Progressive taxation is highly polarized in the United States because some states have millionaire taxes while others have no state income tax at all. The 2017 tax reform legislation, the Tax Cuts and Jobs Act, amplified these differences by capping the state and local tax, or SALT, deduction. This effectively reduced top tax rates in some states while increasing them in others, leading some, including governors, to worry that this new tax differential will set off a wave of millionaire tax flight and a new “race to the bottom” in state taxes on the rich. Using confidential data from IRS tax returns, the author will examine elite mobility and embeddedness in the wake of the 2017 tax reform. The author seeks to understand if the rich are more likely to move when their tax rates are high, whether the TCJA-induced tax differential led to greater migration, and, conditional on moving, how much this tax reform increased the likelihood that moves are to lower-tax destinations. These questions are of great importance as state and local taxes are essential for states’ capacity to provide services and alleviate inequality. And while previous work shows the existence of effects among particular job classes, this paper would provide policy-relevant estimates for the universe of high-earners in recent U.S. history.
Archives: Grant
Understanding Climate Damages: Consumption versus Investment
When humans undertake physically intensive tasks, the body must release heat to maintain a safe internal temperature. Worker safety organizations have strict guidelines for climate conditions under which it is safe for workers to perform strenuous manual labor. Rising temperatures from climate change will increase the risk of heat stress, making outdoor work more difficult. This study seeks to quantify these implications for capital accumulation, growth, and consumption by building a discrete time growth model of a closed economy. Unlike standard climate-economy models, Casey, Fried, and Gibson will account for differences in the way that climate affects the production of investment goods and services, compared to consumption goods and services. The model is designed to capture how vulnerability to climate change differs between consumption and investment sectors and how this difference evolves over time. It builds on past work by considering climate change as a determinant of productivity and considering a more disaggregated representation of the economy.
Measuring Inequality in Real Time
U.S. unemployment due to the onset of the coronavirus pandemic was widespread, as was U.S. economic insecurity. In terms of consumption, aggregate retail sales fell by 16 percent in April 2020, the largest fall on record. While retail spending recovered by mid-July, spending on services remained significantly depressed. In contrast to aggregate spending and U.S. labor market data, there is little real-time data on the impact of the coronavirus pandemic on consumer spending inequality. This project will use a new transaction-level, real-time dataset from Earnest Research to measure consumer spending inequality in the United States and assess the impact of the pandemic on consumption inequality. The dataset contains information on a panel of 6 million households and is updated with a delay of just 1 week. Abdelwahed and Robbins will be able to study the outflows of spending, as well as the inflows of payments from wages and salaries, stimulus payments, and other government transfers into the households’ accounts, allowing them to construct a series on various ratios of spending between the top and bottom percentiles in order to study changes in consumer spending inequality along the distribution. They will also measure the effects of the pandemic on consumption of those who lost their jobs or experienced lower incomes and will compare them to individuals who retained their jobs. Abdelwahed and Robbins will estimate the impact of government stimulus payments and Unemployment Insurance on consumer spending inequality and consumption patterns. The data will be released publicly at the aggregate level at both the state and county levels, and the two researchers plan to release quarterly reports, providing other researchers and policymakers with a valuable new data source.
Public Investment, Manufacturing Work Opportunity, and Upward Mobility in Midcentury America: Evidence from World War II
Manufacturing jobs in the United States were widely considered to provide an important opportunity for less-educated workers to climb the U.S. economic ladder by offering high pay and stable careers. Research shows that the decline in manufacturing jobs since the 1970s coincided with a decline in upward mobility: Children born in the 1980s are less likely to grow up to earn as much as their parents than children born in the 1950s were, particularly in the post-industrial heartland. This project examines how increases in high-wage manufacturing work opportunity affected individual opportunity following the industrial mobilization for World War II. Garin and Rothbaum will exploit the fact that the siting of new plants was based on idiosyncratic short-run strategic considerations, leading to the construction of massive new publicly financed manufacturing plants in places that would not have been chosen by private firms. This historical dynamic gives rise to an ideal laboratory for studying how public investments that create high-wage employment impact upward mobility in the long run. The authors have digitized data on the locations of World War II manufacturing facilities using the War Production Board data books. Focusing on children who grew up in those areas in the 1940s, the two researchers will then trace those individuals’ income trajectories using the later-20th century Current Population Survey data linked to Social Security Administration-based income histories to examine mobility rates.
Macroprudential Regulations, Income Inequality and the Redistribution Channel
The 2008 global financial crisis outlined the need for a policy toolkit that lessens the pain of financial cycles for the real economy. In particular, conventional macroeconomic policies undertaken by public authorities in the aftermath of the crisis lead to extremely low interest rates and put public finances under heavy strain. During this period, macroprudential regulation established itself as a new cornerstone of regulators’ toolkits. Yet most models evaluating the potential benefits from macroprudential regulation consider redistribution as a side effect by using representative agent models. This project asks whether the redistribution channel calls for stronger or weaker macroprudential regulations, how the effectiveness of prudential capital controls as a financial stability tool are affected by the distribution of income, and what the distributional implications are of prudential regulations. The authors will build on existing research that presents models showing that monetary policy may impact income inequality in ways that then turn out to affect the transmission mechanism for such policy. First, they will be extending models that focus on the closed economy context to the open economy context. Second, they will be providing both a theoretical and a quantitative analysis of the transmission channels associated with capital controls. Third, they will perform their analysis in a dynamic context.
