Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States

We assess the impact of bank deregulation on the distribution of income in the United States. From the 1970s through the 1990s, most states removed restrictions on intrastate branching, which intensified bank competition and improved bank performance. Exploiting the cross‐state, cross‐time variation in the timing of branch deregulation, we find that deregulation materially tightened the distribution of income by boosting incomes in the lower part of the income distribution while having little impact on incomes above the median. Bank deregulation tightened the distribution of income by increasing the relative wage rates and working hours of unskilled workers.     

Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach

Tax evasion is a widespread phenomenon across the globe and even an important factor in the ongoing sovereign debt crisis. We show that firms in countries with better credit information–sharing systems and higher branch penetration evade taxes to a lesser degree. This effect is stronger for smaller firms, firms in smaller cities and towns, firms in industries relying more on external financing, and firms in industries and countries with greater growth potential. This effect is robust to instrumental variable analysis, controlling for firm fixed effects in a smaller panel data set of countries, and many other robustness tests.     

THE FED AND THE POLITICAL BUSINESS CYCLE

This study asks whether the Federal Reserve has actively made monetary policy so as to aid the president's reelection. Using Shiller's smoothness "prior" to estimate the shape of cycles, the study finds a political business cycle in unemployment and a preelection increase in growth of the money supply. But the timing of these two cycles is inconsistent. Furthermore, little evidence exists of a cycle in the instruments of monetary policy. Thus, the Fed is not actively creating a political business cycle. Apparently, movements in real money that are not caused—but are not offset—by the Fed are an important cause of the political business cycle.
Elections influence Fed behavior. Monetary tightness occurs early in a presidential term, before reelection incentives become critical. This is due to the Fed's political weakness. Thus, the Fed's independence only partly insulates it from electoral pressures.     

A Conference on Postcrisis Banking

This article provides an introduction to the special issue. We focus on four themes that are important for policymakers and researchers alike in view of the experiences of the global financial crisis of 2007–09 and the ensuing sovereign debt crisis in the euro area: the relevance of the banking sector for the real economy, the future structure and regulation of the banking sector, the efficacy of past and current regulatory reforms, and the impact of cross‐border banking on economic stability and financial development.     

Experimental evidence on an economic model of taxpayer aggression under strategic and nonstrategic audits*

Abstract. Economic models of tax reporting were tested experimentally. Subjects were given endowments and made tax reporting decisions subject to monetary penalties for underpayment of taxes and uncertainty about the amount of taxable income and the tax agency's cutoff point for audit selection. Two types of tax audit regimes were considered. In the first (nonstrategic audit regime), subjects faced a fixed probability of audit selection. A second (strategic) audit regime also was examined in which the probability of audit selection varied in response to tax reports as in the Reinganum and Wilde (1988), Beck and Jung (1989b), and Jung (1991a) models. Five hypotheses based on the comparative statics predictions of the models were tested and four were supported by the experimental data. Among the noteworthy findings are that tax rate changes have significant effects on reporting decisions under both audit regimes, rather than just under the strategic audit regime as hypothesized. A reduction (increase) in taxable income uncertainty induces subjects to report a low level of income significantly more (less) often under strategic auditing, but does not have a significant effect on income reports when audit policies are nonstrategic. The effects of changes in the level of uncertainty about the audit cutoff point are also investigated and found to depend upon the benefit of conducting an audit. Finally, we find that subjects generally report a low income more frequently than predicted by either the strategic or nonstrategic models. Résumé. Les auteurs ont mis à l'épreuve les modèles économiques de présentation de l'information fiscale au moyen de l'expérimentation. Les sujets se sont vu attribuer une dotation et ont pris des décisions relatives à la présentation de l'information fiscale, décisions assujetties à des pénalités monétaires s'appliquant aux impôts payés en moins et à l'incertitude relativement au montant du revenu imposable ainsi qu'au seuil de démarcation utilisé par les autorités fiscales pour sélectionner les entreprises devant faire l'objet d'une vérification. Deux types de régimes de vérification fiscale ont été analysés. Dans le premier cas (régime de vérification non stratégique), les sujets avaient affaire à une probabilité fixe d'être sélectionnés en vue d'une vérification. Dans le second (régime de vérification stratégique), la probabilité de sélection variait selon les rapports présentés au fisc, comme dans les modèles de Reinganum et Wilde (1988), Beck et Jung (1989b) et Jung (1991a). Cinq hypothèses fondées sur les prédictions statiques comparatives des modèles ont été testées, et quatre d'entre elles ont été confirmées par les résultats de l'expérience. Parmi les conclusions dignes de mention figure le fait que les modifications du taux d'imposition ont une incidence significative sur les décisions relatives à la présentation de l'information dans les deux régimes de vérification, et non pas seulement dans le régime de vérification stratégique, comme les auteurs l'avaient supposé. Une réduction (augmentation) de l'incertitude relative au revenu imposable incite les sujets à faire état d'un faible niveau de bénéfices beaucoup plus (moins) souvent dans le cas de vérifications stratégiques, mais n'a pas d'incidence marquée sur l'information présentée relativement aux bénéfices lorsque le régime de vérification est non stratégique. Les conséquences des changements dans le niveau d'incertitude relatif au seuil de démarcation de la vérification fiscale ont aussi été analysées, ce qui a permis d'établir qu'elles dépendent des avantages que comporte la vérification. Enfin, les auteurs ont constaté que les sujets faisaient état, en général, de faibles bénéfices plus souvent que prévu par leurs modèles, qu'ils soient stratégiques ou non stratégiques.     

