The Paycheck Protection Program (PPP) provided small businesses with roughly $800 billion dollars in uncollateralized, low-interest loans during the pandemic, almost all of which will be forgiven. With 93 percent of small businesses ultimately receiving one or more loans, the PPP nearly saturated its market in just two months. We estimate that the program cumulatively preserved between 2 and 3 million job-years of employment over 14 months at a cost of $170K to $257K per job-year retained. These estimates imply that only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs; the balance flowed to business owners and shareholders, including creditors and suppliers of PPP-receiving firms. Program incidence was highly regressive, with about three-quarters of PPP funds accruing to the top quintile of households. This compares unfavorably to the other two major pandemic aid programs, enhanced UI benefits and Economic Impact Payments (i.e. stimulus checks). PPP’s breakneck scale-up, its high cost per job saved, and its regressive incidence have a common origin: PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise. The more targeted pandemic business aid programs deployed by other high-income countries exemplify what is feasible with better administrative systems. Building similar capacity in the U.S. would enable greatly improved targeting of either employment subsidies or business liquidity when the next pandemic or other large-scale economic emergency occurs, as it surely will.
An Evaluation of the Paycheck Protection Program Using Administrative Payroll Microdata (joint with David Autor, David Cho, Leland D. Crane, Mita Goldar, Joshua Montes, William B. Peterman, David Ratner, Daniel Villar, and Ahu Yildirmaz) conditionally accepted at Journal of Public Economics
The Paycheck Protection Program (PPP), a principal element of the fiscal stimulus enacted by Congress in response to the COVID-19 economic shock, is intended to assist small businesses to maintain employment and wages during the crisis. An obstacle to assessing whether the PPP achieved this goal is the absence of granular, high-frequency employment data that can precisely capture any causal effect of the PPP on employment. We use administrative data from ADP---one of the world's largest payroll processing firms---to contrast the evolution of payroll employment at PPP-eligible and PPP-ineligible firms, where eligibility is determined by industry-specific firm-size cutoffs. We estimate that the PPP boosted employment at eligible firms by 2 to 4.5 percent, with a preferred central tendency estimate of approximately 3.25 percent. Our estimates imply that the PPP increased aggregate U.S. employment by 1.4 million to 3.2 million jobs through the first week of June 2020, with a preferred central tendency estimate of about 2.3 million workers. In an alternative analysis, we identify the effect of the PPP from a set of firms for which we can observe loan take-up and obtain results at the upper end of the range of estimates. Although the evidence is supportive of a causal effect of the PPP on aggregate employment, we are careful to highlight puzzles where they occur and view our work as preliminary in nature. Future work will leverage loan-level PPP data to calibrate the relationship between eligibility, take-up, and employment.
The Sustainability of State and Local Government Pension Plans: A Public Finance Approach (with Jamie Lenney, Finn Schüle, and Louise Sheiner), Brookings Papers on Economic Activity, Spring 2021, forthcoming
In this paper we explore the fiscal sustainability of US state and local government pensions plans. Specifically, we examine whether, under current benefit and funding policies, state and local pension plans will ever become insolvent and if so, when. We then examine the fiscal cost of stabilizing pension debt as a share of the economy and examine the cost associated with delaying such stabilization into the future. We find that, despite the projected increase in the ratio of beneficiaries to workers as a result of population aging, state and local government pension benefit payments as a share of the economy are currently near their peak and will eventually decline significantly. This previously undocumented pattern reflects the significant reforms enacted by many plans which lower benefits for new hires and cost-of-living adjustments often set beneath the expected pace of inflation. Under low or moderate asset return assumptions, we find that few plans are likely to exhaust their assets over the next few decades. Nonetheless, under these asset returns, plans are currently not sustainable as pension debt is set to rise indefinitely; plans will therefore need to take action to reach sustainability. But the required fiscal adjustments are generally moderate in size and in all cases are substantially lower than the adjustments required under the typical full prefunding benchmark. We also find generally modest returns, if any, to starting this stabilization process now versus a decade in the future. Of course, there is significant heterogeneity, with some plans requiring very large increases to stabilize their pension debt.
