Tax

Leveling the Playing Field: The Taxpayer Relief Act of 1997 and Tax-Exempt Borrowing by Nonprofit Colleges and Universities

Leveling the Playing Field: The Taxpayer Relief Act of 1997 and Tax-Exempt Borrowing by Nonprofit Colleges and Universities
National Tax Journal, Forthcoming

Todd L. Ely and Thad D. Calabrese
02/16/2016

As part of the Tax Reform Act of 1986, non-hospital nonprofit organizations were subject to a $150 million cap on tax-exempt debt outstanding. This federally-imposed constraint was lifted by the Taxpayer Relief Act of 1997. This paper examines how this credibly exogenous policy change – which was little noticed outside of the municipal bond industry – reduced the cost of capital, and, as a result, led to a significant increase in the use of tax-exempt debt overall and relative to other financing sources by nonprofit colleges and universities. Using two different comparison groups and a difference-in-differences estimation strategy, we find that nonprofit colleges and universities significantly increased the use of tax-exempt borrowing and altered capital structures following the policy change in 1997 with some variation by degree of constraint.

The Introduction of a Supermarket via Tax-Credits in a Low-Income Area: The Influence of Purchasing and Consumption.

The Introduction of a Supermarket via Tax-Credits in a Low-Income Area: The Influence of Purchasing and Consumption.
Elbel B, Mijanovich T, Kiszko K, Abrams C, Dixon LB. The Introduction of a Supermarket via Tax-Credits in a Low-Income Area: The Influence of Purchasing and Consumption. American Journal of Health Promotion. In press.

Elbel B, Mijanovich T, Kiszko K, Abrams C, Dixon LB.
09/10/2015

Do Tax Credits Stimulate R&D Spending? The Effect of the R&D Tax Credit in its First Decade

Do Tax Credits Stimulate R&D Spending? The Effect of the R&D Tax Credit in its First Decade
Revise & Resubmit ~ Journal of Public Economics

Rao, Nirupama S.
03/08/2014

This paper examines the impact of the R&D tax credit between 1981-1991 using confidential IRS data from corporate tax returns. The key advances on previous work are an instrumental variables strategy based on tax law changes that addresses the simultaneity between R&D spending and its user cost and the use of new confidential data. Estimates imply that a ten percent 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 11 percent in the short-run. Long-run estimates imply that firms do face adjustment costs and further increase spending over the longer-run. Analysis of the components of qualified research shows that wages and supplies account for the bulk of the increase in research spending. Comparisons of the elasticity across firms of different sizes, industries, tax status, multi-national status and credit history are also made. Neither small nor young firms appear more responsive in the static analysis but the dynamic model reveals stronger short-run responses, suggesting that they may face lower adjustment costs or liquidity constraints in financing R&D. Long-run and retiming analyses show no evidence that firms allocate their qualified research spending over time to maximize their R&D tax credits. 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 what R&D the federal credit deems qualified research is an important margin on which the credit affects firm behavior.

The Price of Liquor is Too Damn High: Alcohol Taxation and Market Structure

The Price of Liquor is Too Damn High: Alcohol Taxation and Market Structure
Under Review

Rao, Nirupama S. (with Chris Conlon)
12/02/2013

We study the relative benefits of taxation versus market structure regulations for distilled spirits. One popular regulation, called post and hold, 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. 

Partisan Priorities: How Issue Ownership Drives and Distorts American Politics

Partisan Priorities: How Issue Ownership Drives and Distorts American Politics
Cambridge University Press.

Egan, Patrick J.
07/22/2013

Americans consistently name Republicans as the party better at handling issues like national security and crime, while they trust Democrats on issues like education and the environment – a phenomenon called “issue ownership.” Partisan Priorities investigates the origins of issue ownership, showing that in fact the parties deliver neither superior performance nor popular policies on the issues they “own.” Rather, Patrick J. Egan finds that Republicans and Democrats simply prioritize their owned issues with lawmaking and government spending when they are in power. Since the parties tend to be particularly ideologically rigid on the issues they own, politicians actually tend to ignore citizens' preferences when crafting policy on these issues. Thus, issue ownership distorts the relationship between citizens' preferences and public policies.

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.

Taxes and U.S. Oil Production: Evidence From California and the Windfall Profit Tax

Taxes and U.S. Oil Production: Evidence From California and the Windfall Profit Tax
Revise & Resubmit ~ American Economic Journal: Econ Policy

Rao, Nirupama.
01/01/2013

The widespread boom in U.S. oil production has prompted state 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 affect production. Empirical estimates suggest an after-tax price elasticity ranging between 0.295 (0.038) and 0.336 (0.042). Response along the extensive margin is minimal. There is no discernible 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, albeit at a reduced rate.

Budget Slack, Institutions, and Transparency.

Budget Slack, Institutions, and Transparency.
Public Administration Review 72(2): 187-95

Rose, Shanna and Daniel L. Smith.
03/01/2012

Economic theory suggests that it is optimal for governments to use precautionary saving as a countercyclical tool. However, the availability of surplus funds often triggers political pressure for tax cuts and spending increases. Mechanisms for alleviating that pressure include limiting the transparency of slack resources and limiting politicians' discretion to use slack resources for purposes other than stabilization. This article investigates the extent to which these two mechanisms are substitutes. In particular, the authors examine whether the widespread adoption of budget stabilization funds (BSFs) in the U.S. states over the past several decades has been accompanied by a decline in conservative revenue forecast bias. Using panel data from 47 states over a 22-year period, they find that the adoption of a BSF reduces revenue underestimation by approximately two-thirds; however, the size of the effect depends in part on how much a state saves in the BSF and the rules governing BSF deposits and withdrawals. The results suggest that BSFs have the unintended effect of increasing fiscal transparency.

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