Showing papers in "Journal of Political Economy in 2017"
TL;DR: The authors investigated whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound.
Abstract: This paper investigates whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound. We shed light on these questions by analyzing new quarterly historical U.S. data covering multiple large wars and deep recessions. We estimate a state-dependent model in which impulse responses and multipliers depend on the average dynamics of the economy in each state. We find no evidence that multipliers differ by the amount of slack in the economy. These results are robust to many alternative specifications. The results are less clear for the zero lower bound. For the entire sample, there is no evidence of elevated multipliers near the zero lower bound. When World War II is excluded, some point estimates suggest higher multipliers during the zero lower bound state, but they are not statistically different from the normal state. Our results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession.
657 citations
TL;DR: This paper conducted a randomized field experiment placing bell ringers at one or both main entrances to a supermarket, making it easy or difficult to avoid the ask and finding that making avoidance difficult increased both the rate of giving and donations.
Abstract: If people enjoy giving, then why do they avoid fund-raisers? Partnering with the Salvation Army at Christmastime, we conducted a randomized field experiment placing bell ringers at one or both main entrances to a supermarket, making it easy or difficult to avoid the ask. Additionally, bell ringers either were silent or said “please give.” Making avoidance difficult increased both the rate of giving and donations. Paradoxically, the verbal ask dramatically increased giving but also led to dramatic avoidance. We argue that this illustrates sophisticated awareness of the empathy-altruism link: people avoid empathic stimulation to regulate their giving and guilt.
363 citations
TL;DR: In this article, the life-cycle career costs associated with child rearing and decomposes their eects into unearned wages (as women drop out of the labor market), loss of human capital, and selection into more child-friendly occupations).
Abstract: This paper analyzes the life-cycle career costs associated with child rearing and decomposes their eects into unearned wages (as women drop out of the labor market), loss of human capital, and selection into more child-friendly occupations. We estimate a dynamic life-cycle model of fertility, occupational choice, and labor supply using detailed survey and administrative data for Germany for numerous birth cohorts across dierent regions. We use this model to analyze both the male-female wage gap as it evolves from labor market entry onward and the eect of pro-fertility policies. We show that a substantial portion of the gender wage gap is explainable by realized and expected fertility and that the long-run eect of policies encouraging fertility are considerably lower than the short-run eects typically estimated in the literature.
335 citations
TL;DR: In this paper, a quantitative general equilibrium model of the housing market is proposed. But the model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate...
Abstract: This paper studies a quantitative general equilibrium model of housing. The model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate...
329 citations
TL;DR: In this article, the impact of macroprudential policy on credit supply cycles and real effects of dynamic provisioning has been analyzed, and it has been shown that a 1 percentage point increase in capital buffers extends credit to firms by 9 percentage points, increasing firm employment and survival.
Abstract: To study the impact of macroprudential policy on credit supply cycles and real effects, we analyze dynamic provisioning. Introduced in Spain in 2000, revised four times, and tested in its countercyclicality during the crisis, it affected banks differentially. We find that dynamic provisioning smooths credit supply cycles and, in bad times, supports firm performance. A 1 percentage point increase in capital buffers extends credit to firms by 9 percentage points, increasing firm employment (6 percentage points) and survival (1 percentage point). Moreover, there are important compositional effects in credit supply related to risk and regulatory arbitrage by nonregulated and regulated but less affected banks.
323 citations
TL;DR: This paper examined the long-term impacts of early childhood exposure to air pollution on adult outcomes using US administrative data and found a significant relationship between pollution exposure in the year of birth and later-life outcomes.
Abstract: This paper examines the long-term impacts of early childhood exposure to air pollution on adult outcomes using US administrative data. We exploit changes in air pollution driven by the 1970 Clean Air Act to analyze the difference in outcomes between cohorts born in counties before and after large improvements in air pollution relative to those same cohorts born in counties that had no improvements. We find a significant relationship between pollution exposure in the year of birth and later-life outcomes. A higher pollution level in the year of birth is associated with lower labor force participation and lower earnings at age 30.