Across the Universe: Policy Support for Employment and Revenue in the Pandemic Recession (with Ryan A. Decker, Robert J. Kurtzman, and Christopher J. Nekarda), AEA Papers and Proceedings, 2021
Using data from 14 government sources, we develop comprehensive estimates of US economic activity by sector, legal form of organization, and firm size to characterize how four government direct-lending programs—the Paycheck Protection Program, Main Street Lending Program, Corporate Credit Facilities, and Municipal Liquidity Facility—relate to these classes of economic activity in the United States. The classes targeted by these programs are vast—accounting for 97 percent of total US employment—though entity-specific financial criteria limit coverage within specific programs. These programs notionally cover a far larger universe than what was targeted by analogous Great Recession-era lending policies.
Longer working paper version here.
Fiscal Effects of COVID-19 (with Alan Auerbach, William Gale, and Louise Sheiner), Brookings Papers on Economic Activity, Fall 2021
The COVID-19 pandemic and the associated policy responses have had a significant impact on government budgets. Federal spending has skyrocketed. State and local governments, almost all of which face some form of annual balanced budget rule, confront fiscal shocks on both the revenue and spending sides that threaten to make the recession deeper and slow the recovery. This paper examines the impact of COVID on the fiscal status of the federal government and the states.
Vestiges of Transit: Urban Persistence at a Micro Scale (with Leah Brooks), Review of Economics and Statistics, 2019
In this paper, we document spatial persistence at a micro scale and explore its causes. The streetcar dominated urban transit in Los Angeles County from the 1890s to the early 1910s, and was off the road entirely by 1963. However, we find that its influence remains readily visible in the current pattern of urban density. Further, we show that this pattern has reinforced, not muted, over the nearly 60 year since the streetcar's removal. Our evidence is most consistent with the defunct streetcar influencing modern behavior by serving as a focal point, coordinating both land use regulation and agglomerative clustering.
Can Fiscal Rules Constrain the Size of Government? An Analysis of the `Crown Jewel’ of Tax and Expenditure Limitations (joint with Paul Eliason), Journal of Public Economics, 2018
Fiscal rules attempt to alter budget outcomes by constraining policy makers. They have been one of the primary responses to the recent spat of fiscal policy failures around the globe---e.g. Greece, Puerto Rico and Detroit. It is unclear, though, whether these rules cause a change in budget outcomes, are evaded by policy makers, or merely ratify the existing preferences of a jurisdiction's voters and officials. We ask if fiscal rules are capable of altering budget outcomes by examining what is arguably the most stringent set of fiscal rules in the U.S.---Colorado's Taxpayer Bill of Rights (TABOR). TABOR applies to all sub-national levels of government in Colorado, sets tight caps on essentially all forms of government revenue and in theory has almost no escape clauses which would allow officials to violate the caps. Previous examinations of TABOR have universally come to the conclusion that it significantly reduced both taxation and spending -- i.e. that it caused a reduction in the size of government. To evaluate TABOR, we explore several ways in which the synthetic control methodology of Abadie et al. (2010) can accommodate multiple outcome variables (taxes and expenditures). We settle upon a novel approach of estimating treatment effects for multiple outcomes simultaneously. Although there will always be a degree of uncertainty over external validity when a policy is enacted in only a single state, our results provide no evidence that TABOR affected the level of taxes or spending in Colorado and are precise enough to rule out large negative effects. Numerous robustness checks buttress this conclusion; in particular robustness to alternative estimation strategies is demonstrated. In sum, no support is found for the contention that fiscal rules alter budget outcomes. Instead, TABOR appears to have been partly evaded by policy makers and voters despite its stringency and partly nothing more than a ratification of the state's preference over the size of its public sector.
Fiscal Policy and Aggregate Demand in the U.S. Before, During and Following the Great Recession (with David Cashin, Jamie Lenney and William Peterman), International Tax and Public Finance, 2018
We examine the effect of federal and subnational fiscal policy on aggregate demand in the U.S. by introducing the fiscal effect (FE) measure. FE can be decomposed into three components. Discretionary FE quantifies the effect of discretionary or legislated policy changes on aggregate demand. Cyclical FE captures the effect of the automatic stabilizers—changes in government taxes and spending arising from the business cycle. Residual FE measures the effect of all changes in government revenues and outlays which cannot be categorized as either discretionary or cyclical; for example, it captures the effect of the secular increase in entitlement program spending due to the aging of the population. We use FE to examine the contribution of fiscal policy to growth in real GDP over the course of the Great Recession and current expansion. We compare this contribution to the contributions to growth in aggregate demand made by fiscal policy over past business cycles. In doing so, we highlight that the relatively strong support of government policy to GDP growth during the Great Recession was followed by a historically weak contribution over the course of the current expansion.
