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Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence -- by Jose A. Lopez, Andrew K. Rose, Mark M. Spiegel

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We examine the effect of negative nominal interest rates on bank profitability and behavior using a cross-country panel of over 5,100 banks in 27 countries. Our data set includes annual observations for Japanese and European banks between 2010 and 2016, which covers all advanced economies that have experienced negative nominal rates, including currency union members as well as both fixed and floating exchange rates countries. When we compare negative nominal interest rates with low positive rates, banks experience losses in interest income that are almost exactly offset by savings on deposit expenses and gains in non-interest income, including capital gains on securities and fees. We find heterogeneous effects of negative rates: banks from regimes with floating exchange rates, small banks, and banks with low deposit ratios drive most of our results. Low-deposit banks have enjoyed particularly striking gains in non-interest income, likely from capital gains on securities. There have only been modest differences between high and low deposit-ratio banks' changes in interest expenses; high deposit banks do not seem disproportionately vulnerable to negative rates. Banks also responded to negative rates by increasing lending activity, and raising the share of deposit funding. Overall, our results indicate surprisingly benign implications of negative rates for commercial banks thus far.

The Intergenerational Transmission of Human Capital: Evidence from the Golden Age of Upward Mobility -- by David Card, Ciprian Domnisoru, Lowell Taylor

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We use 1940 Census data to study the intergenerational transmission of human capital for children born in the 1920s and educated during an era of expanding but unequally distributed public school resources. Looking at the gains in educational attainment between parents and children, we document lower average mobility rates for blacks than whites, but wide variation across states and counties for both races. We show that schooling choices of white children were highly responsive to the quality of local schools, with bigger effects for the children of less-educated parents. We then narrow our focus to black families in the South, where state-wide minimum teacher salary laws created sharp differences in teacher wages between adjacent counties. These differences had large impacts on schooling attainment, suggesting an important causal role for school quality in mediating upward mobility

For Richer, for Poorer: Bankers' Liability and Risk-taking in New England, 1867-1880 -- by Peter Koudijs, Laura Salisbury, Gurpal Sran

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We study whether banks are riskier if managers have less liability. We focus on New England between 1867 and 1880 and consider the introduction of marital property laws that limited liability for newly wedded bankers. We find that banks with managers who married after a legal change had more leverage, were more likely to "evergreen" loans and violate lending rules, and lost more capital and deposits in the Long Depression of 1873-1878. This effect was most pronounced for bankers with wives from relatively wealthy families. We find no evidence that limiting liability increased firm investment at the county level.

I Don't Know -- by Matthew Backus, Andrew Little

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Experts with reputational concerns, even good ones, are averse to admitting what they don't know. This diminishes our trust in experts and, in turn, the role of science in society. We model the strategic communication of uncertainty, allowing for the salient reality that some questions are ill-posed or unanswerable. Combined with a new use of Markov sequential equilibrium, our model sheds new light on old results about the challenge of getting experts to admit uncertainty - even when it is possible to check predictive success. Moreover, we identify a novel solution: checking features of the problem itself that only good experts will infer - in particular, whether the problem is answerable - allows for equilibria where uninformed experts do say "I Don't Know."

The Long Term Impacts of Grants on Poverty: 9-year Evidence From Uganda's Youth Opportunities Program -- by Christopher Blattman, Nathan Fiala, Sebastian Martinez

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In 2008, Uganda granted hundreds of small groups $400/person to help members start individual skilled trades. Four years on, an experimental evaluation found grants raised earnings by 38% (Blattman, Fiala, Martinez 2014). We return after 9 years to find these start-up grants acted more as a kick-start than a lift out of poverty. Grantees' investment leveled off; controls eventually increased their incomes through business and casual labor; and so both groups converged in employment, earnings, and consumption. Grants had lasting impacts on assets, skilled work, and possibly child health, but had little effect on mortality, fertility, health or education.

Liquidity Constraints and the Value of Insurance -- by Keith Marzilli Ericson, Justin R. Sydnor

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Insurance affects the variability of consumption over time, which is not captured in standard expected utility of wealth models. We develop a consumption-utility model that shows how liquidity constraints and borrowing costs impact the value of insurance. Liquidity constraints generate high insurance demand when premiums are due smoothly, sometimes leading to seemingly dominated choices. Conversely, a risk-averse person may value insurance below its expected value and appear risk loving when premiums are due in a single payment. Moreover, optimal insurance contracts take different forms with liquidity constraints. We show empirical insurance analysis using the standard model can generate misleading counterfactuals and welfare estimates. Finally, we demonstrate the model's feasibility and importance with an application to evaluating cost-sharing reductions on the health insurance exchanges.

