Publications

Inflation's Fiscal Impact on American Households, David Altig, Alan J. Auerbach, Erin Eidschun, Laurence J. Kotlikoff, Victor Yifan Ye, NBER Macro Annual (2024)

The post-COVID price surge has reignited interest in inflation’s impact on American households. Even if anticipated and with full market adjustments, inflation affects households through its interaction with the fiscal system, which is the focus of this paper. Inflation affects households through its interaction with the fiscal. We run the 2019 Survey of Consumer Finances (SCF), assuming different inflation rates, through the Fiscal Analyzer (TFA) – a life cycle, consumption-smoothing tool incorporating all major federal and state fiscal programs. Before doing so, we adjust the SCF data to neutralize inflation’s non-fiscal effects. A permanent increase in the inflation rate from zero to 10 percent reduces median lifetime spending by 6.82 percent. This impact is smaller — 4.74 percent — when fiscal COLAs aren’t lagged. But the big stories are the progressivity of inflation’s increase in net taxation, its age pattern, and its heterogeneity. The 15.9 percent median lifetime spending loss of the top 1 percent from 10 percent inflation is roughly 2.5 times that of the bottom quintile. Middle-aged households are hit far harder because they have more asset income, which, with inflation, is taxed at a higher effective rate. The 25th percentile of spending changes is a reduction of 9.84 percent. The 75th percentile change is still a reduction of 4.83 percent. The maximum spending decline (increase) across all households is 64.9 (46.7) percent. Thus, the distribution of welfare is highly sensitive to significant, ongoing inflation.

Work in progress

Burning Questions: Dual Dynamics of U.S. Cigarette and E-cigarette Demand,   Erin Eidschun

While often viewed as a healthier alternative for cigarette smokers attempting to quit, e-cigarettes also attract individuals who have never smoked and may lead to traditional cigarette use. I examine consumer choice between cigarettes, e-cigarettes, and abstaining from smoking, focusing on how past smoking behavior -- adoption costs, switching costs, and nicotine accrual -- influences decisions. Using NielsenIQ consumer panel data of household purchases from 2013 to 2023, I estimate a nested logit model of demand that corrects for price endogeneity using a novel econometric approach and minorization-maximization technique. I find that prior cigarette use increases the odds of continued cigarette use by 356%, while prior e-cigarette use increases the odds of continued e-cigarette use by 2,123%. The effect on substitution is well-captured by nicotine consumption. The marginal effect of nicotine consumption on the choice to smoke cigarettes is magnitudes higher than that on e-cigarettes. Simulations driven solely by endogenous smoking behavior reveal that in the long run, smoking persistence is led most by adoption costs, followed by nicotine content, and finally by switching costs. These results underscore the critical role of addiction dynamics and state dependence shaping long-term smoking trajectories. Finally, a counterfactual simulation banning e-cigarettes demonstrates increases in cigarette relapse, earlier cigarette initiation, and shorter abstinence durations.

Does the U.S. Fiscal System Discourage Marriage? A New Look at the Marriage Tax,   Erin Eidschun, Elias Ilin, Laurence J. Kotlikoff, Melinda Pitts