Working Papers
"Social Push and the Direction of Innovation" (with Xavier Jaravel and Josh Feng) revise and resubmit, American Economic Review. [pdf]
Abstract: Most innovators are men from privileged backgrounds; what are the implications for the direction of innovation and inequality? Leveraging novel linked datasets in the United States and Finland, we document that innovators create products more likely to be purchased by consumers similar to them in terms of gender, socioeconomic status, and age. Innovator-consumer homophily holds both across and within detailed industries. We find that a key explanatory channel is that social exposure causes a shift in the direction of innovation, independent of financial incentives. For example, being exposed to lower-income peers during higher education increases an entrepreneur’s propensity to create necessity products without affecting entrepreneurial income, consistent with intrinsic motivations for social impact. Incorporating this “social push” channel and innovator-consumer homophily into a general equilibrium growth model, we estimate that unequal access to innovation careers has a large effect on both cost-of-living inequality in consumer welfare and long-run growth. In particular, the under-representation of women among innovators leads to missing product variety for women, inducing a gender cost-of-living gap almost as large as the gender pay gap.
"The Impact of Firm Subsidies on Worker Allocation: An RD Analysis with Linked Employer-Employee Data" (with Riku Buri) [pdf]
Abstract: We estimate the effects of firm subsidies on worker allocation across supported and unsupported companies. Causal effects are identified with administrative data on working-aged population in Finland and a regression discontinuity design based on a change in the company size thresholds that determined eligibility for larger subsidy rates. Firm subsidies have an economically large and statistically significant effect on investment and employment in supported firms. The main channels through which subsidies affect employment are lower exit rates of old employees and an increase in the number of less-educated workers.
Publications
"The Long-Term Impacts of Mixing the Rich and Poor: Evidence from Conscript Dorms" forthcoming, American Economic Journal: Applied Economics. [pdf]
Abstract: To what extent is economic success determined by with whom individuals interact socially? We tackle this question by exploiting a large-scale natural experiment in the Finnish conscription to estimate the effects of peers from different family backgrounds on long-term economic and educational outcomes. Our research design is based on the alphabetization of dorms within squadrons, which is shown to induce as good as random variation in peer composition. Using data on more than 50 thousand conscripts, we find that exposure to a dormmate from a high-income family has a positive impact on earnings. The effect is the largest on individuals from high-income families, whose long-term earnings are 5.7% higher when they are exposed to peers whose parental income is one standard deviation higher. This effect is mainly driven by an increase in hourly wages, whereas work hours, employment, educational attainment, and study effort are little affected. Individuals from poorer families enroll in educational programs with higher expected returns when they are exposed to peers from richer families, but effects on their long-term earnings are small. Our analysis of employer-employee data suggests that labor market networks among individuals from richer families are a key mechanism for the identified peer effects. The findings imply that social sorting by income reinforces intergenerational earnings and wage inequality between richer and poorer families.
"Do Tax Incentives for Research Increase Firm Innovation? An RD Design for R&D, Patents, and Spillovers" (with Antoine Dechezleprêtre, Ralf Martin, Kieu-Trang Nguyen, and John Van Reenen), American Economic Journal: Economic Policy, November 2023, Vol. 15, No. 4: 486-521. [pdf] [appendix]
Abstract: We present evidence of a causal impact of research and development (R&D) tax incentives on innovation. We exploit a change in the asset-based size thresholds for eligibility for R&D tax subsidies and implement a Regression Discontinuity Design using administrative tax data on the population of UK firms. There are statistically and economically significant effects of the tax change on both R&D and patenting (even when quality-adjusted). R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population of smaller firms and subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design. Over the 2006-11 period aggregate business R&D would be around 10% lower in the absence of the tax relief scheme. We also show that the R&D generated by the tax policy creates positive spillovers on the innovations of technologically related firms.
"Beyond Black and White: The Impact of Asian Peers on Scholastic Achievement" (with Rocco d’Este), Economics of Education Review, August 2021, Vol. 83, 102129. [pdf]
Abstract: This paper examines the effects of Asian peers on non-Asian student achievement in New York City public schools. We use exogenous variation in the share of Asian students across cohorts within schools stemming from a fertility shock among the Asian population in the Chinese year of the Dragon. Results show that a 10-percentage-point increase in the share of Asian students reduces non-Asian math and ELA scores by 0.14 and 0.16 standard deviations. The reduction in achievement is associated with an increase in the share of non-Asian students who fail to demonstrate the skills expected at the grade, especially in math.
"The Effects of Supporting Local Business: Evidence from the UK" (with Henry Overman), Regional Science and Urban Economics, March 2020, Vol. 83, 103500. [pdf]
Abstract: This paper assesses the effects of a significant place-based intervention that targeted local businesses in deprived areas in the UK. To gain identification, we use data at a fine spatial scale and a regression discontinuity design exploiting the eligibility deprivation rank rule based on a pre-determined deprivation index. We detect no overall effects on employment in treated areas but find a significant displacement of employment from nearby untreated areas, corresponding to around 10% of local employment. The results suggest that indirect displacement effects may substantially weaken the ability of local support programmes targeting the non-tradable sector to reduce economic inequality.
"R&D Subsidies and Company Performance: Evidence from Geographic Variation in Government Funding Based on the ERDF Population-Density Rule", Review of Economics and Statistics, October 2014, Vol. 96, No. 4: 710–728. [pdf]
Abstract: Despite the prevalence of R&D support programs, evaluation studies based on explicit differences in support allocation are rare. In this paper, the identification of the causal effect of R&D support on company performance is based on geographic variation in government funding arising from a population-density rule. I find positive impacts on R&D investment, employment, and sales among the participants who were granted an R&D subsidy as a result of additional aggregate R&D support funding in their region. Although there are no instantaneous impacts on productivity, the study provides evidence of long-term productivity gains.