Research Interests: Macroeconomics, Public Finance, Political Economy, Heterogeneous-Agent Modeling
Working Papers: (click title for link)
Abstract: Fiscal policy analysis in heterogeneous-agent models typically involves the use of smooth tax functions to approximate present tax law and proposed reforms. We argue that the tax detail omitted under this conventional approach has macroeconomic implications relevant for policy analysis. In this paper, we develop an alternative approach by embedding an internal tax calculator into a large-scale overlapping generations model that explicitly models key provisions in the Internal Revenue Code applied to labor income. While both approaches generate similar policy-induced patterns of economic activity, we find that the similarities mask differences in key economic aggregates and welfare due to variation in the underlying distribution of household labor supply responses. Absent sufficient tax detail, analysis of specific policy changes - particularly those involving large, discrete effects on a relatively small group of households - using heterogeneous-agent models can be unreliable.
Publications: (click title for link)
1. “Macroeconomic Modeling of Tax Policy: A Comparison of Current Methodologies." National Tax Journal, Volume 70, No. 4, December 2017, pp. 819-836. (with Alan Auerbach, Itai Grinberg, Thomas Barthold, Nicholas Bull, Pamela Moomau, Rachel Moore, et al.)
Abstract: The macroeconomic effects of tax reform are a subject of significant discussion and controversy. In 2015, the House of Representatives adopted a new “dynamic scoring” rule requiring a point estimate within the budget window of the de cit effect due to the macroeconomic response to certain proposed tax legislation. The revenue estimates provided by the staff of the Joint Committee on Taxation (JCT) for major tax bills often play a critical role in Congressional deliberations and public discussion of those bills. The JCT has long had macroeconomic analytic capability, and in recent years, responding to Congress’ interest in macrodynamic estimates for purposes of scoring legislation, outside think tank groups — notably the Tax Policy Center and the Tax Foundation — have also developed macrodynamic estimation models. The May 2017 National Tax Association (NTA) Spring Symposium brought together the JCT with the Tax Foundation and the Tax Policy Center for a panel discussion regarding their respective macrodynamic estimating approaches. This paper reports on that discussion. Below each organization provides a general description of their macrodynamic modeling methodology and answers five questions posed by the convening authors.
Abstract: The classic democratic theory of redistribution claims that an increase in market income inequality causes an increase in the size of government through majority voter support for an offsetting expansion of redistribution. I argue that the predicted inequality-redistribution relationship can break down when voters face uninsurable idiosyncratic risk with respect to future labor income and a timing differential between tax collections and government outlays. This is formalized using an incomplete market heterogeneous-agent DSGE model with majority voting and `time-to-build' policy, which suggests the collective demand for redistribution will not necessarily increase with growing income or wealth inequality. This result implies that even with equal political power among voters, democracies do not have a systematic mechanism to offset rising inequality as contrary to popular belief.
Abstract: This article utilizes a unique data set to examine the relationship between a group of potential explanatory variables and educational corruption in Ukraine. Our corruption controls include bribing on exams, on term papers, for credit, and for university admission. We use a robust nonparametric approach in order to estimate the probability of bribing across the four different categories. This approach is shown to be robust to a variety of different types of endogeneity often encountered under commonly assumed parametric specifications. Our main findings indicate that corruption perceptions, past bribing behavior, and the perceived criminality of bribery are significant factors for all four categories of bribery. From a policy perspective, we argue that when bribe control enforcement is difficult, anti-corruption education programs targeting social perceptions of corruption could be appropriate.
Abstract: The classic democratic theory of redistribution claims that an increase in the mean-to-median (MM) income ratio causes a majority coalition in the electorate to collectively demand more redistribution. The functional dependence of redistribution on the MM income ratio is tested in parametric and nonparametric regression frameworks using an OECD panel dataset. While theparametric regression model is found to be misspecified rendering subsequent inference invalid, the robust nonparametric regression model fails to uncover evidence that the MM income ratio is relevant for predicting redistribution.
Works in Progress:
Shaw, Philip and Brandon Pecoraro. "A Nonparametric Approach for Computing Equilibria in Heterogeneous-Agent models with Aggregate Uncertainty."