Browsing by Author "Suárez Serrato, Juan Carlos"
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Item Open Access Essays in Public Finance(2021) Garrett, Daniel GThis dissertation addresses three interrelated questions regarding the markets through which governments raise funds. Public entities around the world commonly raise revenue by levying taxes or by selling bonds. I examine aspects of both mechanisms in the US context as well as their interaction. Focusing on how public financial decisions affect private markets in the US, I examine (1) the process by which municipal bonds are created and sold, (2) how tax treatment of municipal bond income affects the underwriting process, and (3) how corporate tax incentives change worker outcomes.
Like in many financial markets, the governments issuing municipal bonds often don't have the expertise to accurately construct debt packages, price individual bonds, or place bonds with final investors. To interact with the market, municipalities often hire two types of intermediaries: financial advisors and underwriters. The financial advisors structure a bond package while the underwriters buy these bonds from municipalities and sell them to investors. The second chapter examines a policy change from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that requires these two distinct roles are filled by different firms. To determine if allowing both underwriter and advisor to be the same firm distorts outcomes, I use a difference in differences approach to measure bond outcomes for municipalities who hired different types of advisors before and after the Dodd-Frank regulation. I find bonds sold with an advisor who could also be an underwriter experience a decrease in interest costs after the advisor is no longer allowed to underwrite. The improvement in outcomes from the municipality's perspective is driven in part by a large increase in competition from non-advisor underwriters that more than offsets missing competition from the advisor--consistent with the partial resolution of a winner's curse.
The third chapter also sheds light on how the imperfect competition in the underwriting market for municipal bonds affects borrowing outcomes. Most municipal bonds sold in the US pay interest that is exempt from personal income taxation at federal and state levels. This personal income tax exemption is contentious because, in isolation, it primarily benefits individuals paying top marginal tax rates. Using variation in federal taxes, state taxes, and their interaction from 2008 to 2015, I first show that increases in taxes are associated with surprisingly large decreases in borrowing costs for municipalities. This fact motivates the estimation of an empirical auction model with conditionally independent private values that features endogenous entry of potential bidders, endogenous entry into an auction stage, and unobserved heterogeneity across auctions. The model shows that very large elasticities of markups drive larger than unity passthrough from the tax advantages to municipal borrowing costs on average. The model is used to estimate counterfactual tax regimes and highlights how changes in federal tax rules have heterogeneous effects across space with some states gaining and others losing with the Tax Cuts and Jobs Act of 2017.
The fourth chapter empirically measures how another federal tax incentive, ``Bonus'' depreciation, affects areas across the US differently. Incentives for capital investment are used in the US and around the world to inspire business growth with the stated goals of creating jobs. Using a panel regression model and cross sectional variation in exposure to the types of firms that benefit from Bonus depreciation, I show that moving from the 25th percentile to the 75th percentile of exposure to treated firms increases local employment by about 3%.
Item Open Access Essays of Business Taxation Policies in Developing Countries(2022) He, YuxuanBusiness taxation is an important source of fiscal revenue for governments around the world, and it is frequently used by governments to provide short-term economic stimulation while also promoting long-term prosperity. Understanding the structure of business taxes and the effects of corporate tax policy in developing nations is critical to understanding how emerging economies thrive. Business taxation policies in developing economics differ from those in developed economics due to differences in policy design and execution. This dissertation consists of two essays on business taxation policies in China. Specifically, this dissertation examines the structure of business taxes and the impacts of a consumption tax reform in China.
