Publications and Working Papers

Preference Reponsibility versus Poverty Reduction in the Taxation of Labor Incomes (with François Maniquet)

Journal of Public Economics, 197, 104386, 2021

(Published version) (Preprint)

We study the tax schedules that maximize social welfare functions built on axioms of responsibility for one's preferences (the requirement that the tax system should treat identically agents with the same wage, independently of their labor time) and poverty reduction. We find zero and negative marginal tax rates on low incomes at the optimum and bunching at the income level of the most hardworking minimum wage households. When preferences are iso-elastic, we derive the optimal tax formula, which we calibrate to the US economy. Our formula approximates the shape of the current US tax function for households with at least one child. This result suggests that a fairness-based approach, and these axioms in particular, can help close the gap between the recommendations of optimal tax theory and actual policies.

Who Benefits from Worker Representation on Corporate Boards?  (with Christine Blandhol, Magne Mogstad, Peter Nilsson, and Ola Vestad)

Revision requested at Economic Journal

(Working paper)

We study a size-contingent law in Norway that grants workers the right to board representation in firms with 30 or more employees. To analyze the impact of the law, we embed the regulation into an equilibrium model of the labor market. We show how to use behavioral responses to the regulation to identify (i) the direct effects of the policy on regulated firms and workers, (ii) the distortions from firms adjusting their size to avoid the regulation, and (iii) the equilibrium effects in the labor market. We evaluate these effects on firm profits and production, as well as on worker compensation, including both wages and non-wage amenities.

The Welfare Effect of Marginal and Nonmarginal Changes in Sales Taxes in the U.S.  (with Ingvil Gaarder)

 (Kilts Center Working Paper Series) (BFI) 

We study the welfare effects of both marginal and larger non-marginal changes in sales taxes. The analysis uses a panel of sales taxes in the U.S. at the county and state level. This data allows us to estimate the effect on prices and quantities of the observed changes in sales tax rates. We propose and apply a framework that uses such effect estimates to bound the welfare effects of actual and counterfactual sales tax reforms. The bounds are informative even under imperfect competition or with nonlinear demand and supply curves. We find that the marginal value of public funds is close to one, even for large counterfactual changes in sales tax. We also construct informative bounds on how the welfare effects vary across states depending on initial prices and tax rates. These bounds are policy relevant as sales taxes are set by local governments and vary across areas.

Supply and Demand with Market Heterogeneity  (with Ingvil Gaarder, Magne Mogstad, Alexander Torgovistky, and Oscar Volpe)

(Working paper)

We revisit the classic identification problem of separating supply and demand for a homogeneous good using data from multiple markets. We allow markets to be heterogeneous according to unobservables, a feature that arises if there are unobservable differences in consumer preferences or firm technology. We develop a new identification analysis based on hypothetical market types. We use this analysis to show how nonparametric, economically motivated assumptions carry empirical restrictions for a wide range of target parameters, including elasticities, but also welfare parameters, such as consumer surplus. Then, we develop computationally tractable methods for implementing partially identified linear random coefficients models in which the slopes of supply and demand are heterogeneous. We apply these methods to estimate the welfare impact and incidence of sales taxes in the United States.

Intergenerational Elasticities of Housing Consumption and Income  (with Jung Sakong)

(Working paper) (Online Appendix)

We estimate intergenerational elasticities (IGE) of housing consumption and income in the US. Using surnames to link 1940 and 2015, we estimate a one-generation housing-consumption IGE of 0.73, higher than that of income at 0.52. Housing consumption IGE is higher for White compared to Black Americans and higher in the Northeast, patterns that contrast with income IGE. Inverting Engel curves suggests a total-consumption IGE of 0.72. Complementary to income IGE, consumption mobility is a closer measure of welfare mobility, and comparisons with income IGE inform intergenerational consumption insurance. 

Consumer Demand and Market Competition with Time-Intensive Goods  (with Joseph Goodman, Justin Holz, John List, Evan McKay, Niall McMenamin, Magne Mogstad, Sally Sadoff, and Hal Sider)

(Working paper)

We leverage Becker’s time allocation theory to examine consumer demand and market competition for time-intensive goods. The Beckerian model predicts higher diversion ratios for goods with substantial time shares and those with high time costs relative to monetary prices. Applying this model to data from two field experiments, we analyze demand for Facebook and Instagram, focusing on substitution patterns across online activities and offline time use. Our findings indicate that users exhibit low elasticity to ad load, the primary user cost, and that time shares and time costs significantly influence diversion ratios. We explore the implications for user costs and benefits on these platforms and assess the potential impact of a Federal Trade Commission-proposed de-merger of Facebook and Instagram.

Why do Larger Firms Have Lower Labor Shares?  (with Thibaut Lamadon, Magne Mogstad, and Tom Meling)

We use population panel data on firms and workers in Norway to estimate how a firm's output, use of input factors, and payment to labor change in response to exogenous changes in revenues due to shifts in its product demand or productivity. These estimates allow us to draw causal inferences about how firms change the way they produce as they grow and why larger firms have lower labor shares. We develop and estimate a model to quantify the relative importance of three sources for variation in labor shares across firms: i) the shape of the labor supply curve facing the firm, ii) differences in the returns to scale between labor and other inputs, and iii) heterogeneity across firms in the output elasticities of input factors. We employ instrument variable strategies to isolate plausibly exogenous sources of variation in the revenues of firms. We compare these instrumental variable estimates to OLS estimates and document the biases that arise when using cross-sectional data to draw conclusions about how firms grow and why larger firms have lower labor shares.

Egalitarianism and Private Property of Self in the Taxation of Labor Incomes (with François Maniquet)

We study optimal labor income taxation. We first prove that there is no loss of generality to assume that the planner's objective is egalitarian, provided the utility representation of individuals' identical preferences is individual specific and depends on wages. From a normative viewpoint, the latter proviso captures the idea that individuals are entitled to a utility bonus that is increasing in their own wage, an idea that is consistent with the notion of private property of self. We then argue, through examples, that discussing the cardinalization of utility functions within an egalitarian framework is more convenient for making normative judgments than discussing cardinalization and inequality aversion in a utilitarian framework.  

Do the Immigration and Minimum Wage Literatures Contradict Each Other?  (with Marcus Lim, Hugo Lopez, Magne Mogstad, Alexander Torgovitsky, and Yifan Xu)