Economics

Shifting the Burden: Examining the Undertaxation of Some of the Most Valuable Properties in New York City

Shifting the Burden: Examining the Undertaxation of Some of the Most Valuable Properties in New York City
Furman Center Policy Brief; July 2013

The Furman Center for Real Estate and Urban Policy
07/02/2013

Some of New York City’s most valuable properties in its highest-cost neighborhoods are significantly and persistently undervalued, according to Shifting the Burden. The report identifies 50 individual co-ops in 46 buildings that were sold in 2012 for more than the New York City Department of Finance’s estimate of the market value of the entire building. This undervaluation has significant consequences for the distribution of tax burdens in New York City.

A Trapped-Factors Model of Innovation

A Trapped-Factors Model of Innovation
Forthcoming, American Economic Review, May 2013.

Paul Romer, Nicholas Bloom, Stephen J. Terry, and John Van Reenen
05/01/2013

When will reducing trade barriers against a low wage country cause innovation to increase in high wage regions like the US or EU? We develop a model where factors of production have costs of adjustment and so are partially “trapped” in producing old goods. Trade liberalization with a low wage country reduces the profitability of old goods and so the opportunity cost of innovating falls. Interestingly, the “China shock” is more likely to induce innovation than liberalization with high wage countries. These implications are consistent with a range of recent empirical evidence on the impact of China and offers a new mechanism for positive welfare effects of trade liberalization over and above the standard benefits of specialization and market expansion. Calibrations of our model to the recent experience of the US with China suggests that there will be faster long-run growth through innovation in the US and that, in the short run, this is magnified by the trapped factor effect.

Do Small Schools Improve Performance in Large, Urban Districts? Casual Evidence from New York City

Do Small Schools Improve Performance in Large, Urban Districts? Casual Evidence from New York City
Journal of Urban Economics, 77: 27-40

Schwartz, A. E., Stiefel, L., & Wiswall, M.
04/10/2013

We evaluate the effectivness of small high school reform in the country's largest school district, New York City. Using a rich administrative datasest for multiple cohorts of students and distance between student residence and school to instrument for endogenous school selection, we find substantial heterogeneity in school effects: newly created small schools have positive effects of graduation and some other educational outcomes while older small schools do not. Importantly, we show that ignoring this source of treatment effect heterogeneity by assuming a common small school effect yields a misleading zero effect of small school attendance.

State Unemployment Insurance Trust Solvency and Benefit Generosity.

State Unemployment Insurance Trust Solvency and Benefit Generosity.
Journal of Policy Analysis and Management 32(3): 536-53.

Smith, Daniel L. and Jeffrey B. Wenger.
01/01/2013

This paper employs panel estimators with data on the 50 American states for the years 1963 to 2006 to test the relationship between Unemployment Insurance (UI) trust fund solvency and UI benefit generosity. We find that both average and maximum weekly UI benefit amounts, as ratios to the average weekly wage, are higher in states and in years with more highly solvent trust funds. This result holds after controlling for state-level unemployment rate, Gross Domestic Product (GDP), population growth, legislative political ideology, partisan control of the executive and legislative branches, and gubernatorial election year across multiple specifications, including fixed-effects and dynamic panel estimators. We propose a theory of moderate coupling as the causal mechanism, whereby UI program benefits and financing are directly related but are not as tightly linked as in other social insurance programs, such as Medicaid. The findings have important policy implications for the funding of states’ UI systems. As a consequence of moderate coupling, the countercyclicality of the UI program is dampened. 

What Can We Learn About the Low Income Housing Tax Credit By Examining the Tenants?

What Can We Learn About the Low Income Housing Tax Credit By Examining the Tenants?
Housing Policy Debate.

Horn, Keren and Katherine O'Regan
01/01/2013

Using tenant-level data from 18 states that represent almost 40% of all Low-Income Housing Tax Credit units, this article examines tenant incomes, rental assistance, and rent burdens to shed light on key questions about our largest federal supply-side affordable housing program. Specifically, what are the incomes of the tenants, and does this program reach those with extremely low incomes? What rent burdens are experienced, and is economic diversity within developments achieved? We find that approximately 45% of tenants have extremely low incomes, and the overwhelming majority of such tenants also receive some form of rental assistance. Rent burdens are lower than that for renters with similar incomes nationally but generally higher than that presumed for housing programs of the U.S. Department of Housing and Urban Development. Rent burdens vary greatly by income level and are lowered by the sizable share of owners who charge below federal maximum rents. Finally, we find evidence of both economically diverse developments and those with concentrations of households with extremely low incomes.

