Research Curriculum Vitae [PDF]

Corporate Finance and Taxation

Corporate Investment Policies: Market Power, Strategic Incentives, and Tax Incentives (with Elena Patel).   Paper

We deploy a natural experiment and unique data to identify the effects on corporate investment policies of the link between tax rates and market power. This link provides an answer to an empirical investment puzzle. Specifically, we find that in response to investment tax incentives, firms in imperfectly competitive markets increased investment by 4.4 percentage points ($1.7 million) more than firms in competitive markets. Further, firms' investment responses monotonically increase with market concentration and investment increased by 5.5% ($2.2 million) in the most concentrated markets. Our set of results suggests that the character of the product market affects investment policy.

At a Loss: The Real and Reporting Elasticity of Corporate Income (with Elena Patel and Matt Smith).   Paper

We use administrative data on the population of corporations to investigate the distortion of corporate taxes on private firms, which account for 99% of all corporations. In response to a 9% increase in corporate tax rates, firms decrease income by 8.9%---5.5% due to reporting differences (e.g., tax shields) and 3.4% due to real differences (e.g., investment). We find differences in agency costs, investment frictions, and tax aggressiveness between firms using cash and accrual accounting and among small and large firms. Our estimates suggest that lowering the corporate tax rate from 35% to 25% would increase firm value by 16%.

The Impact of Investor-Level Taxation on Mergers and Acquisitions (with Eric Ohrn).   Paper

We investigate the effects on corporate payout and acquisition decisions of investor-level taxes. Dividend taxes encourage managers of dividend-paying firms to make additional acquisitions that in the absence of dividend taxation would not be made. We exploit a quasi-natural experiment created by a 2003 law change that substantially lowered the dividend tax rate. We find that dividend-paying firms performed fewer acquisitions and their post-acquisition performance increased due to the reform. The evidence suggests that dividend taxation has important consequences for the economy and is a crucial determinant of corporate payout and acquisition decisions.

Unpacking Skill and Luck (with Scott Page).   Paper   Presentation

In this paper, we construct a model in which two players compete for a payoff. The outcome of the contest depends on the differences in the skills of the agents as well as on luck. The skill of each player depends on her exogenous ability and her effort. We first show how equilibrium effort depends on the amount of luck in the game as well as the payoff and the difference in exogenous ability. We then derive levels of luck that maximize total effort. We then demonstrate show how the ability-skill distortion, the change between realized skill differences and innate ability differences depends on payoffs and levels of luck. that We then extend this game to allow the players to increase or decrease the amount of luck and find that the advantaged player always has an incentive to offset any additional luck created by the weaker player. Finally, we consider multi-stage games, in which the abilities of the player in later rounds depend on the outcomes of earlier rounds.

Volatility, Inequality, and Taxation

The Causes and Consequences of Increasing State Tax Revenue Volatility.   Paper

This paper shows that an extraordinary increase in tax revenue volatility magnified the unprecedented fiscal crises faced by state governments after 2000. Comparing 1970- 1999 to 2000-2014, tax revenue volatility increased from 3.3 to 10.4 percent of revenues. Because many states cannot deficit spend, government expenditure volatility increased by a similar amount, subjecting programs to emergency cuts. To understand the factors that led to the increase in volatility, I use a decomposition method that attributes changes in volatility to differences in tax policy, differences in economic uncertainty, and differences in the tax base. Differences in tax policy explain over 50 percent of the increase in revenue volatility. In light of this finding, I derive an updated Ramsey rule that characterizes optimal tax policy while accounting for uncertainty. According to this rule, states have increasingly moved away from the ecient tax policy frontier.

Taxation and Inequality: Active versus Passive Channels (with Estelle Dauchy).   Paper

We evaluate the ability of the income tax to insure household consumption against income shocks. To do this, changes in insurance are decomposed into active insurance changes (due to changes in the tax code), passive insurance change (due to changes in the income distribution), and residual behavioral insurance changes. From 1967 to 2010, both active and passive insurance changes had large, partly offsetting effects, such that the overall effect on insurance was minimal. In particular, active insurance changes decreased insurance and passive insurance changes increased insurance suggesting that, tax policy and the nonlinearity of the tax code influence consumption inequality.

