  In this paper, I model the political process as a democratic republic, where voters elect representatives from their regions (e.g. Congressmen) who then vote on tax policy.   A model with this institutional detail, when calibrated to the U.S., is found to give a more accurate prediction of the size of government than that from MR.

On the Predictive Power of the Yield Curve: (pdf) (joint with Conan Crum)
     Abstract:

We incorporate a term structure into a standard RBC model. After solving the model using the linearization methods of Christiano (2002, CE), we find that the standard model can account for the qualitative features of the relationship between the yield curve and output. Detrending methods are found to have large differences on the stylized facts of the relationship between the yield curve and output; the RBC model accounts for the qualitative features under different detrending techniques.