Investor Psychology and Security Market Under- and Overreactions

To estimate the dynamic effects of an absorbing treatment, researchers often use two-way fixed effects regressions that include leads and lags of the treatment. We show that in settings with variation in treatment timing across units, the coefficient on a given lead or lag can be contaminated by effects from other periods, and apparent pretrends can arise solely from treatment effects heterogeneity. We propose an alternative estimator that is free of contamination, and illustrate the relative shortcomings of two-way fixed effects regressions with leads and lags through an empirical application.

Estimating Dynamic Treatment Effects in Event Studies with Heterogeneous Treatment Effects

This article combines tax, survey, and national accounts data to estimate the distribution of national income in the United States since 1913. Our distributional national accounts capture 100% of national income, allowing us to compute growth rates for each quantile of the income distribution consistent with macroeconomic growth. We estimate the distribution of both pretax and posttax income, making it possible to provide a comprehensive view of how government redistribution affects inequality. Average pretax real national income per adult has increased 60% from 1980 to 2014, but we find that it has stagnated for the bottom 50% of the distribution at about $16,000 a year. The pretax income of the middle class—adults between the median and the 90th percentile—has grown 40% since 1980, faster than what tax and survey data suggest, due in particular to the rise of tax-exempt fringe benefits. Income has boomed at the top. The upsurge of top incomes was first a labor income phenomenon but has mostly been a capital income phenomenon since 2000. The government has offset only a small fraction of the increase in inequality. The reduction of the gender gap in earnings has mitigated the increase in inequality among adults, but the share of women falls steeply as one moves up the labor income distribution, and is only 11% in the top 0.1% in 2014.

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Distributional National Accounts: Methods and Estimates for the United States

The fall of labor's share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain. Existing empirical assessments of trends in labor's share typically have relied on industry or macro data, obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and international sources and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of \superstar firms." If globalization or technological changes advantage the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms with high profits and a low share of labor in firm valueadded and sales. As the importance of superstar firms increases, the aggregate labor share will tend tofall. Our hypothesis offers several testable predictions: industry sales will increasingly concentrate in a small number of firms; industries where concentration rises most will have the largest declines in the labor share; the fall in the labor share will be driven largely by between-firm reallocation rather than (primarily) a fall in the unweighted mean labor share within firms; the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; and finally, such patterns will be observed not only in U.S. firms, but also internationally. We find support for all of these predictions.

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The fall of the labor share and the rise of superstar firms

Globalization, Corporate Finance, and the Cost of Capital

We estimate the effect of temporary tax incentives on equipment investment using shifts in accelerated depreciation. Analyzing data for over 120,000 firms, we present three findings. First...

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Tax Policy and Heterogeneous Investment Behavior

From the Abstract: This paper takes an early look at the Paycheck Protection Program (PPP), a large and novel small business support program that was part of the initial policy response to the COVID-19 [coronavirus disease 2019] pandemic We use new data on the distribution of the first round of PPP loans and high-frequency microlevel employment data to consider two dimensions of program targeting First, we do not find evidence that funds flowed to areas more adversely affected by the economic effects of the pandemic, as measured by declines in hours worked or business shutdowns If anything, funds flowed to areas less hard hit Second, we find significant heterogeneity across banks in terms of disbursing PPP funds, which does not only reflect differences in underlying loan demand The top-4 banks alone account for 36% of total pre-policy small business loans, but disbursed less than 3% of all PPP loans in the first round Areas that were significantly more exposed to low PPP banks received much lower loan allocations We do not find evidence that the PPP had a substantial effect on local economic outcomes--including declines in hours worked, business shutdowns, initial unemployment insurance claims, and small business revenues--during the first round of the program Firms appear to use first round funds to build up savings and meet loan and other commitments, which points to possible medium-run impacts As data become available, we will continue to study employment and establishment responses to the program and the impact of PPP support on the economic recovery Measuring these responses is critical for evaluating the social insurance value of the PPP and similar policies COVID-19 (Disease)

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Did the Paycheck Protection Program Hit the Target

How important is human capital at the top of the U.S. income distribution? A primary source of top income is private “pass-through” business profit, which can include entrepreneurial labor income for tax reasons. This paper asks whether top pass-through profit mostly reflects human capital, defined as all inalienable factors embodied in business owners, rather than financial capital. Tax data linking 11 million firms to their owners show that top pass-through profit accrues to working-age owners of closely-held, mid-market firms in skill-intensive industries. Pass-through profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of pass-through profit as human capital income, we find that the typical top earner derives most of her income from human capital, not financial capital. Growth in pass-through profit is explained by both rising productivity and a rising share of value added accruing to owners.

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Capitalists in the Twenty-First Century

Using data on 50 million home sales from the recent U.S. housing cycle, we document that much of the variation in volume came from the rise and fall in short-term speculation. Cities with larger speculative booms have larger price cycles, sharper increases in unsold listings as the market turns, and more eventual foreclosures. We present a model in which predictable price increases endogenously attract short-term buyers more than long-term buyers. Short-term buyers amplify volume by selling faster and destabilize prices through positive feedback. Our model matches key aggregate patterns, including the lead–lag price–volume relation and a sharp rise in inventories.

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Speculative Dynamics of Prices and Volume

Executive Summary“Pass-through” businesses like partnerships and S-corporations now generate over half of US business income and account for much of the post-1980 rise in the top-1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings: (1) relative to traditional business income, pass-through business income is substantially more concentrated among high-earners; (2) partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships; and (3) the average federal income tax rate on US pass-through business income is 19%—much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980’s low level, strong but straightforward assumptions imply that the 2011 average US tax rate on total US business income would have been 28% rather than 24%, and tax revenue would have been approximately...

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Eric Zwick

Papers

Tax Policy and Heterogeneous Investment Behavior

Did the Paycheck Protection Program Hit the Target

Capitalists in the Twenty-First Century

Speculative Dynamics of Prices and Volume

Business in the United States: Who Owns it and How Much Tax Do They Pay?