Improving Non-Academic Student Outcomes Using Online and Text-Message Coaching -- by Philip Oreopoulos, Uros Petronijevic, Christine Logel, Graham Beattie

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We design and experimentally evaluate two low-cost, scalable interventions - an online preparatory module and a text-message coaching program - in a sample of over 3,000 undergraduate students at a large Canadian university. Supplementing administrative data on academic outcomes with a unique follow-up survey on student well-being and study habits, we estimate positive program effects on students' non-academic outcomes, despite estimating null effects on course grades and credit accumulation. Given the low costs associated with administering these programs, our results suggest that the positive impacts on student experiences may warrant program expansion even in the absence of impacts on academic outcomes.

Subways and Urban Growth: Evidence from Earth -- by Marco Gonzalez-Navarro, Matthew A. Turner

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We investigate the relationship between the extent of a city's subway network, its population and its spatial configuration. For the 632 largest cities in the world we construct panel data describing population, measures of centralization calculated from lights at night data, and the extent of each of the 138 subway systems in these cities. These data indicate that large cities are more likely to have subways but that subways have an economically insignificant effect on urban population growth. Our data also indicate that subways cause cities to decentralize, although the effect is smaller than previously documented effects of highways on decentralization. For a subset of subway cities we observe panel data describing subway and bus ridership. For those cities we find that a 10% increase in subway extent causes about a 6% increase in subway ridership and has no effect on bus ridership.

Long-term Changes in Married Couples' Labor Supply and Taxes: Evidence from the US and Europe Since the 1980s -- by Alexander Bick, Bettina Brueggemann, Nicola Fuchs-Schuendeln, Hannah Paule-Paludkiewicz

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We document the time-series of employment rates and hours worked per employed by married couples in the US and seven European countries (Belgium, France, Germany, Italy, the Netherlands, Portugal, and the UK) from the early 1980s through 2016. Relying on a model of joint household labor supply decisions, we quantitatively analyze the role of non-linear labor income taxes for explaining the evolution of hours worked of married couples over time, using as inputs the full country- and year-specific statutory labor income tax codes. We further evaluate the role of consumption taxes, gender and educational wage premia, and the educational composition. The model is quite successful in replicating the time series behavior of hours worked per employed married woman, with labor income taxes being the key driving force. It does however capture only part of the secular increase in married women's employment rates in the 1980s and early 1990s, suggesting an important role for factors not considered in this paper. We will make the non-linear tax codes used as an input into the analysis available as a user-friendly and easily integrable set of Matlab codes.

Quasi-Experimental Shift-Share Research Designs -- by Kirill Borusyak, Peter Hull, Xavier Jaravel

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Many empirical studies leverage shift-share (or "Bartik") instruments that combine a set of aggregate shocks with measures of shock exposure. We derive a necessary and sufficient shock-level orthogonality condition for these instruments to identify causal effects. We then show that orthogonality holds when observed shocks are as-good-as-randomly assigned and growing in number, with the average shock exposure sufficiently dispersed. Lastly, we show how to implement quasi-experimental shift-share designs with new shock-level regressions, which help visualize identifying shock variation, correct standard errors, choose appropriate specifications, test identifying assumptions, and optimally combine multiple sets of quasi-random shocks. We illustrate these points by revisiting Autor et al. (2013)'s analysis of the labor market effects of Chinese import competition.

Do You Know That I Know That You Know...? Higher-Order Beliefs in Survey Data -- by Olivier Coibion, Yuriy Gorodnichenko, Saten Kumar, Jane Ryngaert

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We implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to a variety of information treatments and how these adjustments affect their economic decisions. We show how these facts can be used to calibrate key parameters of noisy-information models with infinite regress as well as to test predictions made by this class of models. The survey also quantifies cognitive limits of agents in the form of level-k thinking. We find little evidence that this departure from infinite regress helps reconcile the data and theory.

