Research Interests:
Macroeconomics, Public Finance, Heterogeneous-Agent Modeling
Working Papers:
1. “Tax Policy and Retirement Saving: A Lifecycle Perspective” with Rachel Moore.
Abstract: Individuals in the U.S. may save for old age through tax-advantaged investment vehicles by contributing either pre-tax dollars into a traditional retirement account, or after-tax dollars into a Roth retirement account. Because the contribution basis differs across each account type, a model of optimal retirement wealth allocation must take care to account for interaction with the underlying income tax system. To analyze this interaction, we develop a structural lifecycle model with rich tax detail that allows for heterogeneous households to endogenously allocate their wealth across three types of investment vehicles: a traditional retirement account, a Roth retirement account, and a taxable return-bearing savings account. Contemporaneous availability of both traditional and Roth retirement accounts is a modeling innovation that enables us to account for the fact that some households simultaneously hold retirement wealth in both accounts, and to analyze how households optimally change their wealth allocation in response to changes in federal retirement and/or tax policy. We use this model to show that household heterogeneity in the expected path of lifetime income, tax filing status, bequest motives, and defined-benefit pensions can cause households to choose a mix of contributions to both traditional and Roth accounts over their working life. We contrast the model's implications for the elimination of traditional or Roth accounts, each in turn, on the average household's lifecycle paths of wealth, consumption and tax payments.
Publications: (click title for link)
1. “Quantitative Analysis of a Wealth Tax for the United States: Exclusions and Expenditures” with Rachel Moore, Journal of Macroeconomics, Volume 78, December 2023.
Abstract: We use an overlapping generations model with endogenous avoidance and rich tax detail to quantitatively analyze two major issues in the design of a wealth tax for the United States: the provision of exclusions for certain housing and business equity, and the range of government expenditure options allowed for by additional revenues. First, we find that while the provision of an exclusion for owner-occupied housing results in quantitatively insignificant macroeconomic and budgetary effects, the provision of an exclusion for privately-held noncorporate business equity results in a shift of productive activity towards that sector and undermines the revenue-raising potential of the tax. Second, we find that the macroeconomic effects of a given wealth tax regime can vary from contractionary to expansionary depending on the type of expenditures that are assumed to be financed by the additional revenues.
2. “A Tale of Two Bases: Progressive Taxation of Capital and Labor Income'' with Rachel Moore, Public Finance Review, Volume 49, No. 3, pp: 335-391, May 2021.
Previously Titled: ``Modeling the Internal Revenue Code in a Heterogeneous-Agent Framework: An Application to TCJA”
Abstract: Macroeconomic models used for tax policy analysis routinely abstract from two features of the US federal tax code for household income: the joint taxation of ordinary capital and labor income at ordinary rates, and the special taxation of preferential capital income at low rates. In this paper we argue that this abstraction omits a `portfolio-effect' mechanism where, under a progressive income tax system, endogenous changes to the ordinary-preferential composition of households' capital income influence individuals' optimal labor and saving decisions through its impact on their effective marginal tax rates. We demonstrate the quantitative importance of modeling this tax detail using a two-sector, heterogeneous-agent overlapping generations framework to simulate two subsets of tax provisions from the “Tax Cuts and Jobs Act” of 2017. When accounting for the differential tax treatment of income flows within the model using an internal tax calculator, we show how household labor and savings behavior change consistently with the incentives created by the portfolio-effect. This behavior aggregates to drive deviations at the macroeconomic level. Consequentially, abstracting from this tax detail comes at the cost of omitting policy-induced household behavioral responses from the macroeconomic analysis.
Abstract: Analysis of fiscal policy changes using general equilibrium models with forward-looking agents typically requires a counterfactual adjustment to some fiscal instrument in order to achieve the debt sustainability implied by the government's intertemporal budget constraint. The choice of fiscal instrument can induce economic behavior unrelated to the policy change in models where Ricardian Equivalence does not hold. In this paper we use an overlapping generations framework to examine the effects of alternative fiscal closing assumptions on projected changes to economic aggregates following a change in tax policy, assessing the extent to which the bias associated with a particular fiscal instrument can be mitigated. While we find quantitative differences in projected macroeconomic activity across alternative fiscal instruments, these differences tend to shrink as the closing date is delayed. Ultimately, the choice of fiscal instrument becomes relatively unimportant if fiscal closing can be delayed sufficiently into the future.
4. “Macroeconomic Implications of Modeling the Internal Revenue Code in a Heterogeneous-Agent Framework" with Rachel Moore, Economic Modelling, Volume 87, pp. 72-91, April 2020.
Abstract: Fiscal policy analysis in heterogeneous-agent models typically involves the use of smooth tax functions to approximate complex present tax law and proposed reforms. In this paper, we explore the extent to which the tax detail omitted under this conventional approach has macroeconomic implications relevant for policy analysis. To do this, we develop an alternative approach by embedding an internal tax calculator into a large-scale overlapping generations model that, while conditioning on idiosyncratic household characteristics, explicitly models key provisions in the Internal Revenue Code applied to labor income. We find that for a comparative-static steady state analysis of a given tax policy change, both approaches generate similar policy-induced patterns of macroeconomic activity despite variation in the underlying patterns of household tax-preferred consumption and labor supply behavior. However, this variation in underlying behavior is associated with significant quantitative and qualitative differences in macroeconomic aggregates along the transition path immediately following a policy change. Consequentially, although the use of unconditional smooth tax functions may be a reasonable modeling simplification for steady state analysis of tax policy, caution should be taken for their use in transition path analysis within heterogeneous-agent models.
Media: Bloomberg
Abstract: In this paper we evaluate the effects of a reduction in Social Security’s Old-Age and Survivors Insurance (OASI) benefits using seven different quantitative general equilibrium overlapping generations (OLG) models. We compare the effects of an anticipated one-third reduction in OASI benefits in 2031 on an economy that maintains currently scheduled benefits. We find many of the models generate qualitatively similar results concerning macroeconomic aggregates; however, the magnitude of the effects vary due to the models’ structure and calibration strategies.
Media: Forbes
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 deficit 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.