From Today's City to Tomorrow's City: An Empirical Investigation of Urban Land Assembly, American Economic Journal: Economic Policy, 2016 (joint with Leah Brooks)
Because urban areas are fundamentally constrained by the boundaries of land ownership, economic and technological shocks cannot modify the urban landscape without also changing the delineation of land. In this paper, we ask if urban land markets are capable of producing such changes in land delineation. Specifically, we test if there is enough land assembly – the legal joining together of two or more parcels of land -- to put land to its highest value use. Failure to assemble land may reduce agglomerative benefits, produce urban blight, push growth to the city edge and away from the core; ultimately it may cause cities to forfeit economic growth. We develop a simple theoretical framework which provides a testable hypothesis: in the absence of market frictions, the price of land sold for assembly should not exceed the price of land sold for other uses. This hypothesis does not hold when frictions, such as holdouts and land use regulation, drive the market for land assembly. We test this hypothesis using a novel dataset that follows each of the 2.3 million parcels in Los Angeles County over a twelve year period and allows us to observe all instances of assembly. We address the potentially significant problem of selection into assembly by comparing, within very small neighborhoods, the price of land for parcels sold into assembly to price of land for parcels sold where the structure is immediately torn down. This method and extensions find that to-be-assembled land trades at a 15 to 40 percent premium. Thus, we find that urban land markets are subject to significant frictions that prevent assemblies and produce sclerotic urban redevelopment. Additional empirical results suggest that private market frictions, such as holdouts, play an important role in blocking assembly.
The Role of Taxes in Mitigating Income Inequality Across the U.S. States, National Tax Journal, 2015 (joint with Daniel Cooper and Michael Palumbo)
Income inequality has risen dramatically in the United States since at least 1980. This paper examines the role that tax policies play in mitigating income inequality. The analysis primarily focuses on state taxes, but also explores federal taxes. Two empirical approaches are employed. First, cross-sectional estimates compare before-tax and after-tax inequality across the 50 states and the District of Columbia. Second, inequality estimates across time are calculated to assess the evolution of the effects of tax policies. The results from the first approach indicate that the tax code reduces income inequality substantially in all states. All of this compression of the income distribution is attributable to federal taxes as state taxes, on average, widen the after-tax income distribution slightly. Nevertheless, there is substantial cross-state variation with some states’ tax codes meaningfully reducing income inequality and others significantly increasing inequality. We also document that state EITC programs can significantly mitigate income inequality, that sales tax exemptions for food and clothing moderately reduce income inequality, and that state-levied gasoline taxes work to increase inequality. The results of the second empirical approach indicate that the mitigating influence of taxes on income inequality has increased since the early 1980s, with two-thirds of the increase due to the federal tax code and the remaining one-third due to state taxes. The increase at the state level is due mostly to changes to the tax code. In contrast, at the federal level the majority of the increase is due to the widening of the pre-tax wage distribution interacting with the progressive structure of the tax code.
Online appendix here.
Older version here.
Quasi-Experimental Evidence on the Connection Between Property Taxes and Residential Capital Investment,” American Economic Journal: Economic Policy, 2015.
Do low property taxes attract residential capital investment? This question is answered using an unusual school finance reform in the state of New Hampshire. The reform induced large shifts in property tax burdens and this shock is used to identify the empirical relationship between property taxes and new home construction. The estimates suggest that, in most of the state, communities with a reduced tax burden experience a substantial increase in residential construction. In the area of the state near the region’s primary urban center (Boston), however, the shock clears through a price adjustment .i.e. by capitalizing into property values. The differing responses are attributed to differing housing supply elasticities. Moreover, communities which experience a decrease in property tax burdens, and witness a surge in building activity as a result, increase the stringency of their land use regulation – a response likely to slow the growth in housing supply.