THE FED AND THE POLITICAL BUSINESS CYCLE

This study asks whether the Federal Reserve has actively made monetary policy so as to aid the president's reelection. Using Shiller's smoothness "prior" to estimate the shape of cycles, the study finds a political business cycle in unemployment and a preelection increase in growth of the money supply. But the timing of these two cycles is inconsistent. Furthermore, little evidence exists of a cycle in the instruments of monetary policy. Thus, the Fed is not actively creating a political business cycle. Apparently, movements in real money that are not caused—but are not offset—by the Fed are an important cause of the political business cycle.
Elections influence Fed behavior. Monetary tightness occurs early in a presidential term, before reelection incentives become critical. This is due to the Fed's political weakness. Thus, the Fed's independence only partly insulates it from electoral pressures.     

Managerial Incentives in a Stock Market Economy

This study presents an analysis of the managerial incentive problem in a stock market economy in which incentive contracts are structured in terms of security ownership. In our model, the manager's ownership share signals effort and is determined endogenously as the solution to a special portfolio decision problem. Managerial investment in the firm is evaluated under various security pricing arrangements. Our analysis indicates that, in general, stockholders should sell shares to a manager at a discount to ensure a Pareto efficient ownership (incentive) structure. However, efficient pricing (discount) schedules generally are nonlinear and, in many respects, isomorphic to discriminating price functions which have been considered in neoclassical models of monopoly.     

Conference on Housing,Stability, and the Macroeconomy: International Perspectives

This article provides an introduction to the JMCB special issue on housing bubbles, the global financial crisis, and the ensuing recessions in countries that experienced housing busts. We focus on five themes that are important for policymakers and researchers alike: the domestic and international factors driving housing booms and busts, the relevance of the housing sector for the real economy, how monetary policy should react to housing booms and busts, how housing and mortgage finance reform could affect financial stability, and the broad lessons learned for macroeconomics and macroprudential policy.     

Henry George and Immigration

Henry George's opposition to free immigration may be surprising in light of his positions on other aspects of economic theory and policy. This essay reviews George's statements on immigration policy, discusses inconsistencies of these statements with his positions on free trade and Malthusian population theory, compares George's views with the neoclassical economic perspective on immigration, and suggests that implementation of George's policy of taxing land values would share the gains from immigration in a manner that might reduce opposition to open borders.