Economics

Wholesale Prices, Retail Prices and the Lumpy Pass-Through of Alcohol Taxes

Wholesale Prices, Retail Prices and the Lumpy Pass-Through of Alcohol Taxes

Rao, Nirupama S. (with Chris Conlon)
11/11/2015

This paper examines the pass-through of taxation in the market for distilled spirits. By using detailed UPC level data from Nielsen Homescan, as well as state specific wholesale prices from the regulator in Connecticut we are able to measure the pass-through rate of taxation at both the wholesale and the retail level. We find that pass-through of taxes to wholesale prices is incomplete and approximately 70% while pass-through of taxation to retail prices is often excess of 100 and as high as 160%, consistent with other results on the pass-through of excise taxes for spirits. This over-shifting of the tax burden onto consumers is difficult to rationalize with profit maximizing firm behavior and log-concave demand (such as Linear Demand, Logit, or Probit). We offer an alternative explanation which incorporates dynamics in price adjustment, and shows that large pass-through rates are an artifact of small tax increases and lumpy price adjustment via $1.00 increments. When firms follow an (s, S) rule, this has implications for a policy where tax-increases minimize over-shifting behavior that generates additional deadweight loss per unit of government revenue.

Credit is Not a Right

Credit is Not a Right
in Microfinance, Rights, and Global Justice (edited by Tom Sorell and Luis Cabrera). Cambridge University Press.

Gershman, John and Jonathan Morduch
08/01/2015

Muhammad Yunus, the microcredit pioneer, has proposed that access to credit should be a human right. We approach the question by drawing on fieldwork and empirical scholarship in political science and economics. Evidence shows that access to credit may be powerful for some people some of the time, but it is not powerful for everyone all of the time, and in some cases it can do damage. Yunus’s claim for the power of credit access has yet to be widely verified, and most rigorous studies find microcredit impacts that fall far short of the kinds of empirical assertions on which his proposal rests. We discuss ways that expanding the domain of rights can diminish the power of existing rights, and we argue for a right to non-discrimination in credit access, rather than a right to credit access itself.

 

Corporate Inversions and Economic Performance

Corporate Inversions and Economic Performance
Forthcoming ~ National Tax Journal

Rao, Nirupama.
07/11/2015

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 the 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 and more years after inversion relative to the first year just after inversion when any one-time increases would register.

Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays

Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays
Journal of Money, Credit and Banking, forthcoming.

Sewin Chan, Andrew Haughwout, Andrew Hayashi and Wilbert van der Klaauw
06/01/2015

The mortgage default decision is part of a complex household credit management problem. We examine how factors affecting mortgage default spill over to other credit markets. As home equity turns negative, homeowners default on mortgages and HELOCs at higher rates, whereas they prioritize repaying credit cards and auto loans. Larger unused credit card limits intensify the preservation of credit cards over housing debt. Although mortgage non-recourse statutes increase default on all types of housing debt, they reduce credit card defaults. Foreclosure delays increase default rates for both housing and non-housing debts. Our analysis highlights the interconnectedness of debt repayment decisions.

Do Homeowners Mark to Market? A Comparison of Self-reported and Market-based Home Value Estimates During the Housing Boom and Bust

Do Homeowners Mark to Market? A Comparison of Self-reported and Market-based Home Value Estimates During the Housing Boom and Bust
Real Estate Economics, forthcoming.

Sewin Chan, Sam Dastrup & Ingrid Gould Ellen
06/01/2015

This paper examines homeowners’ self-reported values in the American Housing Survey and the Health and Retirement Study from the start of the recent housing price run-ups through recent price declines. We compare zip code level market-based estimates of housing prices to those derived from homeowners’ self-reported values. We show that there are systematic differences which vary with market conditions and the amount of equity owners hold in their homes. When prices have fallen, homeowners systematically state that their homes are worth more than market estimates suggest, and homeowners with little or no equity in their homes state values above the market estimates to a greater degree. Over time, homeowners appear to adjust their assessments to be more in line with past market trends, but only slowly. Our results suggest that underwater borrowers are likely to understate their losses and either may not be aware that their mortgages are underwater or underestimate the degree to which they are.

How Mortgage Finance Affects the Urban Landscape

How Mortgage Finance Affects the Urban Landscape
In Handbook of Regional and Urban Economics, Volume 5B, edited by Gilles Duranton, J. Vernon Henderson and William C. Strange. United Kingdom: North Holland, 2015.

Sewin Chan, Andrew Haughwout & Joseph Tracy
06/01/2015

This chapter considers the structure of mortgage finance in the United States and its role in shaping patterns of homeownership, the nature of the housing stock, and the organization of residential activity. We start by providing some background on the design features of mortgage contracts that distinguish them from other loans and that have important implications for issues presented in the rest of the chapter. We then explain how mortgage finance interacts with public policy, particularly tax policy, to influence a household's decision to own or rent and how shifts in the demand for owner-occupied housing are translated into housing prices and quantities, given the unusual nature of housing supply. We consider the distribution of mortgage credit in terms of access and price, by race, ethnicity, and income, and over the life cycle, with particular attention to the role of recent innovations such as nonprime mortgage securitization and reverse mortgages. The extent of negative equity has been unprecedented in the past decade, and we discuss its impact on strategic default, housing turnover, and housing investment. We describe spatial patterns in foreclosure and summarize the evidence for foreclosure spillovers in urban neighborhoods. Finally, we offer some thoughts on future innovations in mortgage finance.

Why Theory and Practice are Different: The Gap Between Principles and Reality in Subnational Revenue Systems

Why Theory and Practice are Different: The Gap Between Principles and Reality in Subnational Revenue Systems
In Richard Bird and Jorge Martinez Vazquez, eds. Taxation and Development: The Weakest Link. (Cheltenham, UK and Northampton, MA: Edward Elgar, 2014).

Paul Smoke
11/26/2014

Ensuring adequate subnational revenues is a core concern of fiscal decentralization. Available empirical evidence suggests that subnational revenue generation in developing countries rarely meets needs and expectations, even where conventional advice has been or seems to have been followed. Are mainstream principles inappropriate, or are they just poorly applied? This chapter argues that both factors are often at play. Basic principles can be challenging to use, ignore certain critical factors, and say nothing about implementing the often demanding reforms they call for. The chapter outlines and illustrates common factors and dynamics at play and suggests how policy analysts might use and move beyond the mainstream principles to define more pragmatic and sustainable paths to subnational revenue reforms.

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