The first and second essays make use of a nationwide tax survey dataset from China. In the first essay, which has been published in Tax Policy and the Economy(Chen, He, Liu, Serrato, and Xu, 2021), my coauthors Zhao Chen, Zhikuo Liu, Juan Carlos Su\'arez Serrato, Daniel Yi Xu and I examine the structure of business taxation in China and present the stylized facts regarding China’s business taxation system. The essay documents important facts about the structure of business taxation in China using administrative tax survey data from 2007 to 2011 from the State Taxation Administration. We find that while corporate income taxes are important, manufacturing companies also pay a significant portion of their taxes through the value-added and excise tax systems, as well as payroll taxes. Second, we conduct cross-country analysis to examine whether China's tax revenue structure aligns with its stage of development. We find that China receives a large amount of tax revenue via taxes on goods and services, as well as a large share from income tax on businesses. Finally, we test whether differences in effective tax rates across firms could be a significant source of allocative inefficiencies. We find that government policies, such as loss carry-forward provisions and preferential policies for regional, foreign, small, and high-tech enterprises, contribute to a considerable share of variation when decomposing the difference in effective tax rates among firms. Even though effective tax rates differ in a variety of ways, tax policy does not account for the large dispersion in the returns to factors of production across firms.
In the second essay, I investigate the direct and spillover effects of the reform of replacing gross-receipt tax (GRT) with value-added tax (VAT) in China’s tax system. I start with a two-sector model of intermediate goods production to demonstrate that in some cases VAT preserves production efficiency whereas gross-receipt tax does not, and to illustrate the implications of replacing GRT with VAT. My analysis shows that tax-induced production distortion amplifies along the production chain as a result of distorted input pricing effects. Second, I study the reform of replacing GRT with VAT in China using China's administrative tax survey to assess changes in overall economic efficiency. The interconnection of sectors within a production network makes estimating causal effects difficult, particularly when the effects may spread to non-targeted sectors. I use a difference-in-difference regression approach with three adjustable treatment and control group specifications to account for spillover effects. Based on my analysis, I find strong evidence that replacing GRT with VAT will significantly increase firms' income, capital, and employment.
Item Open Access Essays on Firm Behavior(2023) Roberts, KevinThis dissertation studies three questions in which economic behavior at the firm level plays an important role. Chapter 2 studies how individual owner-managers shape firm conduct in the labor market. I use survey and administrative microdata from the U.S. Census to link firm and worker outcomes to the past local unemployment rate exposure (URE) of owner-managers. Using a difference in differences approach centered on changes in firm ownership, I find that firms acquired by high URE owner-managers increase worker earnings on average while displaying no differential trends in firm employment. These results also hold in worker-level analysis, which reveals that firm-level differences are driven in part by immediate pay increases for older and more educated workers, resulting in greater retention among these cohorts. These results are further validated among firms that do not experience ownership changes. Using an instrumental variables design, I find that URE is associated with greater rent-sharing at the firm level. Together, these results demonstrate that owner-managers have substantial scope to determine pay and hiring policy at their firms.
Chapter 3, coauthored with Mark Curtis, Daniel Garrett, Eric Ohrn, and Juan Carlos Suarez Serrato, studies plant-level responses to a large federal tax incentive, known as bonus depreciation, that lowered the cost of capital investment. Difference-in-differences estimates using confidential Census Data on manufacturing establishments show that tax policies increased both investment and employment, but did not stimulate wage or productivity growth. Using a structural model, we find that the primary effect of the policy was to increase the use of all inputs by lowering costs of production and that capital and production workers are complementary inputs in modern manufacturing. Our results show that tax policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines.
The fourth chapter assesses how state and local taxes influence firm entry decisions in the video gambling industry in Illinois, which comprises almost 7,000 establishments each operating up to five slot machine-like gambling terminals. Using variation in local gambling ordinances and an event-study framework, I estimate that gambling legalization leads on average to a 3.0% increase in local tax revenue and a noisy 1.6% increase in local spending. I then develop and estimate an equilibrium model of entry and exit to explore the effects of counterfactual tax increases. Simulations reveal that uniform increases in the marginal tax rate increase tax revenue while reducing the extent to which gambling establishments select into low-income neighborhoods. Taken together, these results suggest that taxation can effectively offset the regressivity of gambling activity if revenue is effectively targeted to local governments.
