Academic Work

Working Papers:

Do Household Finances Constrain Unconventional Fiscal Policy? (with Lorenz Kueng, Brian Melzer, and Leslie McGranahan)
Abstract: When the zero lower bound on nominal interest rate binds, monetary policy makers may lack traditional tools to stimulate aggregate demand. We investigate whether "unconventional" fiscal policy, in the form of pre-announced consumption tax changes, has the potential to meaningfully shift durables purchases intertemporally and how it is affected by consumer credit. In particular, we test whether car sales react in anticipation of future sales tax changes, leveraging 57 pre-announced changes in state sales tax rates from 1999-2017. We find evidence for substantial tax elasticities, with car sales rising by over 8\% in the month before a 1% increase in the sales tax rate. Responses are heterogeneous across households and sensitive to supply of credit. Consumers with high credit risk scores are most able to pull purchases forward. At the same time, other effects such as customer composition and attention lead to an even larger tax elasticity during recessions, despite these credit frictions. We discuss policy implications and the likely magnitudes of tax changes necessary for any substantive long-term responses.

Measurement Error in Imputed Consumption (with Lorenz Kueng, Steffen Meyer, and Michaela Pagel) Under Review
Abstract: Because of limitations in survey-based measures of household consumption, a growing literature uses an alternative measure of consumption commonly referred to as `imputed consumption'. This approach utilizes annual snapshots of household income and wealth from administrative tax registries to calculate household consumption as the residual of the household budget constraint. In this paper we use transaction-level retail investment data to assess the measurement error that can result in imputed consumption due to intra-year changes in asset values and composition. We show that substantial discrepancies between imputed and actual spending can arise due to trading costs, asset distributions, variable trade timing, and volatile asset prices between two annual snapshots. While these errors tend to be quantitatively small and centered around zero on average, we demonstrate that they vary across individuals of different types and income levels and are highly correlated with the business cycle.

Shopping for Lower Sales Tax Rates  (with Lorenz Kueng and Stephanie Johnson) (Online AppendixUnder Review
Abstract: Using comprehensive high-frequency state and local sales tax data, we show that household spending responds strongly to changes in sales tax rates. Even though sales taxes are not observed in posted prices and have a wide range of rates and exemptions, households adjust in many dimensions, stocking up on storable goods before taxes rise and increasing online and cross-border shopping. Interestingly, households adjust spending similarly on both taxable and tax-exempt goods. We build an inventory model of shopping behavior and demonstrate that this seemingly irrational behavior is optimal in the presence of fixed costs of shopping trips and provide empirical evidence in favor of this new mechanism. While our results demonstrate that salience of sales tax changes is high on average, we also show that upcoming tax changes that are more salient prompt larger responses.

Expectation Formation Following Large Unexpected Shocks (with Xuguang Sheng and Tucker McElroy)  R&R at the Review of Economics and Statistics
Abstract: By matching a large database of individual forecaster data with the universe of sizable natural disasters across 54 countries, we identify a set of new stylized facts: (i) forecasters are persistently heterogeneous in how often they issue or revise a forecast; (ii) information rigidity declines significantly following large, unexpected natural disaster shocks; (iii) the response of forecast disagreement displays interesting patterns: attentive forecasters tend to move away from the previous consensus following a disaster while the opposite is true for inattentive forecasters. We develop a learning model that captures the two channels through which natural disaster shocks affect expectation formation: attention effect { the visibly large shocks induce immediate and synchronized updating of information for inattentive agents, and uncertainty effect { the occurrence of those shocks generates increased uncertainty among attentive agents.

Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments (with Nick Bloom and Stephen Terry) (Figures)
Abstract: Uncertainty, as measured by stock market or exchange rate volatility, seems to jump after unexpected events such as coups, major natural disasters, or the onset of war. We use a panel of these unexpected shocks across 60 countries to evaluate the impact of uncertainty, or second moment shocks, on economic growth. Using both instrumental variables and a vector autoregression approaches to estimate the effect of first and second moment shocks on future economic growth. We find results consistent with earlier work focusing on the United States, with second moment shocks playing an important role in the business cycle . We find larger impacts of second moment shocks among poorer countries relative to rich ones, suggesting a larger role of uncertainty in growth prospects among this group.

Elasticity of Household Retailer Choice (with Brian Baugh and Lorenz Kueng)
Abstract: Using transaction-level income and spending data, we demonstrate that households are highly elastic in their choice of individual retailers. For instance, about 30% of short-term marginal spending is done at retailers that the household has never patronized before. The degree of elasticity is asymmetric and varies by industry, size of the firms, characteristics of the customer base, location, and whether a firm is public or private. Because these retailers are not identical, household retailer choice can drive important aggregate trends. We show that the elasticity of household retailer choice has implications not only for entrepreneurship and firm-level competition, but can affect trends in aggregate cash-flow volatility, firm size, profitability, and labor intensity. Moreover, retailer choice is highly dispersed at a household level, with little overlap in retailers across individual households. Most of this dispersion is driven by location and household demographics and not by household income.