Optimal Tax Policy Under Uncertainty Over Tax Revenues.   Paper

This paper investigates optimal tax policy when economic conditions are uncertain, creating risk in tax revenues. Optimal taxation with uncertainty balances costs from volatility and deadweight loss. Tax policy affects volatility through two channels; spreading risk between public and private consumption and hedging idiosyncratic tax base risk. Risk in tax revenues can be decomposed into economic uncertainty and systematic and unnecessary tax policy risk. This paper develops a volatility index that measures the cost of unnecessary risk associated with a tax portfolio. Using panel data from all US states for the years 1964--2013, I find that almost all states increased their portfolio risk during this period and half of these states exposed their tax revenues to more unnecessary risk. This suggests states could reduce their tax revenue volatility by rebalancing their tax portfolios without decreasing expected tax revenues.

Welfare Consequences of Volatile Tax Revenue.   Paper

This study evaluates the impact of volatile tax revenue streams on state governments and the resulting welfare implications, both theoretically and in a calibrated model. Tax-revenue volatility causes the level of public good to be volatile because governments are unable to perfectly smooth volatile revenue streams. However, the government is willing to accept some volatility because it enables them to absorb some of the production risk and lower private consumption volatility. Tax revenue volatility is shown to be of first-order importance, in contrast to deadweight loss which has been shown to be of second-order importance. Therefore even small deviations from the optimal tax policy impacts welfare negatively. The calibrated model uses data from the U.S. Census and the Bureau of Economic Analysis and estimates the welfare loss associated with governments minimizing deadweight loss irrespective of the costs to volatility to be $120 billion.

The Performance of State Tax Portfolios During and After the Great Recession.   Paper

State tax revenues continue, since the Great Recession, to experience elevated volatility relative to previous decades. The framework developed in this paper shows that the interaction between economic uncertainty and the riskiness of the portfolio the government holds drives tax revenue volatility. From 1970 to 2007 the average State tax portfolio became 7 percent riskier, and that trend continues through 2013. This observed increase in volatility and riskiness of tax portfolios is not sufficient to determine whether States are accepting unnecessary levels of risk. Specifically, States are constrained to accept additional volatility in exchange for additional expected tax revenues. To summarize this tradeoff, I develop a volatility index that estimates the efficiency of a State's tax portfolio. This index can be interpreted as the cost to States, in terms of lost expected tax revenue, from holding a tax portfolio off of their minimum variance frontier. I find that almost all States held riskier portfolios in 2007 than in 1970, but that 26 States held portfolios in 2007 that were closer to their minimum variance frontier than the portfolio they held in 1970. This suggests that the observed increase in tax revenue volatility is a consequence of States increasing their expected tax revenues and not due to undertaking unnecessary risks.

Urban Systems

Rushing to Opportunity: A Model of Entrepreneurship and City Growth.   Paper

Rushes are a fundamental characteristic of the growth of many industries and cities. To explain these rushes, and better understand the mechanisms of growth, this paper develops a model centered on a new tradeoff between fundamentals and opportunities. Early growth in industries and cities depend critically on the opportunities they provide; whether from entrepreneurship human capital accumulation or land in cities. This analysis provides a blueprint for evaluating policies aimed at encouraging growth. These policies are particularly important in developing countries that are experiencing rapid urban growth both in current cities and the number of new cities.

Land Regulations and the Optimal Distribution of Cities.   Paper

Institutions, such as land regulations, affect the concentration of people and production across cities. Cities are endowed with a unique set of production and quality of life amenities that suggest that the population size that maximizes the average benefit differs across cities and these "locally optimal" populations may not be optimal from a national perspective. A planner that sets Pigouvian taxes balances the decreasing returns from population within each city with the decreasing returns from establishing a new city, which has fewer amenities. A laissez-faire institutional design causes decentralized individuals to overpopulate cities and overvalue production amenities. The excessive use of land regulations cause decentralized individuals to underpopulate cities and overvalue quality of life amenities. However, the efficient allocation of population can be achieved when land regulations are used to price the amenities within a city, suggesting Pigouvian taxes are unnecessary. These insights are used to correct for biases in amenity estimates across cities due to land regulations, path dependence and geography.

Should Congestion Tolls Be Set by the Govenrment or by the Private Sector? The Knight-Pigou Debate Revisited (with Stephen W. Salant).   Paper     Press-Release

This paper clarifies issues debated by A.C. Pigou and Frank Knight about correcting inefficient use of congestible resources. Instead of government-imposed Pigouvian access fees, Knight favored access fees set by private toll-setters. For concreteness we use the original example of commuters choosing among fast, congestible roads and slower, uncongestible alternatives. We consider the case of n greater than or equal to 2 congestible roads and an uncongestible road of arbitrary speed. Knight argued that in the case of a single congestible road a private toll-setter would always choose the toll that Pigou recommended and hence the allocation would minimize aggregate commute time without government meddling. We find instead that two or more toll-setters would never choose Pigouvian tolls except in the special case of a sufficiently fast uncongestible road. Moreover, for uncongestible roads of slower speed, the allocation of motorists under Knight's proposal is almost never efficient. Whenever it is inefficient, motorists are strictly worse off when they pay tolls set by private firms instead of paying government-imposed tolls, and aggregate toll revenue is also lower. Nevertheless, if the private sector does set tolls, the full cost to motorists can be limited if the government provides an uncongestible alternative, such as a train, to offer potential competition along the same route.

