1. Race to the Bottom? Local Tax Break Competition and Business Location (Revised and resubmitted to AEJ: Applied Economics)
I analyze how competition between localities affects tax breaks and business location decisions. I first use a geographic instrument to show that spatial competition substantially increases firm-specific property tax breaks. I then use this pattern to estimate a model of localities competing for mobile firms by offering tax exemptions. In counterfactual exercises, restricting which levels of government can offer tax breaks has little effect on equilibrium business locations but lowers total exemptions by 30%. This suggests that local tax break competition primarily reduces taxes for mobile firms and is unlikely to substantially affect the efficiency of business location.
Increasing housing supply is a frequently proposed solution to the affordability crisis in large cities, but little is known about how new housing units, which are typically expensive, affect the market for cheaper units in the short run. I study this relationship using exact household address histories. I begin by identifying the previous housing units of 62,000 residents of new luxury multifamily buildings in large cities, the previous units of the households that moved into the luxury tenants’ previous units, and so on. This sequence includes a diverse set of neighborhoods, suggesting strong connections between new construction and the remainder of the housing market. This implies that new construction will loosen the market for more affordable units even in the short run. To quantify this effect, I combine the sequence of origin housing units with a simple model to show that—under certain assumptions on counterfactual household locations—building 100 new luxury units has the same effect on the housing market in bottom-quintile income neighborhoods as building 40 units directly in such areas.
3. Does Luxury Housing Construction Increase Rents in Gentrifying Areas? (preliminary, with Brian Asquith and Davin Reed)
A major obstacle to new housing construction in gentrifying neighborhoods is the fear that new units will induce additional housing demand, increasing local rents and fueling further gentrification. We study induced demand near new apartment complexes in gentrifying areas using listing-level data on rental prices and exact household migration data. We find that any induced demand effects are overwhelmed by the effect of increased supply. New construction decreases listed rents within 200 meters of the new building by about $200 relative to listings 200-800 meters away. This pattern does not appear in a set of placebo locations—the areas around the location of future apartment construction. Changes in in-migration appear to drive the result. Although the total number of migrants from high-income neighborhoods to the new construction neighborhoods increases after the new units are completed, the number of high-income arrivals to previously existing units actually decreases, as the new units absorb a substantial portion of these households.
Place-based policy could improve efficiency if it targets areas with large amenity or agglomeration externalities. We begin by using a Census-updating instrument to show that increased federal spending in a county and the associated economic stimulus have substantial amenity externalities on average. We then employ two machine learning algorithms to conduct a data-driven search for heterogeneity in this effect and find that it is meaningfully larger in economically struggling counties. This suggests heterogeneity in amenity externalities works in favor of policies targeting struggling areas and should be considered in evaluations of specific place-based programs.
Information frictions in markets for insurance affect not only the choices consumers make, but also the menu of plans insurers offer. We illustrate this observation using an information friction in Medicare Advantage — beneficiaries pay two premiums, and one is much more salient. We begin by estimating demand and finding a larger elasticity for the salient versus non-salient premium. Next, we show that a model of insurer plan design produces simulated premiums matching the observed distribution when accounting for differential salience, but not when assuming equal elasticities across the two premiums. Finally, we simulate how plan enrollment would change if the friction were removed. Consumer surplus increases by $73/year when allowing insurers to redesign their plans, versus only $5/year holding supply fixed.