The Fiscal Stress Arising from State and Local Retiree Health Obligations,” Journal of Health Economics, 2014 (joint with Louise Sheiner)
A major factor weighing down the long-term finances of state and local governments is the obligation to fund retiree benefits. While state and local government pension obligations have been analyzed in great detail, much less attention has been paid to the costs of the other major retiree benefit provided by these governments: retiree health insurance. The first portion of the paper uses the information contained in the annual actuarial reports for public retiree health plans to reverse engineer the cash flows underlying the liabilities given in the report. Obtaining the cash flows allows us to construct liability estimates which are consistent across governments in terms of the discount rate, actuarial method and assumptions concerning medical cost inflation and mortality. We find that the total unfunded accrued liability of state and local governments for the provision of retiree health care exceeds $1 trillion, or about ⅓ of total state and local government revenue. Relative to pension obligations discounted at the same rate, we find that unfunded retiree health care liabilities are ½ the size of unfunded pension obligations. We also find that using assumptions concerning the growth in health care costs that are arguably more realistic than those employed by most states actually reduces the size of the liability in most cases. Pushing in the opposite direction, we find that using plausibly more realistic mortality assumptions increases the size of liability. The second portion of the paper places retiree health care obligations into context by examining the budget pressures associated with retiree health on a continuing, largely pay-as-you go basis. We find that much of the projected increase in retiree health obligations as a share of revenue is the result of health care cost growth. On average, states could put their retiree health obligations into long-run fiscal balance by contributing an additional ¾ percent of total revenue toward the benefit each year. There is, however, wide variation across the states, with the majority of states requiring little in the way of additional financing, but some states requiring a significantly larger increase.
School Desegregation, School Choice and Changes in Residential Location Patterns by Race, American Economic Review, December 2011 (with Nathaniel Baum-Snow)
This paper examines the residential location and school choice responses to the desegregation of large urban public school districts. We decompose the well documented decline in white public enrollment following desegregation into migration to suburban districts and increased private school enrollment and find that migration was the more prevalent response. Desegregation caused black public enrollment to increase significantly outside of the South, mostly by slowing decentralization of black households to the suburbs, and large black private school enrollment declines in southern districts. Central district school desegregation generated only a small portion of overall urban population decentralization between 1960 and 1990.
The End of Court-Ordered Desegregation, American Economic Journal: Economic Policy, May 2011
In the early 1990s, nearly forty years after Brown v. the Board of Education, three Supreme Court decisions dramatically altered the legal environment for court-ordered desegregation. Lower courts have released numerous school districts from their desegregation plans as a result. Over the same period racial segregation increased in public schools across the country -- a phenomenon which has been termed resegregation. Using a unique dataset, this paper finds that dismissal of a court-ordered desegregation plan results in a gradual, moderate increase in racial segregation and an increase in black dropout rates and black private school attendance. The increased dropout rates and private school attendance are experienced only by districts located outside of the South Census region. There is no evidence of an effect on white student along any dimension.
The Housing Crisis and State and Local Government Tax Revenue: Five Channels,” Regional Science and Urban Economics, July 2011 (with Raven Molloy and Hui Shan)
State and local government tax revenues dropped steeply following the most severe housing market contraction since the Great Depression. We identify five main channels through which the housing market affects state and local tax revenues: property tax revenues, transfer tax revenues, sales tax revenues (including a direct effect through construction materials and an indirect effect through the link between housing wealth and consumption), and personal income tax revenues. We find that property tax revenues do not tend to decrease following house price declines. We conclude that the resilience of property tax receipts is due to significant lags between market values and assessed values of housing and the tendency of policy makers to offset declines in the tax base with higher tax rates. The other four channels have had a relatively modest effect on state tax revenues. We calculate that these channels jointly reduced tax revenues by $15 billion from 2005 to 2009, which is about 2 percent of total state own-source revenues in 2005. We conclude that the recent contraction in state and local tax revenues has been driven primarily by the general economic recession, rather than the housing market per-se.
Taxation with Representation: Intergovernmental Grants in a Plebiscite Democracy,” Review of Economics and Statistics, 92(2), May 2010
Economic theory predicts that unconditional intergovernmental grant income and private income are perfectly fungible. Despite this prediction, the literature on fiscal federalism documents that grant and private income are empirically non-equivalent. A large scale school finance reform in New Hampshire — the typical school district experienced a 200 percent increase in grant income — provides an unusually compelling test of the equivalence prediction. Most theoretical explanations for non-equivalence focus on mechanisms which produce public good provision levels which differ from the decisive voter’s preferences. New Hampshire determines local public goods provision via a form of direct democracy — a setting which rules out these explanations. In contrast to the general support in the literature for non-equivalence, the empirical estimates in this paper suggest that approximately 92 cents per grant dollar are spent on tax reduction. These results not only document that equivalence holds in a setting with a strong presumption that public good provision decisions reflect the preferences of voters, but also directly confirm the prediction of the seminal work of Bradford and Oates (1971) that lump-sum grant income is equivalent to a tax reduction. In addition, the paper presents theoretical arguments that grant income capitalization and heterogeneity in the marginal propensity to spend on public goods may generate spurious rejections of the equivalence prediction. The heterogeneity argument is confirmed empirically. Specifically, the results indicate that lower income communities spend more of the grant income on education than wealthier communities, a finding interpreted as revealing that the Engel curve for education is concave.