The Optimal Distribution of Population across Cities? (with David Albouy, Kristian Behrens, Frederic Robert-Nicoud).   Paper

The received economic wisdom is that cities are too big and that public policy should limit their sizes. This wisdom assumes, unrealistically, that city sites are homogeneous, migration is unfettered, land is given freely to incoming migrants, and federal taxes are neutral. Should those assumptions not hold, large cities may be inefficiently small. We prove this claim in a system of cities with heterogeneous sites and either free mobility or local governments, where agglomeration economies, congestion, federal taxation, and land ownership create wedges. A quantitative version of our model suggests that cities may well be too numerous and underpopulated for a wide range of plausible parameter values. The welfare costs of free migration equilibria appear small, whereas they seem substantial when local governments control city size.

Projects

Banking, Entrepreneurship, Regulations, and Taxes Study, 2016--.

      Project Website

Retention and Productivity in Call Centers 2016--.

Teaching

Managerial Economics I-Finan 6026.

Microeconomics-Business 2010.

Fellowship and Awards

Grant from Center for Innovation in Banking and Financial Services, 2016.

Oxford Centre for Business Taxation Award for Best paper by a Young Scholar, 2013.

Rackham one-term fellowship, 2012.

IGERT National Science Foundation Fellowship, 2007 - 2011.

Top graduate student instructor (economics department), 2011.

Distinction microeconomic preliminary exam, 2008.

Conferences and Invited Talks
2016: University of Oregon, Federal Reserve Board Applied Microeconomics Seminar, Labor and Finance Conference, International Institute of Public Finance (IIPF), Utah Winter Business Economics Conference, Labor and Finance Conference.

2015: KU Leuven, Urban Economics Association and North American Meeting of the Regional Science Association (NARSC-UEA), National Tax Association Spring Symposium, MaTax conference, Socieity for Institutional Organizational Economics Annual Conference, International Institute of Public Finance (IIPF), Utah Winter Business Economics Conference.

2014: London School of Economics, Oxford University, University of Victoria, Utah State University, Competition and Subnational Goverments, International Tax Policy Forum, International Institute of Public Finance (IIPF), Utah Winter Business Economics Conference, Oxford University Centre for Business Taxation Academic Symposium, National Tax Association (NTA).

2013: U.S. Treasury, Office of Tax Analysis, Oxford Centre for Business Taxation, National Tax Association (NTA), Urban Economics Association and North American Meeting of the Regional Science Association (NARSC-UEA), Utah Winter Business Economics Conference, UC Berkeley (Goldman School of Public Policy), Stanford (SEIPER), University of Utah (David Eccles School of Business), University of Illinois, Ohio State (Glenn School), Clemson, University of South Carolina, Amherst, University of Nebraska, UC Irvine.

2012: University of Kentucky (Martin School), U.S. Treasury Office of Tax Analysis, National Tax Association (NTA), Urban Economics Association and North American Meeting of the Regional Science Association (NARSC-UEA), International Institute of Public Finance (IIPF).

2011: NBER summer Institute, National Tax Association (NTA), Urban Economics Association and North American Meeting of the Regional Science Association (NARSC-UEA), International Institute of Public Finance (IIPF), American Real Estate and Urban Economics Association (AREUEA), Skill versus Luck Disentangling Success in Complex Systems.

2010: NBER: Summer Institute, National Tax Association (NTA), Urban Economics Association and North American Meeting of the Regional Science Association (NARSC-UEA).

2009: National Tax Association (NTA), Urban Economics Association and North American Meeting of the Regional Science Association (NARSC-UEA).

 

Media

The Atlantic, City Lab 2017.

      Are Cities Too Small or Too Big?

Bloomberg, 2016.

      Want Economic Growth? Try Urban Density

Good Morning Utah 2016.

Resources for the future 2017.

      Should Contestion Tolls Be Set by he Government or by the Private Sector?

Good Morning Utah 2017.