Monopsony and Employer Mis-optimization Explain Why Wages Bunch at Round Numbers -- by Arindrajit Dube, Alan Manning, Suresh Naidu

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We show that wages in administrative data and in online markets exhibit considerable bunching at round numbers that cannot all be explained by rounding of responses in survey data. We consider two hypotheses--worker left-digit bias and employer optimization frictions--and derive tests to distinguish between the two. Symmetry of the missing mass distribution around the round number suggests that optimization frictions are more important. We show that a more monopsonistic market requires less optimization frictions to rationalize the bunching in the data, and use this to derive bounds on employer market power. We provide experimental validation of these results from an online labor market, where rewards are also highly bunched at round numbers. By randomizing wages for an identical task, our online experiment provides an independent estimate of the extent of employer market power, and fails to find evidence of any discontinuity in the labor supply function as predicted by workers' left-digit bias. Overall, the extent and form of round-number bunching suggests both employer mis-optimization and wage setting power are important features of the labor market.

Financial Markets, the Real Economy, and Self-fulfilling Uncertainties -- by Jess Benhabib, Xuewen Liu, Pengfei Wang

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Uncertainty in both financial markets and the real economy rises sharply during recessions. We develop a model of informational interdependence between financial markets and the real economy, linking uncertainty to information production and aggregate economic activities. We argue that there exists mutual learning between financial markets and the real economy. Their joint information productions determine both the allocative efficiency in the real sector and the market efficiency in the financial sector. The mutual learning creates a strategic complementarity between information production in the financial sector and that in the real sector. A self-fulfilling surge in financial uncertainty and real uncertainty can naturally arise when both sectors produce little information in anticipation of the other producing little information. At the same time, aggregate output falls as the real allocative efficiency deteriorates. In the extension to an OLG dynamic setting, our model characterizes self-fulfilling uncertainty traps with two steady-state equilibria and a two-stage economic crisis in transitional dynamics.

School Nutrition and Student Discipline: Effects of Schoolwide Free Meals -- by Nora E. Gordon, Krista J. Ruffini

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Under the Community Eligibility Provision (CEP), schools serving sufficiently high-poverty populations may enroll their entire student bodies in free lunch and breakfast programs, extending free meals to some students who would not qualify individually and potentially decreasing the stigma associated with free meals. We examine whether CEP affects disciplinary outcomes, focusing on the use of suspensions. We use school discipline measures from the Civil Rights Data Collection and rely on the timing of pilot implementation of CEP across states to assess how disciplinary infractions evolve within a school as it adopts CEP. We find modest reductions in suspension rates among elementary and middle but not high school students. While we are unable to observe how the expansion of free school meals affects the dietary intake of students in our national sample, we do observe that for younger students, these reductions are concentrated in areas with higher levels of estimated child food insecurity. Our findings suggest that the impact of school-based child nutrition services extends beyond the academic gains identified in some of the existing literature.

The Impact of the Philadelphia Beverage Tax on Prices and Product Availability -- by John Cawley, David Frisvold, Anna Hill, David Jones

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In recent years, numerous cities in the U.S. have enacted taxes on beverages to promote health and raise revenue. This paper examines the impact of Philadelphia's beverage tax, enacted in 2017, on the prices and availability of taxed beverages and untaxed beverages that may be substitutes for consumers. Using original data we collected in late 2016 and again one year later, we estimate a difference-in-differences regression of the change over time in beverage prices and product availability in stores in Philadelphia relative to stores in nearby counties. We find that, on average, distributors and retailers fully pass the tax through to consumers, but the there is heterogeneity in the pass-through rate among stores. Pass-through is greater among stores in higher-poverty neighborhoods, stores located farther from untaxed stores outside Philadelphia, stores that are independent as opposed to part of national chains, and for individual servings than for larger sizes. We also find a reduction in the availability of taxed beverages and an increase in the availability of untaxed beverages, particularly bottled water, in Philadelphia stores.

Labor Market Search With Imperfect Information and Learning -- by John J. Conlon, Laura Pilossoph, Matthew Wiswall, Basit Zafar

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We investigate the role of information frictions in the US labor market using a new nationally representative panel dataset on individuals' labor market expectations and realizations. We find that expectations about future job offers are, on average, highly predictive of actual outcomes. Despite their predictive power, however, deviations of ex post realizations from ex ante expectations are often sizable. The panel aspect of the data allows us to study how individuals update their labor market expectations in response to such shocks. We find a strong response: an individual who receives a job offer one dollar above her expectation subsequently adjusts her expectations upward by $0.47. The updating patterns we document are, on the whole, inconsistent with Bayesian updating. We embed the empirical evidence on expectations and learning into a model of search on- and off- the job with learning, and show that it is far better able to fit the data on reservation wages relative to a model that assumes complete information. The estimated model indicates that workers would have lower employment transition responses to changes in the value of unemployment through higher unemployment benefits than in a complete information model, suggesting that assuming workers have complete information can bias estimates of the predictions of government interventions. We use the framework to gauge the welfare costs of information frictions which arise because individuals make uninformed job acceptance decisions and find that the costs due to information frictions are sizable, but are largely mitigated by the presence of learning.