287 citations
TL;DR: This article showed that financial knowledge is a key determinant of wealth inequality in a stochastic life cycle model with endogenous financial knowledge accumulation, where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance.
Abstract: We show that financial knowledge is a key determinant of wealth inequality in a stochastic life cycle model with endogenous financial knowledge accumulation, where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance. Moreover, because of how the US social insurance system works, better-educated individuals have most to gain from investing in financial knowledge. Our parsimonious specification generates substantial wealth inequality relative to a one-asset saving model and one in which returns on wealth depend on portfolio composition alone. We estimate that 30–40 percent of retirement wealth inequality is accounted for by financial knowledge.
283 citations
TL;DR: This article conducted an experiment in which subjects face the same questions repeated multiple times, with repetitions of two types: (1) following the literature, the repetitions are distant from each other; (2) in a novel treatment, the repetition are in a row, and subjects are told that the questions will be repeated.
Abstract: We conduct an experiment in which subjects face the same questions repeated multiple times, with repetitions of two types: (1) following the literature, the repetitions are distant from each other; (2) in a novel treatment, the repetitions are in a row, and subjects are told that the questions will be repeated. We find that a large majority of subjects exhibit stochastic choice in both cases. We discuss the implications for models of stochastic choice.
172 citations
TL;DR: Using a large administrative change in reimbursements for surgical versus medical care, it is found that private prices follow Medicare’s lead, and these payment spillovers amplify Medicare”s impact on specialty choice and other welfare-relevant aspects of physician practices.
Abstract: We analyze Medicare's influence on private insurers' payments for physicians' services. Using a large administrative change in reimbursements for surgical versus medical care, we find that private prices follow Medicare's lead. A $1.00 increase in Medicare's fees increases corresponding private prices by $1.16. A second set of Medicare fee changes, which generates area-specific payment shocks, has a similar effect on private reimbursements. Medicare's influence is strongest in areas with concentrated insurers and competitive physician markets, consistent with insurer-doctor bargaining. By echoing Medicare's pricing changes, these payment spillovers amplify Medicare's impact on specialty choice and other welfare-relevant aspects of physician practices.
167 citations
TL;DR: The authors found that experience-wage profiles are on average twice as steep in rich countries as in poor countries, and that more educated workers have steeper profiles than the less educated; this accounts for around one third of cross-country differences in aggregate profiles.
Abstract: This paper documents how life cycle wage growth varies across countries. We harmonize repeated cross-sectional surveys from a set of countries of all income levels and then measure how wages rise with potential experience. Our main finding is that experience-wage profiles are on average twice as steep in rich countries as in poor countries. In addition, more educated workers have steeper profiles than the less educated; this accounts for around one-third of cross-country differences in aggregate profiles. Our findings are consistent with theories in which workers in poor countries accumulate less human capital or face greater search frictions over the life cycle.
162 citations
TL;DR: In this article, a discrete instrument is used to identify the marginal treatment effects under a functional structure that allows for treatment heterogeneity among individuals with the same observed characteristics and self-selection based on the unobserved gain from treatment.
Abstract: We show how a discrete instrument can be used to identify the marginal treatment effects under a functional structure that allows for treatment heterogeneity among individuals with the same observed characteristics and self-selection based on the unobserved gain from treatment. Guided by this identification result, we perform a marginal treatment effect analysis of the interaction between the quantity and quality of children. Our estimates reveal that the family size effects vary in magnitude and even sign and that families act as if they possess some knowledge of the idiosyncratic effects in the fertility decision.
TL;DR: Evidence is provided that Medicaid’s introduction reduced infant and child mortality in the 1960s and 1970s and that mortality fell more rapidly among children and infants in high-Medicaid-eligibility states.
Abstract: This paper provides new evidence that Medicaid’s introduction reduced infant and child mortality in the 1960s and 1970s. Mandated coverage of all cash welfare recipients induced substantial cross-state variation in the share of children immediately eligible for the program. Before Medicaid, higher- and lower-eligibility states had similar infant and child mortality trends. After Medicaid, public insurance utilization increased and mortality fell more rapidly among children and infants in high-Medicaid-eligibility states. Mortality among nonwhite children on Medicaid fell by 20 percent, leading to a reduction in aggregate nonwhite child mortality rates of 11 percent.
