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Working Paper
Did the 2017 Tax Reform Discriminate against Blue State Voters?
The Tax Cut and Jobs Act of 2017 (TCJA) made significant changes to corporate and personal federal income taxation, including limiting the SALT (state and local property, income and sales taxes) deductibility to $10,000. States with high SALT tend to vote Democratic. This paper estimates the differential effect of the TCJA on red- and blue-state taxpayers and investigates the importance of the SALT limitation to this differential. We calculate the effect of permanent implementation of the TCJA on households using The Fiscal Analyzer: a life-cycle, consumption-smoothing program incorporating ...
Working Paper
Greed as a Source of Polarization
The political process in the United States appears to be highly polarized: evidence from voting patterns finds that the political positions of legislators have diverged substantially, while the largest campaign contributions come from the most extreme lobby groups and are directed to the most extreme candidates. Is the rise in campaign contributions the cause of the growing polarity of political views? In this paper, we show that, in standard models of lobbying and electoral competition, a free-rider problem amongst potential contributors leads naturally to a divergence in campaign ...
Working Paper
The political economy of endogenous taxation and redistribution
This paper examines a simple dynamic model in which agents vote over capital income taxation and redistributive transfers. We show that in equilibrium the typical agent's preferences over the tax rate are single-peaked and derive a closed-form solution for the majority-rule tax rate. We also show that high levels of initial wealth inequality can place the economy on the 'wrong side of the Laffer curve'.
Working Paper
Aging and deflation from a fiscal perspective
Negative correlations between inflation and demographic aging were observed across developed nations recently. To understand the phenomenon from a politico-economic perspective, we embed the fiscal theory of the price level into an overlapping-generations model. In the model, successive short-lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments. The model sheds new light on the traditional debate about the burden of national debt. Because of price adjustments, the accumulation of ...
Working Paper
Majority Voting: A Quantitative Investigation
We study the tax systems that arise in a once-and-for-all majority voting equilibrium embedded within a macroeconomic model of inequality. We find that majority voting delivers (i) a small set of outcomes, (ii) zero labor income taxation, and (iii) nearly zero transfers. We find that majority voting, contrary to the literature developed in models without idiosyncratic risk, is quite powerful at restricting outcomes; however, it also delivers predictions inconsistent with observed tax systems.
Working Paper
The Changing Polarization of Party Ideologies: The Role of Sorting
Ideology scores derived from U.S. congressional roll-call voting patterns show that the ideological distance between the two parties along the primary dimension changes inversely with the ideological distance along the secondary dimension. To explain this inverse association, a model of party competition with endogenous party membership and a two-dimensional ideology space is developed. If the distribution of voter preferences is uniform on a disk, equilibrium ideological distances along the two dimensions are inversely related. The model can quantitatively account for the historical ...
Working Paper
The Changing Polarization of Party Ideologies: The Role of Sorting
Ideology scores derived from U.S. congressional roll-call voting patterns show that the ideological distance between the two parties along the primary dimension changes inversely with the ideological distance along the secondary dimension. To explain this inverse association, a model of party competition with endogenous party membership and a two-dimensional ideology space is developed. If the distribution of voter preferences is uniform on a disk, equilibrium ideological distances along the two dimensions are inversely related. The model can quantitatively account for the historical ...
Working Paper
Persuasion and Dissuasion in Political Campaigns: Political Communication and Media Coverage in Senate Races
We study the strategic interaction between candidates to office and the print media, exploring the following tension: while the media is instrumental for candidates to communicate with voters, candidates and media outlets have conflicting preferences over the contents of media reporting. We propose a model of bipartisan races where candidates make decisions over the type of constituencies to target with their statements along the campaign trail and media outlets make decisions over how intensely to report about the candidates based on those statements. Different kinds of media reports may ...
Working Paper
Majority Voting in a Model of Means Testing
We study a model of endogenous means testing where households differ in their income and where the in-kind transfer received by each household declines with income. Majority voting determines the two dimensions of public policy: the size of the welfare program and the means-testing rate. We establish the existence of a sequential majority voting equilibrium and show that the means-testing rate increases with the size of the program but the fraction and the identity of the households receiving the transfers are independent of the program size. Furthermore, the set of subsidy recipients does ...
Working Paper
What drives economic policy uncertainty in the long and short runs? European and U.S. evidence over several decades
Economic policy uncertainty (EPU) has increased markedly in recent years in the U.S. and Europe, and some have posited a link between this phenomenon and subpar economic growth in advanced economies (see Baker, Bloom, and Davis, 2015). But methodological and data concerns have thus far raised doubts about whether EPU contains marginal and exogenous information about other economic phenomena. Our work analyzes the impact on EPU of several possibly endogenous variables, such as inflation and unemployment rates in countries where EPU is measured. We also consider longer-term technological ...