The Costs of Macroprudential Policy -- by Bjoern Richter, Moritz Schularick, Ilhyock Shim

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Central banks increasingly rely on macroprudential measures to manage the financial cycle. However, the effects of such policies on the core objectives of monetary policy to stabilise output and inflation are largely unknown. In this paper, we quantify the effects of changes in maximum loan-to-value (LTV) ratios on output and inflation. We rely on a narrative identification approach based on detailed reading of policy-makers' objectives when implementing the measures. We find that over a four year horizon, a 10 percentage point decrease in the maximum LTV ratio leads to a 1.1% reduction in output. As a rule of thumb, the impact of a 10 percentage point LTV tightening can be viewed as roughly comparable to that of a 25 basis point increase in the policy rate. However, the effects are imprecisely estimated and the effect is only present in emerging market economies. We also find that tightening LTV limits has larger economic effects than loosening them. At the same time, we show that changes in maximum LTV ratios have substantial effects on credit and house price growth. Using inverse propensity weights to rerandomise LTV actions, we show that these effects are likely causal.

Individual and Aggregate Labor Supply in Heterogeneous Agent Economies with Intensive and Extensive Margins -- by Yongsung Chang, Sun-Bin Kim, Kyooho Kwon, Richard Rogerson

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We study business cycle fluctuations in heterogeneous-agent general equilibrium models that feature both intensive and extensive margins of labor supply. A nonconvexity in the mapping between time devoted to work and labor services combined with idiosyncratic shocks generates operative extensive and intensive margins. We consider calibrated versions of this model that differ in the value of a key preference parameter for labor supply and the extent of heterogeneity. The model is able to capture the salient features of the empirical distribution of hours worked, including how individuals transit within this distribution. We then study how the various specifications influence labor supply responses to aggregate technology shocks. We ask to what extent our predictions for business cycle fluctuations are affected by abstracting from the intensive margin and instead assuming that adjustment occurs only along the extensive margin. We find that abstracting from intensive margin adjustment can have large effects on the volatility of aggregate hours even if fluctuations along the intensive margin are small.

The Exorbitant Tax Privilege -- by Thomas Wright, Gabriel Zucman

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We estimate and attempt to explain the evolution of the taxes paid by U.S. multinationals on their foreign profits since 1966. In the oil sector, taxes paid to oil-producing States have been contained, allowing U.S. firms to earn high after-tax returns. Foreign taxes fell abruptly after the first Gulf War. In sectors other than oil, the effective foreign tax rate has fallen by half since the late 1990s. Almost half of this decline owes to the rise of profit shifting to tax havens. The low foreign taxes paid by U.S. multinationals can explain half of the U.S. cross-border return differential.

Taxation and Innovation in the 20th Century -- by Ufuk Akcigit, John Grigsby, Tom Nicholas, Stefanie Stantcheva

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This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We use three new datasets: a panel of the universe of inventors who patent since 1920; a dataset of the employment, location and patents of firms active in R&D since 1921; and a historical state-level corporate tax database since 1900, which we link to an existing database on state-level personal income taxes. Our analysis focuses on the impact of taxes on individual inventors and firms (the micro level) and on states over time (the macro level). We propose several identification strategies, all of which yield consistent results: i) OLS with fixed effects, including inventor and state-times-year fixed effects, which make use of differences between tax brackets within a state-year cell and which absorb heterogeneity and contemporaneous changes in economic conditions; ii) an instrumental variable approach, which predicts changes in an individual or firm's total tax rate with changes in the federal tax rate only; iii) a border county strategy, which exploits tax variation across neighboring counties in different states. We find that taxes matter for innovation: higher personal and corporate income taxes negatively affect the quantity, quality, and location of inventive activity at the macro and micro levels. At the macro level, cross-state spillovers or business-stealing from one state to another are important, but do not account for all of the effect. Agglomeration effects from local innovation clusters tend to weaken responsiveness to taxation. Corporate inventors respond more strongly to taxes than their non-corporate counterparts.
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