Martin Lopez-Daneri

Using a panel of confidential corporate tax returns, we provide the first direct estimates of the realized present value of corporate tax benefits from R&D credits and deductions in the United States. Realized tax benefits can deviate from statutory tax benefits because of tax asymmetries: firms in loss status are typically unable to fully utilize credits and deductions to offset current-year taxes and instead must carry these attributes forward, reducing their present value. To quantify the effect of these asymmetries, we track the intertemporal firm-level utilization of tax attributes generated by corporate R&D spending over 2012-2016. We find that the present value of R&D tax benefits varies substantially with firms' loss status, age, and size. Old and large firms typically use the R&D deduction and credit in the same year that they are generated, or quickly use the residual that is carried forward; present-value benefits for these firms align closely with statutory benefits. By contrast, young firms - especially young and small firms - frequently operate in loss status and utilize tax attributes more slowly, resulting in smaller realized present-value R&D tax benefits. From 2012-2016, the average firm generated $0.41 in statutory tax benefits per dollar of R&D investment, with a realized present value of $0.36. Young and small firms in a loss position realized only $0.23 per dollar, implying a 32% increase in their present-value, post-tax price of R&D capital relative to the statutory benchmark.

How should the U.S. confront the growing revenue needs driven by higher spending requirements? We investigate the mix of potential tax increases that generate a given revenue need at the minimum welfare cost and evaluate its macroeconomic impact. We do so in the context of a life-cycle growth model that captures key aspects of the earnings and wealth distributions and the non-linear shape of taxes and transfers in place. Our findings show that a proportional consumption tax combined with a lump-sum transfer to all households and a reduction in income tax progressivity consistently emerges as the best alternative to minimize welfare costs associated with a given increase in revenue. A 30% long-run increase in Federal tax revenue requires a consumption tax rate of 27.8%, a transfer of about 12% of mean household income to all households, and a reduction of top marginal income tax rates of more than 5 percentage points—output declines by 7.9% in the long run. While transfers are substantial, smaller transfers can accomplish most of the reduction in welfare costs. We find no role for wealth taxes in increasing revenues or minimizing welfare costs.

How effective is a more progressive tax scheme in raising revenues? We answer this question in a life-cycle economy with heterogeneity across households and endogenous labor supply. Our findings show that a tilt of the U.S. income tax schedule towards high earners leads to small increases in revenue. Maximal revenue in the long run is only 6.8% higher than in our benchmark– about 0.8% of initial GDP– while revenues from all sources increase by just about 0.6%. Our conclusions are that policy recommendations of this sort are misguided if the aim is to exclusively raise government revenue.

I study a revenue-neutral reform of the U.S. income tax and welfare system that involves the adoption of a Negative Income Tax (NIT). The reform is undertaken in a life-cycle economy with individual heterogeneity and uninsurable idiosyncratic labor risk. The optimal NIT consists of a 22% rate and a transfer equivalent to 11% of per-capita GDP. The ex-ante average welfare gain is a 2.1% annual increase in individual consumption. I show that a NIT outperforms a flat tax reform (income tax plus deduction) by a considerable margin. The key consequence of the reform is that high-productivity agents increase their relative importance in the labor supply at the expense of low-productivity agents.

The difference in marriage rates between black and white Americans is striking. Wilson (1987) suggests that a skewed sex ratio and higher rates of incarceration and unemployment are responsible for lower marriage rates among the black population. In this paper, we take a dynamic look at the Wilson Hypothesis. Incarceration rates and labor market prospects of black men make them riskier spouses than white men. We develop an equilibrium search model of marriage, divorce, and labor supply in which transitions between employment, unemployment, and prison differ by race, education, and gender. The model also allows for racial differences in how individuals value marriage and divorce. We estimate the model and investigate how much of the racial divide in marriage is due to the Wilson Hypothesis and how much is due to differences in preferences for marriage. We find that the Wilson Hypothesis accounts for more than three-quarters of the model's racial-marriage gap. This suggests policies that improve employment opportunities and/or reduce incarceration for black men could shrink the racial-marriage gap.

In this paper, I introduce a novel approach to analyzing life-cycle patterns in earnings shocks by applying a Bayesian Logistic Smooth Transition Autoregressive (LSTAR)(1) model, characterized by its rich heterogeneity, to the Panel Study of Income Dynamics data. A key strength of this methodology is its capacity to dissect the interplay among various determinants, such as age, job tenure, income levels, and assets, which are often overlooked in conventional income dynamics models. This study specifically focuses on age and job tenure, offering a comparative analysis with traditional estimates derived from standard models. I find that individuals under 29 experience earnings shocks with higher volatility and reduced persistence compared to their older counterparts. Furthermore, the analysis reveals that longer job tenure is associated with improved resilience to shocks, thereby enhancing our understanding of the underlying economic mechanisms influencing income dynamics. The findings underscore the critical role of heterogeneity in income dynamics models and their potential implications for the calibration of macroeconomic models.