TL;DR: The authors showed that higher wages increase human capital investment in early life (in utero to age 2) but decrease human capital from age 5 to 16, and that children switch out of school into productive work when rainfall is higher.
Abstract: Higher wages are generally thought to increase human capital production, particularly in the developing world. We introduce a simple model of human capital production in which investments and time allocation differ by age. Using data on test scores and schooling from rural India, we show that higher wages increase human capital investment in early life (in utero to age 2) but decrease human capital from age 5 to 16. Children switch out of school into productive work when rainfall is higher. The opportunity cost of schooling, even for fairly young children, is an important factor in determining overall human capital investment.
TL;DR: In this paper, the authors study the competition in matching markets with random heterogeneous preferences and an unequal number of agents on either side, and show that even the slightest imbalance yields an essentially unique stable matching.
Abstract: We study competition in matching markets with random heterogeneous preferences and an unequal number of agents on either side. First, we show that even the slightest imbalance yields an essentially unique stable matching. Second, we give a tight description of stable outcomes, showing that matching markets are extremely competitive. Each agent on the short side of the market is matched with one of his top choices, and each agent on the long side either is unmatched or does almost no better than being matched with a random partner. Our results suggest that any matching market is likely to have a small core, explaining why small cores are empirically ubiquitous.
TL;DR: The authors characterize a parametric family of application-rejection assignment mechanisms, including the sequential, deferred acceptance, and parallel mechanisms in a nested framework, and show that all of the provinces that have abandoned the sequential mechanism have moved toward less manipulable and more stable mechanisms.
Abstract: Each year approximately 10 million high school seniors in China compete for 6 million seats through a centralized college admissions system. Within the last decade, many provinces have transitioned from a “sequential” to a “parallel” mechanism to make their admissions decisions. In this study, we characterize a parametric family of application-rejection assignment mechanisms, including the sequential, deferred acceptance, and parallel mechanisms in a nested framework. We show that all of the provinces that have abandoned the sequential mechanism have moved toward less manipulable and more stable mechanisms. We also show that existing empirical evidence is consistent with our theoretical predictions.
TL;DR: This paper found that trade liberalization increases the skill premium in almost all countries, and that reducing trade costs also reallocate factors toward more productive and skill-intensive firms within sectors and toward skill intensive sectors in all countries.
Abstract: What are the consequences of international trade on the skill premium? We incorporate skill-intensity differences across firms and sectors into a standard model of international trade. Reductions in trade costs reallocate factors toward a country's comparative advantage sectors, increasing the skill premium in countries with a comparative advantage in skill-intensive sectors and decreasing it elsewhere. Reductions in trade costs also reallocate factors toward more productive and skill-intensive firms within sectors and toward skill-intensive sectors in all countries, increasing the skill premium in all countries. Quantitatively, we find that trade liberalization increases the skill premium in almost all countries.
TL;DR: In this paper, a theory of how political unrest influences public policy is proposed, which yields novel insights about the sources of political influence of different groups in society, and these theoretical implications are consistent with aggregate evidence on the determinants of political unrest.
Abstract: This paper formulates a theory of how political unrest influences public policy. Political unrest is motivated by emotions. Individuals engage in protests if they are aggrieved and feel that they have been treated unfairly. This reaction is predictable because individuals have a consistent view of what is fair. This framework yields novel insights about the sources of political influence of different groups in society. Even if the government is benevolent and all groups have access to the same technology for political participation, equilibrium policy can be distorted. Individuals form their view of what is fair taking into account the current state of the world. If the government is more constrained, individuals accept a lower level of welfare. This resignation effect in turn induces a benevolent government to procrastinate unpleasant policy choices. These theoretical implications are consistent with aggregate evidence on the determinants of political unrest.
TL;DR: In this article, the causal effects of access to credit on the gap in schooling attainment between children from richer and poorer families were investigated. But they focused on the causal effect of two types of credit access: access-to-credit and access to education credit.