Who Weathers the Storm? The Unequal Effects of Hurricanes in the United States
Understanding the degree to which, and how, hurricanes have had disparate effects across disadvantaged and advantaged groups in the United States is key to policymakers’ ability to craft climate policy that ensures disadvantaged communities do not bear the brunt of our warming world. Most of the literature in this area has focused on average impacts, with relatively little attention paid to heterogeneity. But even in cases where no negative impacts of natural disasters are found, on average, some subgroups may experience substantial negative effects. This project leverages newly linked administrative tax data from the IRS and demographic information from the American Community Survey and decennial census with exogenous variation in individual-level exposure to all hurricanes in the United States between 1995 and 2019. The analysis seeks to uncover a deeper understanding of the consequences of and responses to hurricanes, and how these effects differ across socioeconomic and demographic groups.
Joint Ventures in Dialysis Care: Improving Coordination or Enabling Market Power?
In virtually all areas of the U.S. healthcare service sector, physicians are barred from referring patients to entities in which they have an ownership stake. But this is not the case for the dialysis industry, which is exempt from such restrictions. Joint ventures between physicians and dialysis facilities exist at nearly 20 percent of facilities. This research will explore how physicians’ ownership ties with dialysis firms affect steering, spending, and outcomes. Using data obtained from a Freedom of Information Act request from the Centers for Medicare and Medicaid Services, Eliason, McDevitt, and Roberts will construct a first-of-its-kind dataset that tracks the ownership of dialysis facilities, including whether physicians have an ownership stake. They will add in data on dialysis providers and patients, including detailed Medicare claims and rich information on patient characteristics and health outcomes. An event-study analysis will allow the three researchers to test whether there is a clear trend-break in new patient arrivals and referrals when parties enter into a joint venture in order to examine how integration affects competition. The analysis will enable the researchers to study how patient caseloads and referrals at unintegrated facilities change after a nearby rival forms a joint venture, along with the impact of vertical integration on patient outcomes such as hospitalizations and mortality, as well as overall Medicare spending. Prior research has found that Black, Latinx, and low-income patients suffer disproportionately from kidney failure and often receive worse care, potentially making these groups especially vulnerable to providers’ growing market power and physicians’ conflicting interests.
The Effect of Government Safety Enforcement on Workers: Evidence from Linked Employer-Employee Data
Johnson and Levine seek to understand how enforcement of government safety regulations affects workers’ wages and how the effect differs across groups of workers based on income, race, and ethnicity in the United States. While prior work focused on whether inspections lower subsequent workplace injuries and affect overall establishment payroll, scholars don’t know much, if anything, about the impact of inspections on individual workers’ wages. If regulatory enforcement lowers wages at the same time it improves health and safety, then the overall effects on worker well-being may be mixed. The two researchers will utilize the randomness of inspections by the U.S. Occupational Safety and Health Administration. This setting offers a unique opportunity to evaluate the effects of inspections as if examining a randomized controlled trial. Johnson and Levine plan to compare the trajectories of establishments (and workers at those establishments) randomly selected for inspection to those eligible but not selected for inspection. Inspection data will be linked to the Longitudinal Employer-Household Dynamics data series. In addition to yielding new evidence about the impact of safety and health regulatory enforcement on workers’ wages, this work also has the potential to contribute to the current literature on monopsony power in labor markets by investigating whether the effect of inspections on wages varies by local labor market concentration.
Green Jobs or Lost Jobs? The Distributional Implications for US Workers in a Low Carbon Economy
Confronting climate change will require the United States to dramatically reshape large portions of its economy. Carbon-intensive sectors in manufacturing and mining, which have long been bastions for middle-class jobs in communities across the country, are expected to shrink. Fears among workers and the communities that rely on these jobs are not unjustified, given recent economic research on the effect of trade shocks and environmental regulations. Yet reductions in carbon-intensive industries are only one side of the coin in addressing climate change. While many industries may shrink, a dramatic investment in green and renewable industries may create new opportunities for workers throughout the country. There is almost no economic research, however, exploring whether and how green jobs will benefit workers and their communities. Leveraging job-posting data from Burning Glass Technologies, along with the U.S. Census Bureau’s Longitudinal Employer Household Dynamics, Curtis and Marinescu will estimate the long-run benefits that workers accrue when green technology investments in solar and wind are made in their communities, as well as which types of workers benefit and which do not. The three researchers also are planning to estimate the effect of having more green jobs on local economic outcomes, such as the employment rate, poverty rate, and average incomes.
Buyer Power in the Beef Industry
Agricultural supply chains in the United States include hundreds or thousands of farmers and large agribusinesses that process and distribute the produce. Following a series of mergers over the past five decades, the farmers that contribute to the production of meat and grain each have the option of selling to only four predominant buyers, with the buyers varying by product. Given the disparity between the sizes of individual farmers and the agribusinesses, it is natural to wonder whether transaction prices reflect the marginal value of farmers’ product, as they would in a competitive market, or whether agribusinesses are able to exercise oligopsony power to artificially depress prices. These concerns are particularly salient now, given indictments for price-fixing and anticompetitive practices in the meatpacking industry. Yet farm bankruptcies have increased each year for the past decade. This project will study oligopsony power in cattle markets by quantifying the market power of the packers, assessing the causes and consequences of the market power, and examining how it has changed over the past two decades. Outcomes of interest include the degree of local market concentration, plant-specific mark-ups and the mechanisms that support the mark-ups, and evaluation of specific mergers.