Banking The World

Banking The World
The MIT Press

(eds.) Cull, Robert, Asli Demirgüç-Kunt and Jonathan Morduch
12/01/2012

About 2.5 billion adults, just over half the world’s adult population, lack bank accounts. If we are to realize the goal of extending banking and other financial services to this vast “unbanked” population, we need to consider not only such product innovations as microfinance and mobile banking but also issues of data accuracy, impact assessment, risk mitigation, technology adaptation, financial literacy, and local context. In Banking the World, experts take up these topics, reporting on new research that will guide both policy makers and scholars in a broader push to extend financial markets.

The contributors consider such topics as the complexity of surveying people about their use of financial services; evidence of the impact of financial services on income; the occasional negative effects of financial services on poor households, including disincentives to work and overindebtedness; and tools for improving access such as nontraditional credit scores, financial incentives for banking, and identification technologies that can dramatically reduce loan default rates.

From Endeavor to Achievement and Back Again: Government's Greatest Hits in Peril

From Endeavor to Achievement and Back Again: Government's Greatest Hits in Peril
In To Promote the General Welfare: The Case for Big Government. Steven Conn, Ed., Oxford Univeristy Press

Paul C. Light
07/01/2012

"These 10 articles from leading scholars address federal government activism in such areas as health, education, transportation, and the arts. In some areas, federal involvement has been direct; for example, while school public systems are governed locally, Washington provides about 10% of k–12 funding. Similarly, antipoverty programs, such as the New Deal’s Social Security Act and Aid for Dependent Children, have played a major role in reducing the poverty rate from around 40% in 1900 to 11.2% in 1974. At other times, Washington has exerted influence more subtly, through regulations and research. Examples include the 1933 Glass-Steagall Act, which mandated the separation of investment and commercial banking and the WWII-era research that yielded compounds to prevent and cure malaria, syphilis, and tuberculosis. Further, as public policy scholar Paul C. Light points out in a fascinating concluding piece, more than two-thirds of leading governmental initiatives have been supported by both Democratic and Republican administrations. However, Light adds, the massive tax cut in 2001 “continue[s] to constrain federal investment in problem solving.” The scholars brought together by Ohio State historian Conn (History’s Shadow) persuasively demonstrate how the growth of “big government” throughout the 20th century has benefited ordinary Americans so comprehensively and unobtrusively that they have often taken it for granted."

Publishers Weekly

http://www.publishersweekly.com/978-0-19-985855-2

Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India

Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India
American Economic Review 102 (2), April 2012: 1118-1139.

Bauer, Michal; Julie Chytilová; and Jonathan Morduch
04/01/2012

We use experimental measures of time discounting and risk aversion for villagers in south India to highlight behavioral features of microcredit, a financial tool designed to reduce poverty and fix credit market imperfections. The evidence suggests that microcredit contracts may do more than reduce moral hazard and adverse selection by imposing new forms of discipline on borrowers. We find that, conditional on borrowing from any source, women with present-biased preferences are more likely than others to borrow through microcredit institutions. Another particular contribution of microcredit may thus be to provide helpful structure for borrowers seeking self-discipline.

Do interest rates matter? Credit demand in the Dhaka Slums

Do interest rates matter? Credit demand in the Dhaka Slums
Journal of Development Economics, 97(2): 437-449

Dehejia, Rajeev; Heather Montgomery and Jonathan Morduch
03/01/2012

“Best practice” in microfinance holds that interest rates should be set at profit-making levels, based on the belief that even poor customers favor access to finance over low fees.  Despite this core belief, little direct evidence exists on the price elasticity of credit demand in poor communities.  We examine increases in the interest rate on microfinance loans in the slums of Dhaka, Bangladesh.  Using unanticipated between-branch variation in prices, we estimate interest elasticities from -0.73 to -1.04, with our preferred estimate being at the upper end of this range. Interest income earned from most borrowers fell, but interest income earned from the largest customers increased, generating overall profitability at the branch level. 

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