"What Triggers Stock Market Jumps?" (with Nick Bloom, Steve Davis, and Marco Sammonslides available upon request)
Abstract: Based on readings of next-day newspaper articles, we catalog the proximate cause and geographic source of all largest 1% of daily stock market movements in 14 countries over the past 30 years. Our catalog extends back to 1930 for the United Kingdom and to 1900 for the United States. Using the United States as a test case, we compare categorizations across several newspapers and human coders, obtaining consistent results. News about the United States plays a disproportionate role in triggering large equity moves around the world in recent decades, relative to the U.S. share of world output. The reverse pattern, of large U.S. equity moves in response to foreign news, is comparatively rare. Across almost all countries, the share of large stock market moves associated with government policy increased during and after the Global Financial Crisis of 2008-09. We show that shocks of different types and geographic origins are associated with significant differences in returns and both implied and realized volatility.

Effects of the 1986 Immigration Reform and Control Act on Crime
Abstract: In the late 1970's, rates of illegal immigration into the United States increased dramatically. This increase led to pressure on the federal government to find some way of dealing with the immigrants, culminating in the 1986 Immigration Reform and Control Act (IRCA). This paper seeks to examine the effects that the 1986 IRCA, which legalized over 2.5 million illegal aliens, had on the commission of crime in the United States. We find evidence that IRCA applicants are associated with higher crime rates prior to legalization and that, subsequent to legalization, this association disappears. We find drops in crime of approximately 1%-4% associated with one percent of the population being legalized, primarily due to a drop in property crimes. This fall in crime is equivalent to 80,000-320,000 fewer crimes  committed each year due to legalization. Finally, we calibrate a labor market model of crime using empirical wage and employment data and .find that much of the drop in crime can be attributed to greater job market opportunities among those legalized by the IRCA.

Published and Forthcoming Work:

"The Impact of Unemployment Insurance on Job Search: Evidence from Google Search Data" (with Andrey Fradkin) Review of Economics and Statistics, December 2017; 99:5, 756-768

"Income Changes and Consumption: Evidence from the 2013 Federal Government Shutdown" (with Constantine Yannelis) Review of Economic Dynamics, January 2017; 23, 99-124. (Data)

"Measuring Economic Policy Uncertainty
(with Nick Bloom and Steve Davis) Quarterly Journal of Economics (lead article), November 2016; 131:4, 1593-1636. (WebsiteFigures; Data)

"Effects of Immigrant Legalization on Crime" American Economic Review P&P, 105(5): 210-13. 2015. (Immigration Tape Data)

"Why Has US Policy Uncertainty Risen since 1960?(with Nicholas Bloom, Brandice Canes-Wrone, Steven J. Davis, and Jonathan Rodden) American Economic Review P&P, 104(5): 56-602014.

Work in Progress:

"Rent Risk Hedges Earnings Risk" with Lorenz Kueng, Lee M. Lockwood, and Pinchuan Ong

"Household Consumption and Consumer Payment Choice" with David Berger and Kyle Herkenhof

"Local Tax Substitution" with Pawel Janas and Lorenz Kueng

Other Work (Resting Papers):
Congressmen's Political Power and Federal Contracting in their Districts (with Roy Mill
Abstract: We use data on all US federally awarded contracts since 2002 to measure how the relative power of Congressmen affects the amount of money sent to their districts, controlling for time-invariant individual characteristics and national trends. We find that political power and opportunity, strategic behavior, ideology, and committee membership all play important roles in the allocation of federal contract dollars across congressional districts. We score representatives' campaign contributions according to how local their donors base is. We break down the effect of power changes by the measure of how local Representatives are, and find that Representatives who are more locally focused in terms of their campaign contributions leverage increases in political power or political circumstance in order to increase allocations of federal contracts to their districts 

Effects of Legal Status and Health Service Availability on Mortality
Abstract: Using a straight-forward Differences-in-Differences approach, effects of the 1986 Immigration Reform and Control Act and the 1986 and 1987 Omnibus Budget Reconciliation Acts on mortality levels in California are examined. These acts had the effect of legalizing and granting healthcare coverage to millions of previously illegal immigrants. Utilizing data on all IRCA applicants and all California deaths within this time period, I find evidence of substantial declines in mortality correlated with the size of the legalized cohort by county. If we assume, for purposes of a back of the envelope calculation, that after the reform IRCA applicants' mortality rate is approximately equal to that of demographically similar California residents, this finding is consistent with IRCA applicants being subject to five to six times the mortality rate of California residents prior to the reform.