Property Taxes, Geographical Mobility and Inequality

Javier Feinmann

Going back centuries, the most common form of wealth taxation is immovable property and land taxes. Despite their antiquity and positive features, property taxes are often the target of severe political opposition and are overall underutilized. Taxes on property collect particularly little revenue in low- and middle-income countries – on average 0.3-0.6 percent of GDP, while OECD countries collect 2-3 percent, suggesting significant increases are possible.

Since property taxation is intrinsically linked to property ownership and valuation, understanding ownership patterns across societal groups is critical to understanding these taxes’ distributional effects. Studies have shown that women face significant barriers to owning property, including cultural norms, legal restrictions, and lack of access to credit. Avenancio-León and Howard also documents racial disparities in property taxes. Spatial segregation may bring inequalities in tax burden, calling for a better understanding of property wealth distribution.

This project has two main contributions. First, we document property wealth segregation across minorities in the municipality of Sa ̃o Paulo. We also calculate the implications for property tax burden across these groups. By using detailed ownership information, we can assign properties owned by firms to individuals. To the best of our knowledge, this is the first paper to track ultimate owners of properties and show how wealth distribution changes when we account for it. Second, we study how property taxes can be used to change business location decisions and economic activity outcomes. Ultimately we want to understand whether property taxes affect net economic activity or if they should be considered as a redistribution policy within regions.

Unemployment Benefit Expansions and Local Financial Distress

Nick Flamang & Sree Kancherla

Does unemployment insurance (UI) function as a financial insulator that makes local financial conditions less sensitive to economic shocks? While a large micro and macro literature has examined employment effects of UI, empirical work on the program’s financial and stabilization effects are much more limited. In ongoing work using administrative credit records, we directly analyze county-level financial effects of UI using sharp state and time-varying changes in benefit provision during the COVID pandemic. We first examine the elasticity of financial distress to county unemployment rates over time, finding 1) strong within-county sensitivity of financial distress to the local unemployment rate; 2) that high unemployment rate counties within a state have higher rates of financial distress; and 3) a large role for state-level UI policies to mitigate the local sensitivity of financial distress to local economic conditions. Indeed, COVID-related UI expansions almost fully insulated counties from the adverse financial effects of high unemployment rates so that local economic conditions were no longer predictive of local delinquency rates. To isolate the liquidity channel of UI provision, we leverage geographic exposure to benefit cutoffs and find significant increases in delinquency sensitivity following UI withdrawal in a staggered event study design. We connect these results using a rough counterfactual simulation, finding that COVID UI provision prevented around 30% of delinquency months.

Locally Optimal Place-Based Policy: Early Evidence from Opportunity Zones

Harrison Wheeler

Place-based policies are one tool to address large socioeconomic disparities across space. But, there has been mixed evidence on their efficacy. Two questions naturally arise in the context of place-based policies. Can such programs encourage economic activity into areas that need it? And if so, how should such programs be designed to encourage a more efficient or equitable response?

I focus on the recently implemented Opportunity Zone (OZ) program, a tax-credit for investments made in certain low-income, high-poverty areas, passed in the Tax Cuts and Jobs Act (2017). The OZ program is impressive in its scope and magnitude, offering an ideal setting to study whether public policy can drive investment into neighborhoods that have historically lacked it. Towards studying the local development response to this program, I have compiled data from 46 large municipalities to construct a novel dataset of monthly counts of new residential and commercial construction projects for more than 11,700 census tracts. I plan on expanding this dataset to include more cities.

The Impact of Austerity Policies on Local Economic Activity: Evidence from Italian Municipalities

Andrea Cerrato

Fiscal consolidation is often a necessity for central and local governments, but the impact of austerity policies on local economic activity is an open empirical question. Most estimates of local fiscal multipliers range between 1.5 and 1.8, but such estimates are usually obtained from expansionary shocks (e.g., increased military spending, countercyclical government spending shocks, etc.). It is reasonable to hypothesize that central and local governments endogenously seek to minimize their impact on the economy when implementing fiscal consolidation and to maximize it when implementing a fiscal expansion. Moreover, significant differences might be present between local fiscal multipliers generated by windfall spending vs. policies that maintain intertemporal budget balance. As a consequence, fiscal multipliers could be asymmetric in times of fiscal consolidation vs. fiscal expansion or in windfall vs. intertemporal budget balance scenarios. How do estimated multipliers from the imposition of contractionary fiscal rules compare to the ones previously estimated in the literature? How do local austerity policies impact local economic activity and through which channels? This paper seeks to answer these questions, studying the extension of a tight budget rule to Italian municipalities below 5,000 residents in 2013.

Understanding the Constraints to Internal Migration

Gwyneth Miner

Increasing mobility between locations can decrease economic inequality by giving workers the ability to improve their job matches and move to places with higher incomes, greater consumption, and better amenities. In developing countries, most inequality comes from the large gap in average living standards between rural and urban areas. Basic economic theory would predict that agents would move to areas with higher income and consumption levels until the average differences between the areas were equalized. The persistence of this gap, after accounting for price and skill differentials, suggests that there are barriers inhibiting internal migration. If we can understand migration decisions faced by rural households and the factors that determine their choice set, then we can pinpoint market frictions preventing migration and better inform policy decisions.

This project involves an experiment in rural Kenya that aims to improve migration outcomes, such as the welfare gain from encouraging migration, and analyzes the efficiency of migration decisions, by removing the constraints that inhibit individuals from moving. These constraints include a lack of information on available opportunities, insufficient cash on hand needed to relocate, a weak network to connect to other jobs, and poor housing in destination cities. By randomizing treatments given to young adults in rural villages, we can estimate which policies are most effective in creating migrants and have the highest welfare return.

One Land, Many Promises: Neighborhood Recommendation in the Face of Heterogeneity

Hadar Avivi

A growing body of literature finds that childhood locations have a significant and long-lasting effect on outcomes at adulthood. This line of research has led governments and scholars to deliberate on whether and how to incorporate these insights in existing public housing policies, e.g. by restricting public housing locations or providing housing voucher recipients with recommendations on where to move. However, this line of research has focused entirely on policies that assume a unique ladder of locations effect, namely, that every location has a constant effect across all individuals, an assumption that is at odds with empirical evidence. This raises the concern that the currently promoted policies, which do not take disparities into account, could be misguided and result with some families experiencing negative effects.

In this work, we study the heterogeneity in childhood location effects in the ethnically diverse Israeli context. Building on the identification strategy of Chetty and Hendren, we find that different ethnic and immigration groups gain differently from growing up in different neighborhoods, suggesting that there is no single ”promised land”. In an effort to characterize what drives disparities, we correlate group effects and gaps with locations characteristics. We find that the correlation with diversity, municipality characteristics, and social capital variables is different for different groups, and stronger for immigrants and Jews whose family immigrated from Asia or Africa. Then we turn into our main normative analysis and evaluate how a housing agency could form housing policy such as location recommendation to housing voucher recipients. In a preliminary analysis using a toy model of public housing, we find that the mostly harmless locations are more likely to be geographically diverse and positively correlated with social capital indicators such as vote rate and census response rate in 1995 census.