Tax Reform and the Valuation of Superstar Firms

This 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, more than 80 percent rose in value on news of the tax reform, whereas among less profitable firms, fewer than 60 percent appreciated. By every measure, 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.
[PAPER] [GitHub Download]


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] [Github Download]


Risky Business: Policy Uncertainty, Firm Valuation, and Investment (with B. Glass)

October 2018Forecasts of the consequences of tax changes usually assume that economic actors expect these changes are permanent, despite the inevitable political uncertainty that could lead to future reversals or further changes. This reasoning extends to when a firm's tax burden is correlated to the success of its ventures. We show how a firm's belief about how government policy is correlated with the input's marginal product distorts its risk profile, leading it to change its input decision. Generally speaking, input use will be discouraged if the firm faces high taxes precisely when the input is more productive. We show that in a world of policy uncertainty this holds under an arbitrary tax system, and in particular it holds even if inputs can be deducted from the firm's taxable income. Whenever the covariance between policy and payoff is zero, our model replicates the classical result that the deductibility of input expenses leaves the decision undistorted. We use this theoretical relationship in an empirical model of asset pricing to infer what investors believe about how future government policy correlates with their risky investments in different firms in the stock market.
[DRAFT] [GitHub Download]

Unintended Consequences of a Minimum Wage Hike that Never Happened

April 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.


Altruism and the Provision of Public Goods

While 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.

A General Equilibrium Model of Real-Life Value-Added Taxation (with J. Slemrod)

Competition Between VAT Registered and Unregistered Firms (with T. Velayudhan)

Untold Secrets of Tax Preparers, Complexity, and Compliance (with Y. Ka├žamak and E. Stuart)