Taxes, Regulation, and Politics
Paper Session
Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)
- Chair: Kose John, New York University
Closing the Revolving Door
Abstract
Regulators can leave their government position for a job in a regulated firm. Using granular payroll data on 22 million federal employees, we uncover the first systematic evidence of revolving door incentives. We exploit the fact that post-employment restrictions on federal employees, which reduce the value of their outside option, trigger when the employee's base salary exceeds a threshold. We document significant bunching of salaries just below the threshold, consistent with a deliberate effort to preserve private sector job opportunities. The effect is concentrated among agencies with broad regulatory powers, minimal supervision by elected officials, and frequent interactions with high-paying industries. In those agencies, 49% of the regulators respond to revolving door incentives and sacrifice 7.4% of their wage potential to stay below the threshold. Consistent with theories of regulatory capture, we find that revolving regulators initiate fewer enforcement actions and issue rules with lower costs of compliance. Using our findings to calibrate a structural model, we show that eliminating the restriction will increase the incentive distortion in the federal government by 1.7%. Combined, our results shed new light on the economic implications of the revolving door in the government.Corporate Taxes and Retail Prices
Abstract
Higher corporate taxes must result in lower payments to shareholders, lower wages, or higher product prices. We study the impact of corporate taxes on barcode-level product prices using linked survey and administrative data. Our empirical strategy exploits the dichotomy between the location of production and the location of sales, providing estimates free from confounding local demand shocks. We find significant effects of corporate taxes on prices with a net-of-tax elasticity of 0.24. We find null effects on prices for firms subject to personal income taxes or to full sales apportionment. Approximately half of corporate tax incidence falls on consumers, suggesting that models used by policymakers may significantly under- estimate the incidence of corporate taxes on consumers. Pass-through is larger for products purchased by high-income households, higher priced goods, and in less competitive markets.Regulatory Policy Enforcement and Corporate Performance
Abstract
Government influence on private industry is thought to be substantial. However, the channels of that influence and even the consistency of an effect, are unclear. Prior studies primarily approach the question of this influence based on legislation or political parties, and this has led to decidedly mixed results. We approach the problem differently. We recognize that until very recently, the literature largely ignored the reality that much political work is done by executive agencies. Moreover, the recent literature that does examine regulatory agencies focuses exclusively on firm responses. In contrast, we build a broad measure of policy enforcement from the regulatory agency perspective. That is, we construct six agency-perspective variables, including actions, budget variables, and regulation-verbiage (from the Code of Federal Regulations). We combine the six measures in exploratory factor analysis to obtain a latent Enforcement Index variable. Applying this measure to firms exposed to four major agencies (EPA, FDA, OSHA and SEC), we find stronger regulatory enforcement is associated with lower firm operating performance. We also (logically) find that greater firm exposure to the agency strengthens the relationship. There is significant cross-agency heterogeneity in enforcement’s influence. We document that the channel most likely driving the relationship is a cost channel, as opposed to an asset-(in)efficiency channel. We also highlight the importance of studying six agency variables, by showing heterogeneity across them in the influence on firm performance. Our results are largely orthogonal to recent findings (by Kalmenovitz in several papers, as well as other papers/scholars) that focus strictly on CFR-related firm-expressed-concerns. At a more granular enforcement level, we also find that firm-specific violations imposed (from Violation Tracker) are associated with weaker firm performance. We conclude that executive-branch enforcement is an important contributor to the cost of regulation, regardless of firm attention to it as expressed through their own disclosures.Discussant(s)
Tianyue Ruan
,
National University of Singapore
Florian Heider
,
SAFE-Frankfurt
S. Abraham Ravid
,
Yeshiva University
Michelle Lowry
,
Drexel University
JEL Classifications
- G3 - Corporate Finance and Governance
- K2 - Regulation and Business Law