American Economic Journal: Economic Policy

November 2018

The recent boom in US oil production has prompted debates on levying new taxes on oil. This paper uses new well-level production data and price variation from federal oil taxes and price controls to assess how taxes affected production. After-tax price elasticity estimates range between 0.295 (0.038) and 0.371 (0.025). Response along the shut-in margin is minimal. There is no evidence of spatial shifting of production to minimize tax liabilities. Taken together, the results suggest that taxes reduced domestic production in the 1980s, and the response largely came from wells that continued to pump oil, but at a reduced rate.

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(with Chris Conlon)

 American Economic Journal: Economic Policy

November 2020

This paper uses UPC-level data to examine the relationship between excise taxes, retail prices, and consumer welfare in the distilled spirits market. We document a nominal rigidity in retail prices that arises because firms largely choose prices that end in 99 cents and change prices in whole-dollar increments. A correctly specified model, like an ordered logit, takes this discreteness into account when predicting the effects of alternative taxes. Explicitly accounting for price points substantially impacts estimates of tax incidence and the excess burden cost of tax revenue. Meaningful nonmonotonicities in these quantities expand the potential considerations in setting excise taxes.

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Journal of Public Economics

August 2016

This paper examines the impact of the U.S. federal R&D tax credit between 1981–1991 using confidential IRS data from corporate tax returns. The empirical analysis makes two key advances on previous work. First, it implements a new instrumental variables (IV) strategy based on tax changes that directly addresses the simultaneity of R&D spending and marginal credit rates. Second, the analysis makes use of new restricted- access IRS corporate return data describing R&D expenditures. Estimates imply that a10% reduction in the user cost of R&D leads the average firm to increase its research intensity—the ratio of R&D spending to sales—by 19.8% in the short-run. Long-run estimates imply that the average firm faces adjustment costs and increases spending over time, though small and young firms show evidence of reversing initial increases. Analysis of the components of qualified research shows that wages and supplies account for the bulk of the increase in research spending. Elasticities of qualified and total research intensities from a smaller sample suggest firms respond to user cost changes largely by increasing their qualified spending, meaning that the type of R&D the federal credit deems qualified research is an important margin on which the credit affects firm behavior.

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(with Naomi Feldman, Laura Kawano, Elena Patel, Michael Stevens, and Jesse Edgerton)

Journal of Public Economics

April 2021

Using tax data, we compare the investment behavior of public and private firms for a representative sample of all U.S. corporations. We find that while both types of firms invest similarly in physical capital, public firms out-invest private firms in R&D. Compared to observationally-similar private firms, public firms invest roughly 50% more in R&D relative to their asset bases. Further, public firms dedicate 7.4 percentage points more of their investments to R&D than private firms. This stronger public firm R&D investment is muted when shareholder earnings pressures are heightened, but not so much as to overcome the baseline investment advantage.

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(with Don Fullerton)

National Tax Journal

June 2019

News that 47 percent of Americans in 2009 paid no federal income tax drew considerable attention. For a longer view of not paying tax and of receiving transfers, we use the Panel Survey of Income Dynamics. Over all individuals, we find that 68 percent owe no income tax at least one year, of which 21 percent pay the following year and 45 percent pay within five years. Also, overall, 60 percent receive transfers other than Social Security at least one year, of which nearly 47 percent stop the next year and more than 94 percent stop within10 years.

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National Tax Journal

December 2015

This paper assesses the economic factors associated with corporate inversions, including the 48 inversions that have occurred since the analysis of Desai and Hines (2002). The analysis presented here is observational, not causal, as it examines how the business activities of firms that chose to invert changed after expatriation. In addition to statistically assessing the equity market’s reaction to inversion announcements, this paper examines how firms alter their patterns of employment and investment after inversion. In particular, the paper follows how the foreign shares of an inverting firm’s employment and investment change following inversion, relative to comparable non-inverting firms. The behavior of inverting firms following expatriation is assessed going back to 1980 as well as only after the 2004 policy change, which made expatriation through merger with a foreign firm with substantive foreign business activities more attractive. The results suggest that inverting firms have higher shares of their employees and capital expenditures located abroad after inversion relative to changes experienced by similar non-inverting firms. Further, these increases are not attributable to one-time changes due to the inclusion of a new foreign partner’s existing workforce and ongoing investments; foreign shares of employment and investment are higher two or more years after inversion relative to the first year after inversion when any one-time increases would occur.

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(with Jeri K. Seidman and James M. Poterba)

National Tax Journal

March 2011

A firm’s deferred tax position can influence how it is affected by a transition from one tax regime to another. We compile disaggregated deferred tax position data for a sample of large U.S. firms between 1993 and 2004 to explore how these positions might affect firm behavior before and after a pre-announced change in the statutory corporate tax rate. Our results suggest that the heterogeneous deferred tax positions of large U.S. corporations create substantial variation in the short-run effects of tax rate changes on reported earnings. Recognizing these divergent incentives is important for understanding the political economy of corporate tax reform.

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(with Aparna Mathur, Michael Strain, and Stan Veuger)

Public Finance Review

November 2016

This article investigates the relationship between dividend payouts and corporate investment. We find significant heterogeneity in the relationship across firms—heterogeneity that helps reconcile competing results in the literature. Drawing on financial filing data from Compustat, we first broadly replicate the statistically significant negative relationship estimated by Auerbach and Hassett. We show that this relationship does not hold if the variation is restricted to within-firm only. Our null results suggest a relatively precise zero estimate for the mean firm. Next, we investigate heterogeneity in the relationship between dividends and investment. Using quantile regression methods, we find that this negative relationship is concentrated at the top of dividends distribution: only firms from the seventieth percentile and above exhibit a strongly negative relationship, and it is these firms that drive the negative estimates of pooled OLS regressions reported in prior work.

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Revise & Resubmit, Review of Economics and Statistics

October 2021

We find that sin good purchases are highly concentrated with 10% of households paying more than 80% of taxes on alcohol and cigarettes. Total sin tax burdens are poorly explained by demographics (including income), but are well explained by eight household clusters defined by purchasing patterns. The two most taxed clusters comprise 8% of households, pay 68% of sin taxes, are older, less educated, and lower income. Taxes on sugary beverages broaden the tax base but add to the burdens of heavily taxed households. Efforts to increase sin taxes should consider the heavy burdens borne by few households.

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New Version Coming Soon

We study the relative benefits of taxation versus market structure regulations for distilled spirits. One popular regulation, called post and hold (PH), helps wholesalers set collusive prices as the competitive equilibrium of a single period game. Assembling new datasets of wholesale and retail prices, and sales, we show PH leads to average wholesale markups of 30-40%, with higher markups on expensive products. Taxes distort relative prices less than PH. We show Connecticut could increase tax revenue by 350% and improve consumer welfare while holding alcohol consumption fixed. However, we also show our counterfactual policy may be slightly regressive compared to PH.

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