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Report
Optimal Income Taxation: Mirrlees Meets Ramsey
Tsujiyama, Hitoshi; Heathcote, Jonathan (2015-01-22)
What structure of income taxation maximizes the social benefits of redistribution while minimizing the social harm associated with distorting the allocation of labor input? Many authors have advocated scrapping the current tax system, which redistributes primarily via marginal tax rates that rise with income, and replacing it with a flat tax system, in which marginal tax rates are constant and redistribution is achieved via non-means-tested transfers. In this paper we compare alternative tax systems in an environment with distinct roles for public and private insurance. We evaluate ...
Staff Report , Paper 507

Working Paper
Unequal Climate Policy in an Unequal World
Belfiori, Elisa; Carroll, Daniel R.; Hur, Sewon (2024-07-16)
We study climate policy in an economy with heterogeneous households, two types of goods (clean and dirty), and a climate externality from the dirty good. Using household expenditure and emissions data, we document that low-income households have higher emissions per dollar spent than high-income households, making a carbon tax regressive. We build a model that captures this fact and study climate policies that are neutral with respect to the income distribution. A central feature of these policies is that resource transfers across consumers are ruled out. We show that the constrained optimal ...
Globalization Institute Working Papers , Paper 427

Working Paper
The Heterogeneous Effects of Government Spending : It’s All About Taxes
Navarro, Gaston; Ferrière, Axelle (2018-08-22)
This paper investigates how government spending multipliers depend on the distribution of taxes across households. We exploit historical variations in the financing of spending in the U.S. since 1913 to show that multipliers are positive only when financed with more progressive taxes, and zero otherwise. We rationalize this finding within a heterogeneous-household model with indivisible labor supply. The model results in a lower labor responsiveness to tax changes for higher-income earners. In turn, spending financed with more progressive taxes induces a smaller crowding-out, and thus larger ...
International Finance Discussion Papers , Paper 1237

Working Paper
Does Access to Free Pre-Kindergarten Increase Maternal Labor Supply?
Ilin, Elias; Shampine, Samantha; Terry, Ellyn (2022-02-02)
In this paper, we evaluate the effects of free pre-kindergarten (pre-K) programs on the labor force participation (LFP) of mothers. We use variation in pre-K rules across all US states, including income eligibility requirements in some states. To estimate the causal effects of access to pre-K on labor supply, we exploit the panel aspect of the monthly Current Population Survey between 2002 and 2019. Specifically, we look at the change in labor market behavior of women when their child becomes age-eligible for pre-K, controlling for individual factors. We find that access to free pre-K ...
FRB Atlanta Working Paper , Paper 2022-3

Working Paper
Foreclosure Externalities and Vacant Property Registration Ordinances
Sexton, Daniel; Cunningham, Chris; Gerardi, Kristopher S.; Biswas, Arnab (2019-12-01)
This paper tests the effectiveness of vacant property registration ordinances (VPROs) in reducing negative externalities from foreclosures. VPROs were widely adopted by local governments across the United States during the foreclosure crisis and facilitated the monitoring and enforcement of existing property maintenance laws. We implement a border discontinuity design combined with a triple-difference specification to overcome policy endogeneity concerns, and we find that the enactment of VPROs in Florida more than halved the negative externality from foreclosure. This finding is robust to a ...
FRB Atlanta Working Paper , Paper 2019-20

Report
Firms’ Supply Chain Adaptation to Carbon Taxes
Coster, Pierre; di Giovanni, Julian; Mejean, Isabelle (2024-11-01)
This paper investigates how firms adapt their sourcing of clean and dirty inputs in response to changes in climate policy. We use information from the European Union’s Emissions Trading System (EU ETS) and the Carbon Border Adjustment Mechanism (CBAM) to create a new classification of clean and dirty products based on whether they are subject to a domestic or a border carbon tax. We then combine this dataset with French firms’ product-level import data over 2000–2019 and estimate that firms’ propensity to import dirty inputs from non-EU countries increased in the 2010s, reflecting ...
Staff Reports , Paper 1136

Working Paper
Recycling Carbon Tax Revenue to Maximize Welfare
Fried, Stephie; Peterman, William B.; Novan, Kevin (2021-04-02)
This paper explores how to recycle carbon tax revenue back to households to maximize welfare. Using a general equilibrium lifecycle model calibrated to reflect the heterogeneity in the U.S. economy, we find the optimal policy uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while the remaining one third is used to increase the progressivity of the labor-income tax. The optimal policy attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists -- which ...
Finance and Economics Discussion Series , Paper 2021-023

Working Paper
A Macroeconomic Model of Healthcare Saturation, Inequality and the Output-Pandemia Tradeoff
Rojas, Eugenio; Tesar, Linda L.; Zhang, Jing; Mendoza, Enrique G. (2021-02-22)
Covid-19 became a global health emergency when it threatened the catastrophic collapse of health systems as demand for health goods and services and their relative prices surged. Governments responded with lockdowns and increases in transfers. Empirical evidence shows that lockdowns and healthcare saturation contribute to explain the cross-country variation in GDP drops even after controlling for Covid-19 cases and mortality. We explain this output-pandemia tradeoff as resulting from a shock to subsistence health demand that is larger at higher capital utilization in a model with ...
Working Paper Series , Paper WP-2021-02

Working Paper
Climate Policy and the Long-Run Interest Rate: Insights from a Simple Growth Model
Casey, Gregory; Peterman, William B.; Fried, Stephie (2024-12-23)
We study the impact of climate policy on the long-run real interest rate in a tractable climate-economy model based on the work of Golosov et al. (2014). When the growth rate of the carbon tax exceeds the growth rate of the price of at least one type of fossil energy, the tax reduces the long-run growth rates of consumption and investment, pushing the interest rate up. We find that if fossil energy prices are constant, a carbon tax that grows at 3.5 percent per year decreases the long-run interest by over 50 basis points. This carbon tax growth rate achieves net zero emissions at the lowest ...
Working Paper Series , Paper 2024-37

Working Paper
Policy Externalities and Banking Integration
Smolyansky, Michael (2016-02-08)
Can policies directed at the banking sector in one jurisdiction spill over and affect real economic activity elsewhere? To investigate this question, I exploit changes in tax rates on bank profits across U.S. states. Banks respond by reallocating small-business lending to otherwise unaffected states. Moreover, counties in non-tax-changing states that have more exposure to treated banks experience greater changes in lending, which in turn impacts local employment. The findings demonstrate that policies aimed at the banking sector in one jurisdiction can impose externalities on other regions. ...
Finance and Economics Discussion Series , Paper 2016-8

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