The Connection Between House Price Appreciation and Property Tax Revenue,” National Tax Journal, LXI, No. 3, Sept. 2008
This paper explores two aspects of the connection between property tax revenues and house prices. First, I estimate the elasticity of property tax revenues with respect to house prices. This elasticity does not necessarily equal 1 as governments may adjust effective tax rates to offset changes in property values. Second, I examine the timing of the relationship. Institutional features of the property tax make it unlikely that changes in house prices will immediately influence tax revenues. The results suggest that the elasticity eventually equals 0.4 and that it takes three years for house price changes to impact tax revenues.
State and Local Finance and the Macroeconomy: The High-Employment Budget and Fiscal Impetus, National Tax Journal, LXI, No. 3, Sept. 2008 (with Glenn Follette and Andrea Kusko)
We examine the interplay of the economy and state and local budgets by developing and examining two measures of fiscal policy: the high-employment budget and fiscal impetus. We find that a 1 percentage point increase in cyclical GDP results in a 0.1 percentage point increase in NIPA-based net saving through the automatic response of taxes and expenditures. State and local budget policies are found to be modestly procyclical. Stimulus to aggregate demand is about 0.2 percentage point less following a business cycle peak than it is during the period before the business cycle peak.
The Impact of Employer-Provided Health Insurance on Dynamic Employment Transitions,” Journal of Human Resources, 37(1), Winter 2002: 129-162 (with Donna Gilleskie)
We estimate the impact of employer-provided health insurance (EPHI) on the job mobility of males over time using a dynamic empirical model that accounts for unobserved heterogeneity. Previous studies of job-lock reach different conclusions about possible distortions in tabor mobility stemming from an employment-based health insurance system: a few authors find no evidence of job-lock, although most find reductions in the mobility of insured workers of between 20 and 40 percent. We use data from the National Longitudinal Survey of Youth which includes variables describing the health insurance an individual holds, as well as whether he is offered insurance by his employer. This additional information allows us to model the latent individual characteristics that are correlated with the offer of EPHl, the acceptance of EPHI, and employment transitions. Our results provide an estimate of job-lock unbiased through correlation with positive job characteristics and individual specific turnover propensity. We find no evidence of job-lock among married males, and produce small estimates of job-lock among unmarried males of between 10 and 15 percent.
Research in Progress
The Distributional Incidence of State Income Taxes and Economic Activity (joint with John Juneau)
The Effects of School Desegregation on Crime, NBER Working Paper # 15380, Sept. 2009 (w/ Dave Weiner and Jens Ludwig)
One of the most striking features of crime in America is its disproportionate concentration in disadvantaged, racially segregated communities. In this paper we estimate the effects of court-ordered school desegregation on crime by exploiting plausibly random variation in the timing of when these orders go into effect across the set of large urban school districts ever subject to such orders. For black youth, we find that homicide victimization declines by around 25 percent when court orders are implemented and homicide arrests also decline significantly, which seem to be due at least in part to increased schooling attainment. We also find positive spillover effects to other groups, with beneficial changes in homicide involvement for black adults and perhaps whites as well. Our estimates imply that imposition of these court orders in the nation’s largest school districts lowered the homicide rate to black teens and young adults nationwide by around 13 percent, and might account for around one-quarter of the convergence in black-white homicide rates over the period from 1970 to 1980.
Fiscal Rules, What Does the American Experience Tell Us?,” Rules and Institutions for Sound Fiscal Policy after the Crisis, Banca d’Italia, 2012. (joint with Glenn Follette)
Fiscal Policy in the United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the Economy,” Fiscal Policy: Lessons from the Crisis, Banca d’Italia, 2011. (joint with Glenn Follette)