Item Open Access Essays on Technology, Fiscal Policy, and Firm Behavior(2022) Jiang, XianMy dissertation seeks to enhance our understanding of how technology and fiscal policies shape firm behavior and implications for the aggregate economy and policy designs. In the first two chapters, I show empirically and quantitatively that information and communication technology (ICT) can widen firms’ geographic span of control by reducing internal communication costs. Combining comprehensive establishment-level datasets with ownership linkages, geographic locations, and ICT adoption, I document that firms with more advanced technology have both higher within-firm communication and larger geographic coverage. Exploiting natural experimental variation from the Internet privatization in the early 1990s, I show that better access to ICT helped firms expand geographically. Using a model where firms endogenously adopt ICT, choose multiple production locations, and trade domestically, I estimate that the Internet privatization increased overall efficiency by 1.1%. Compared to a trade-only model, a model with multi-unit firms predicts that efficiency gains are larger and more geographically dispersed. Policy counterfactuals show that to improve local welfare, a policy coordinated across locations that improves ICT access can be more effective than uncoordinated local policies.
The third chapter is joint work with Zhao Chen, Zhikuo Liu, Juan Carlos Suárez Serrato, and Daniel Xu. We study one of the largest tax reforms in China---the 2009 value-added tax reform that allowed firms to deduct input value-added tax from output tax and thus reduced user cost of capital for equipment investment. Using reduced-form analysis and a quantitatively firm investment model, we find that investment stimuli that shrink firms' inaction regions, such as value-added tax reduction and investment tax credits, are more effective: Given the same tax revenue loss, those policies lead to larger investment response.
Item Open Access Utilization and Competition in the Affordable Care Act’s Health Insurance Marketplaces(2017) Panhans, Matthew ThomasThis dissertation consists of three essays that analyze healthcare and health insurance markets in relation to healthcare reform, and particularly in the context of the Affordable Care Act (ACA). The first essay uses a nationwide datasets of plan offerings, premiums, and network sizes for the ACA Health Insurance Marketplaces in 2014 to document patterns relating to the effects of competition on premiums and plan network characteristics. The results suggest that greater competition is associated with lower premiums, and that narrow network plans do offer lower premiums. This study also documents heterogeneity along these dimensions across types of insurance plans by ownership structure (not-for-profit, for-profit, and CO-OP). This heterogeneity suggests that a market's overall welfare may depend on the equilibrium market shares and ownership types of the competing firms.
The second and third essays use the State of Colorado's new All-Payer Claims Database (APCD) to examine the welfare consequences in the state's non-group health insurance market, which includes the ACA Marketplace. In the second essay, I test for adverse selection into the ACA Marketplace, and evaluate policies that may help to ameliorate the welfare loss due to adverse selection. Specifically, I use plausibly exogenous premium variation generated by geographic discontinuities to provide evidence of adverse selection, whereby low-cost individuals exit the market in response to rising premiums. Specifically, a 1% increase in premiums causes a 0.8% increase in medical expenditures of the insured population. The estimates indicate that additional premium subsidies, and especially age-targeted subsidies, would enhance welfare. These results offer the first quasi-experimental evidence of selection in the ACA Exchanges.
In the third essay, my co-author Eli Liebman and I extend this analysis to take into account imperfect competition in both health insurance and hospital markets. We bring together the literatures on insurer-hospital bargaining and selection in imperfectly competitive insurance markets to propose a model that captures features salient to the health insurance marketplaces. In particular, although insurance markets tend to be concentrated, the ACA aimed to foster competitive marketplaces, highlighting the importance for understanding the interaction between imperfect competition and selection. The degree of competition among insurance plans affects both selection across plans and on the extensive margin, as well as simultaneously affecting the prices negotiated with providers. We show theoretically that provider market power and adverse selection can interact to amplify the welfare loss due to either one of these two channels individually. We also show why ignoring adverse selection will lead to biased estimates of bargaining parameters in the standard model of hospital-insurer bargaining. Finally, we use medical claims from the State of Colorado, to quantify the welfare consequences for that market. These considerations are relevant for evaluating the effects of policy interventions in the ACA's health insurance marketplaces that affect insurer entry/exit and premium setting.