Abstract: Does access to credit explain the gap in schooling attainment between children from richer and poorer families? I present new evidence on this important question based on the causal effects of two ...
TL;DR: In this article, the authors investigate the origin and propagation of balance sheet recessions and show that in standard models driven by TFP shocks, the balance sheet channel disappears when agents can write contracts on the aggregate state of the economy.
Abstract: This paper investigates the origin and propagation of balance sheet recessions. I first show that in standard models driven by TFP shocks, the balance sheet channel disappears when agents can write contracts on the aggregate state of the economy. Optimal contracts sever the link between leverage and aggregate risk sharing, eliminating the concentration of aggregate risk that drives balance sheet recessions. I then show that uncertainty shocks can help explain this concentration of aggregate risk and drive balance sheet recessions, even with contracts on aggregate shocks. The mechanism is quantitatively important, and I explore implications for financial regulation.
TL;DR: This paper showed that denser social networks were associated with faster entry into the Nazi Party and the effect is large: one standard deviation higher association density is associated with at least 15 percent faster Nazi Party entry.
Abstract: Using newly collected data on association density in 229 towns and cities in interwar Germany, we show that denser social networks were associated with faster entry into the Nazi Party. The effect is large: one standard deviation higher association density is associated with at least 15 percent faster Nazi Party entry. Party membership, in turn, predicts electoral success. Social networks thus aided the rise of the Nazis that destroyed Germany’s first democracy. The effects of social capital depended on the political context: in federal states with more stable governments, higher association density was not correlated with faster Nazi Party entry.
TL;DR: In this article, the authors characterize contests that maximize innovation when the designer chooses a prize-sharing scheme and a disclosure policy, and show that jointly modifying prize sharing and disclosure can increase innovation.
Abstract: We study contests for innovation with learning about the innovation’s feasibility and opponents’ outcomes. We characterize contests that maximize innovation when the designer chooses a prize-sharing scheme and a disclosure policy. A “public winner-takes-all” contest dominates public contests—where any success is immediately disclosed—with any other prize-sharing scheme as well as winner-takes-all contests with any other disclosure policy. Yet, jointly modifying prize sharing and disclosure can increase innovation. In a broad class of mechanisms, it is optimal to share the prize with disclosure following a certain number of successes; under simple conditions, a “hidden equal-sharing” contest is optimal.
TL;DR: This paper examined how a policy that sharply increased alcohol availability during 8.5 months affected the labor productivity of those exposed to it in utero, finding that the prenatally exposed children have substantially worse labor market and educational outcomes and lower cognitive and non-cognitive ability.
Abstract: This study examines how a policy that sharply increased alcohol availability during 8.5 months affected the labor productivity of those exposed to it in utero. Compared to the surrounding cohorts, the prenatally exposed children have substantially worse labor market and educational outcomes and lower cognitive and noncognitive ability. Effects on earnings are found throughout the distribution but are largest below the median. Males are more affected than females, consistent with growing evidence that boys are less resilient to early environmental insults. The long-term effects seem primarily driven by changes in prenatal health rather than changes in the childhood environment.
TL;DR: This article evaluated the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries with sizable financial incentives to renegotiate mortgages and found that the program was associated with a lower rate of foreclosures, consumer debt delinquencies, house price declines, and an increase in durable spending.
Abstract: We evaluate the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries with sizable financial incentives to renegotiate mortgages. HAMP increased intensity of renegotiations and prevented a substantial number of foreclosures but reached just one-third of its targeted indebted households. This shortfall was in large part due to low renegotiation intensity of a few large intermediaries and was driven by intermediary-specific factors. Exploiting regional variation in the intensity of program implementation by intermediaries suggests that the program was associated with a lower rate of foreclosures, consumer debt delinquencies, house price declines, and an increase in durable spending.
TL;DR: In this paper, the authors derived optimal income tax and human capital policies in a life cycle model with risky human capital, where the government faces asymmetric information regarding agents' ability, its evolution, and labor supply.
