Death and Taxes: Estate Taxes, Parental Transfers and Inequality

Abstract: Estate taxes incentivize parental substitution away from bequests and towards inter vivos transfers. This distortion in the timing of giving renders the effect of estate taxation on intergenerational mobility ambiguous: when parents and children face different returns, shifting resources earlier in the life cycle may change children's wealth accumulation before inheritances are received. I formalize this mechanism in a simple model of one-sided altruism with inter vivos transfers, bequests, estate taxes and heterogeneous returns. The effect of changes in estate taxation depend upon three key elasticities: parental inter vivos transfers and bequests, and children's consumption. Empirically, I construct a database of state-level estate tax exemptions for 46 states from 1991 to 2019 and exploit variation in these exemptions to estimate parental giving responses. I then bring these estimates to a quantitative model to evaluate the effects of estate taxation on intergenerational wealth mobility.

The Importance of Countercyclical Income Risk and the Welfare Costs of Business Cycles

Joint with J. Carter Braxton, Jonathan Rothbaum, and Shannon Sledz

Abstract: Negative skewness characterizes recessionary negative skewness in earnings growth (Guvenen, Ozkan and Song (2014)). Using the SSA's Detailed Earnings Records of W2's merged with the Current Population Survey, we document that job switchers drive this phenomenon. Expanding income downside risk explains the falling away of the bottom of the earnings growth distribution. In economic downturns, more workers experience layoff, and suffer more severe earnings losses (Davis and von Wachter, 2012). Contracting income upside gains drive the compression at the top of the earnings growth distribution. Workers are less likely to make job-to-job transitions, and those that do see weaker earnings gains. In light of this new understanding of the drivers of negative skewness, we discipline a Bewley model embedded with directed search and aggregate productivity shocks to evaluate the welfare costs of business cycles. To generate the empirically observed negative skewness, the model features human capital depreciation, countercyclical unemployment risk and a procyclical job ladder. In the benchmark model eliminating business cycles yields large welfare gains of 4.21% of lifetime consumption equivalents. 

[Midwest Macro Slides]

Student Loans, Search and Sorting

Abstract: Using the National Longitudinal Survey of Youth 1997, I document that workers with student debt exhibit distinct search behavior. Relative to non-debtors, student debtors spend 18.5% fewer weeks in nonemployment, are 3.1% more likely to separate through a job-to-job transition, and spend 15.8% fewer weeks with an employer before moving directly to another job. Despite the greater attachment to employment and more frequent job-to-job mobility, borrowers earn persistently lower wages during repayment and in the following years. To explain these patterns, I integrate student loan debt into a general equilibrium model of directed search with on-the-job search, assets, student debt delinquency and firm heterogeneity. Disciplined by the empirical evidence, I find the financial constraint imposed by student loan repayment leads debtors to search in vacancies with higher probabilities of matching, at lower productive firms. The more intense usage of on-the-job search by student debtors results in only firms at the lower end of the productivity distribution posting vacancies for debtors, explaining the persistent gap in wages. I conduct a counterfactual exercise of one-time, unexpected loan forgiveness policy. The policy improves sorting but increases time spent in nonemployment, resulting in a modest 0.09% increase in aggregate output.

[Slides] [Draft]