Risky Business: Policy Uncertainty, Firm Valuation, and Investment (with B. Glass)International Tax and Public Finance, accepted
We generalize previous results on the effect of non-linear taxation on investment, showing that investment decisions are distorted when tax rates are correlated with marginal productivity. We demonstrate this result in a simple theoretical framework, which can also explain some well known results on the effects of tax progressivity and tax asymmetry on investment. Time-series estimates for the post-WW2 era suggest a negative correlation between effective tax rates and total factor productivity in the U.S., yielding an effect on firm investment equivalent to an investment subsidy of around 1 percent.
[PAPER] [ALSO AVAILABLE AS RSIT WORKING PAPER 03-2021]
Attending to Inattention: Identification of Deadweight Loss under Non-Salient Taxes (with B. Glass)Journal of Public Economic Theory, 2020
Recent developments in behavioral public economics have shown that heterogeneous biases prevent point identification of deadweight loss. We replicate this result for an arbitrary (closed) consumption set, whereas previous results on heterogeneous attention focused on binary choice. We find that one can bound the efficiency costs of taxation based on aggregate features of demand. When individuals have linear demand functions, the bounds for deadweight loss are easy to calculate from linear regressions.
[PAPER] [ONLINE APPENDIX]
Tax Reform and the Valuation of Superstar FirmsThis paper measures the effect of the 2017 Tax Cuts and Jobs Act on share prices of publicly traded firms, finding that the most profitable firms, and those in concentrated industries, benefited the most. The tax bill significantly reduced corporate tax rates, thereby increasing share prices, particularly at the top. Among firms with the highest profit rates, about 65 percent rose in value upon the Senate's vote on the reform, whereas among less profitable firms, fewer than 15 percent appreciated. By many measures, stock market gains coincident with the tax bill were concentrated among firms with greater market power. This pattern is consistent with economic rents being important components of the values of large U.S. corporations.
Unintended Consequences of a Minimum Wage Hike that Never HappenedApril 2019Recent theoretical and empirical evidence suggests that the effects of a minimum wage raise might be small in the short run, but sizable in the long run. I use high-frequency data from online betting markets and financial markets to study the long-term impact of minimum wage legislation on firm profits and employment. While this approach only allows me to study the impact on big firms, quoted on the stock market, it has the advantage of not relying on employment data, which is often noizy and difficult to find. Preliminary reduced-form results suggest that a 10 percentage-point increase in the odds of a minimum wage increase are associated with a 1 percentage-point decrease in the returns to stock of companies in the limited-service restaurant industry.
[AVAILABLE UPON REQUEST]
Altruism and the Provision of Public GoodsWhile one would intuitively expect that altruism helps with the problem of public good provision, anything less than a perfectly altruistic society does not provide an efficient level of public goods. In this paper I show that, in fact, it is possible that more altruism can make society worse off, in the sense that agents would be willing to give up more income to have a social planner implement the Pareto optimum, the more altruistic a society is. In future work I plan to consider how this affects welfare in an altruistic setting, compared to a setting in which agents can be "shamed" into making efficient donations to the public good.