Abstract: This paper derives optimal income tax and human capital policies in a life cycle model with risky human capital. The government faces asymmetric information regarding agents’ ability, its evolution, and labor supply. When the wage elasticity with respect to ability is increasing in human capital, the optimal subsidy involves less than full deductibility of human capital expenses on the tax base and falls with age. Income-contingent loans or a deferred deductibility scheme can implement the optimum. Numerical results suggest that full deductibility of expenses is close to optimal and that simple linear age-dependent policies perform very well.
TL;DR: In this paper, the authors estimate the impact of globalization on markups and the effect of changing markups on US welfare, in a monopolistic competition model with symmetric translog preferences.
Abstract: This paper estimates the impact of globalization on markups, and the effect of changing markups on US welfare, in a monopolistic competition model. We work with symmetric translog preferences, which allow for endogenous markups and firm entry and exit, thereby changing product variety. We find that between 1992 and 2005, US import shares rose and US firms exited, leading to an implied fall in markups, while variety went up because of imports. US welfare rose by nearly 1 percent as a result of these changes, with product variety contributing one-half of that total and declining markups the other half.
TL;DR: In this article, the authors study one approach to reducing leakage of redistributive programs in developing countries, where local officials do not implement programs as the central government intends, and propose an approach to reduce leakage.
Abstract: Redistribution programs in developing countries often “leak” because local officials do not implement programs as the central government intends. We study one approach to reducing leakage. In an ex...
TL;DR: In this article, the relative power of contraception and abortion policy in effecting the dramatic social transformations of the 1960s and 1970s was examined, and it was found that it was liberalized access to abortion that allowed large numbers of women to delay marriage and motherhood.
Abstract: I provide new evidence on the relative “powers” of contraception and abortion policy in effecting the dramatic social transformations of the 1960s and 1970s. Trends in sexual behavior suggest that young women’s increased access to the birth control pill fueled the sexual revolution, but neither these trends nor difference-in-difference estimates support the view that this also led to substantial changes in family formation. Rather, the estimates robustly suggest that it was liberalized access to abortion that allowed large numbers of women to delay marriage and motherhood.
TL;DR: In this paper, the authors present a model of technologically interconnected countries that benefit and potentially contribute to advances in the world technology frontier, showing that greater inequality between successful and unsuccessful entrepreneurs increases entrepreneurial effort and a country's contribution to that frontier.
Abstract: We present a model of technologically interconnected countries that benefit and potentially contribute to advances in the world technology frontier. Greater inequality between successful and unsuccessful entrepreneurs increases entrepreneurial effort and a country’s contribution to that frontier. Under plausible assumptions, the world equilibrium is asymmetric, involving different economic institutions and technology levels for different countries. Some countries become technology leaders and opt for a type of “cutthroat” capitalism with greater inequality and innovations, while others free ride on the cutthroat incentives of the leaders and choose a more “cuddly” form of capitalism with greater social insurance for entrepreneurs.
TL;DR: This article showed that supply-side financial shocks have a large impact on firms' investment and developed a new methodology to separate firm borrowing shocks from bank supply shocks using a vast sample of mat...
Abstract: We show that supply-side financial shocks have a large impact on firms’ investment. We develop a new methodology to separate firm borrowing shocks from bank supply shocks using a vast sample of mat...
TL;DR: In this paper, the authors show that under commitment the optimal financial regulator's plans are time inconsistent and study time-consistent policy, which reduces the frequency and magnitude of crises, removes fat tails from the distribution of asset returns, and increases social welfare.
Abstract: Collateral constraints widely used in models of financial crises feature a pecuniary externality: Agents do not internalize how borrowing decisions made in “good times” affect collateral prices during a crisis. We show that under commitment the optimal financial regulator’s plans are time inconsistent and study time-consistent policy. Quantitatively, this policy reduces sharply the frequency and magnitude of crises, removes fat tails from the distribution of asset returns, and increases social welfare. In contrast, constant debt taxes are ineffective and can be welfare reducing, while an optimized “macroprudential Taylor rule” is effective but less so than the optimal time-consistent policy.