Job Market Paper

"The Municipal Government Channel of Monetary Policy" (Job Market Paper)

Interest rate policy in the U.S. affects the borrowing costs of state and local governments, incentivizing municipal borrowing and spending during monetary expansions. Municipal yields increase by 22bp after a 100bp positive monetary shock, though the effect varies across states. Illiquidity dampens monetary passthrough to municipals, while default risk may amplify it. To study the effects of these borrowing cost elasticities on local fiscal policy, I model U.S. localities as small open economies in a monetary union. Here, local governments conduct fiscal policy in response to borrowing costs and economic conditions. In a model calibrated to the U.S., median passthrough of monetary policy shocks to municipal borrowing costs implies a dampening of transmission to output of over half relative to a case which ignores the muni market. Realistic cross-sectional differences in borrowing cost responses result in up to a 50% difference in monetary transmission across localities, and account for 10-20% of observed monetary transmission differences in U.S. data.

Published Papers

"Optimal Minimum Wage Setting in a Federal System," with Andrew Simon (Journal of Urban Economics, 2021)

This paper provides a theoretical model and conditions for governments in a federation to optimally implement a binding minimum wage. We highlight the trade-offs of decentralized verse centralized minimum wage setting with interregional spillovers. In a simple example, a U.S.-style tiered system is weakly preferred to either decentralized or centralized minimum wage policy setting.

"Government Market Power and Public Goods Provision in a Federation" (International Tax and Public Finance, 2021)

In standard models of fiscal federalism, tax competition among subnational jurisdictions depresses government expenditures. If, however, the central government has greater market power than constituent jurisdictions, then centralization may be associated with reduced government spending. Whether centralization or decentralization provides more public goods depends on the relative strengths of tax competition and market power.

Working Papers

"Federalism, Fiscal Savings, and Information Asymmetries"

In the U.S., transfers from federal to state governments respond more strongly to aggregate cycles than state-level cycles. Therefore, more independent U.S. states engage in more precautionary savings. A model in which two governments enact fiscal policy, the ‘regional’ government has credit constraints, and the ‘central’ government’s information is imperfect, matches the data and implies a sizable information friction.

Works in Progress

"Investment Dynamics: Micro and Macro," with John Leahy, Erin Markiewitz, and Pablo Ottonello