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Working Paper
Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier
Choi, Joonkyu; Saffie, Felipe; Penciakova, Veronika (2021-01-29)
Using American Recovery and Reinvestment Act (ARRA) data, we show that firms lever their political connections to win stimulus grants and public expenditure channeled through politically connected firms hinders job creation. We build a unique database that links campaign contributions and state legislative election outcomes to ARRA grant allocation. Using exogenous variation in political connections based on ex-post close elections held before ARRA, we causally show that politically connected firms are 64 percent more likely to secure a grant. Based on an instrumental variable approach, we ...
Finance and Economics Discussion Series , Paper 2021-005

Working Paper
The Effect of Local Economic Shocks on Local and National Elections
Herreño, Juan; Morales, Matias; Pedemonte, Mathieu (2023-03-29)
We study the reaction of voters to shifts in local economic conditions. Using the departure from the gold standard of US trading partners in 1931 and the US in 1933, we exploit heterogeneity in export destinations, creating local differences in expenditure-switching in US counties by isolating the aggregate effects of the monetary shocks using time fixed effects. We find significant changes in local voting behavior in response to both shocks, one originating abroad, and another domestically. The response to both shocks have similar magnitude. We argue that voters punished and rewarded ...
Working Papers , Paper 23-08

Working Paper
Majority Voting: A Quantitative Investigation
Dolmas, Jim; Carroll, Daniel R.; Young, Eric (2015-01-07)
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 Papers (Old Series) , Paper 1442

Working Paper
Polarized Contributions but Convergent Agendas
Drautzburg, Thorsten; Livshits, Igor; Wright, Mark L. J. (2026-03-03)
In a canonical model of policy formation, campaign contributions, and electoral competition, we show that, despite donor polarization, candidates’ agendas converge. If purely office-motivated candidates move away from the centrist agenda, they increase their opponents’ contributions more than their own. An extension that introduces a “job ladder” for the candidates leads to candidates caring about absolute levels of campaign contributions and generates divergence of political agendas in equilibrium. We provide empirical evidence of campaign contributions affecting candidates’ ...
Working Papers , Paper 26-05

Working Paper
The Political Origin of Home Bias: The Case of Europe
Macchiavelli, Marco; De Marco, Filippo (2016-07-08)
We show that politics is at the root of the banks-sovereign nexus that exacerbated the Eurozone crisis. First, government-owned banks or banks with politicians in the board of directors display higher home bias in sovereign debt compared to privately-owned banks throughout the 2010-2013 period. Second, only government-owned banks increased the home bias during the sovereign crisis (moral suasion). We exploit the fact that equity injections (bail-outs) by domestic governments were not directly targeted to politically connected banks to show that, upon receiving such assistance, only ...
Finance and Economics Discussion Series , Paper 2016-060

Working Paper
Majority Voting in a Model of Means Testing
Ravikumar, B.; Cardak, Buly A.; Glomm, Gerhard (2019-11-27)
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 Papers , Paper 2018-14

Working Paper
Aging and deflation from a fiscal perspective
Katagiri, Mitsuru; Ueda, Kozo; Konishi, Hideki (2014-11-01)
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 ...
Globalization Institute Working Papers , Paper 218

Working Paper
Optimal Fiscal Reform with Many Taxes
Luduvice, Andre; Carroll, Daniel R.; Young, Eric (2024-08-28)
We study the optimal one-shot tax reform in the standard incomplete markets model where households differ in their wealth, earnings, permanent labor skill, and age. The government can provide transfers by raising tax revenue and has several tax instruments at its disposal: a flat capital income tax, a flat consumption tax, and a non-linear labor income tax. We compute the equilibrium and transitional dynamics for 3888 different tax combinations and find that the optimal fiscal policy funds a transfer that is above 60 percent of GDP through a combination of very high taxes on consumption and ...
Working Papers , Paper 23-07R

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