Do laws affect the beliefs and attitudes held by the public? I set up a model wherein families care about their children's beliefs, which are shaped by a combination of parental actions and the law set by society. These straightforward assumptions are sufficient to generate systematic backlash against laws – individuals move in the opposite direction of the law in an attempt to preserve the values which are important to them and are placed under threat by the law. Next, I turn to survey data from the ANES to test the implications of the model. I focus on one specific case in-depth: the state Equal Rights Amendments (ERAs), which aimed to legislate gender equality. Using a dynamic difference-in-differences identification strategy, I find robust evidence that ERA passage leads men in particular to undergo a sharp backlash – with sharply more negative attitudes toward male/female equality. This shift translates into a significant increase in Republican vote share, worsened material outcomes for women, and increased marital strife. I also test and confirm the other implications of the model – such as the fact that the backlash is passed on to the next generation and that it endures more strongly in ideologically-homogeneous communities. Next, I provide evidence against a variety of alternative mechanisms. And finally, stepping back from the ERAs, I show that virtually every major U.S. social policy law of the past half-century has induced significant backlash. Taken as a whole, these findings suggest that aggressive pushes for social change through legislation may come at a significant cost.
Corporal punishment is used in schools in about 70 countries, including in 19 states in the United States. Despite its prevalence as a tool to discipline students, it remains remarkably understudied. We leverage the staggered state-level bans of school corporal punishment in the United States over the past several decades in conjunction with data on social and economic outcomes from the American Community Survey (ACS) and the General Social Survey (GSS), using a difference-in-differences design to measure the causal effects of school corporal punishment. We find that the presence of corporal punishment in schools increases educational attainment, increases later-life social trust and trust in institutions, and leads to less authoritarian attitudes toward child-rearing, and greater tolerance of free speech. Additionally, exposure to corporal punishment in school decreases later-life crime. We find no effects on mental or physical health. These results hold up to dynamic difference-in-differences specifications – which reveal non-existence of pre- trends – and a wide variety of other robustness checks. Observing that only a small share of students are exposed to corporal punishment, we argue that the effects primarily represent spillovers resulting from restraining the behavior of disruptive students.
Are politicians rewarded for good performance as implied by models of retrospective voting? A necessary precondition for this to happen is that public perceptions of performance are accurate. We examine the case of the coronavirus pandemic – during which survey questions on approval of governor handling of the pandemic have abounded and objective measures of state outcomes are readily available. Curiously, governors of states with higher death rates enjoy higher approval for how well they have handled the pandemic. Conducting an incentivized mTurk survey in which we ask individuals to provide their best guess of how pairs of states have performed relative to one another in terms of deaths per-capita, we find that people perform better than a coin toss – but not much better. We find little to no evidence of partisan/in-group bias. Running regressions with approval of governor handling of the pandemic as the outcome, we find that it is not the actual death rate – but rather beliefs about the death rate – that drive governor approval. This remains true if one controls for individuals' perceptions of how well the states should have performed, setting aside factors of leadership/political competence. We replicate these findings in both an identical follow-up survey several months later in the pandemic and in a survey experiment. We additionally find evidence, using data from SafeGraph, that these erroneous beliefs about state performance translate into altered social-distancing behavior, suggesting they may come at a cost to society.
Flat taxes have been the subject of policy discussion for decades, and such discussions have often come with bold macroeconomic claims. Yet the macroeconomic effects of flat taxation remain a mostly overlooked topic in the economics literature. To guide my analysis, I construct a simple model of investment decisions under varying income tax progressivity, and I show that decreased tax progressivity increases investment, which – under standard models of economic growth – should induce a transitionary increase in GDP growth. To test these implications, I turn to a natural experiment: between 1994 and 2011, twenty post-Communist countries introduced flat taxation on personal income. Since 2011, five of these countries have reverted to progressive income taxation. Using static and dynamic difference-in-differences approaches, I find that the flat tax reforms increase annual GDP growth by 1.36 percentage points for a transitionary period of approximately one decade. These findings are robust to multiple alternative specifications designed to deal with various identification challenges, including electoral endogeneity and correlated reforms. Entirely consistent with the model, this growth effect is operationalized through increases in investment (and labor supply), and it is driven both by the decreases in the average marginal tax rate and the reductions in progressivity resulting from the tax reforms. In short, tax progressivity can have important implications for macroeconomic outcomes.
We argue that minimum wage employment, which is subject to legislatively-rigid wages, constitutes an ideal setting to study the wage-rigidity channel of monetary policy. In the first part of the paper, we use a calibrated model to show that minimum wages can contribute substantially to non-neutrality of monetary policy. Intuitively, while expansionary monetary policy may lead prices, endogenous wages, and capital rental rates to increase, the nominal minimum wage is held fixed by legislation and therefore falls in real terms. Heterogeneity in the share of minimum wage workers generates meaningful variation in the effects of our monetary policy channel across time and regions in the U.S. In the latter part of the paper, we present empirical evidence that the short-run employment fluctuation induced by monetary policy is significantly higher in states where the minimum-wage labor share of total costs is higher: the peak effect on employment of a 1% federal-funds rate shock is 2.5 percentage-points higher where the minimum-wage share is at its 90th-percentile value compared to its 10th-percentile value. This result is robust to a variety of econometric specifications, including state and year fixed-effects, an IV strategy instrumenting the minimum wage share with the legislated minimum wage level, either narrative or VAR monetary shocks, an analogous specification using Canadian data, and within-state county-level analysis. Testing the mechanism, we use a triple-differences specification and find substantially larger effects on near-minimum-wage employment (relative to higher-wage employment). We address the concern that the minimum-wage share is correlated with the marginal propensity to consume by showing larger effects on employment in tradable sectors relative to non-tradable sectors. We conclude that minimum wages, and rigid wages more generally, are a crucial channel through which monetary policy is operationalized.
Over the past several decades, working-class America has been plagued by multiple adverse trends: a sharp increase in social isolation, an even sharper increase in single parenthood, a decline in male labor force participation rates, and a decline in generational economic mobility – amongst other things. Material economic factors have been unable to fully explain these phenomena, often yielding mixed results or – in some cases, such as that of single parenthood – lacking explanatory power altogether. I study the decline in religiosity and, using a shift-share instrument leveraging the fact that different religious denominations are declining at different rates, I find that religious decline has a strong adverse effect on the aforementioned variables. The effects are not weakened by including other potential explanatory factors (such as China trade shocks and variation in public assistance). I present evidence that, to the extent reverse causality exists, it creates bias in the opposite direction of my estimates. These findings are also robust to several alternative instruments, including the repeal of the state blue laws banning retail activity on Sundays and the Catholic church scandals of the 2000s. Two instruments – the blue laws and the state anti-evolution laws mandating teaching of creationism in school – allow me to ascertain whether the effect proceeds through religious attendance or beliefs. I find that, for most outcomes, the bulk of the effect is driven by religious attendance.
Production network models make strong predictions about how industry prices respond to price changes in other industries. We test these predictions empirically in the setting of the oil price shocks of 1979, 1986, 2008, and 2014. Drawing on BEA Input-Output tables, we compute the extent to which oil is required directly and indirectly as an input for each industry. Using a dynamic difference-in-differences approach, we find that industries directly using oil in their production processes experience full and immediate price pass-through. Industries using oil only indirectly in their inputs (i.e., in inputs that required oil to be produced upstream) experience at least 50% pass-through during the shock, and we cannot reject full passthrough 1-2 years after the start of the shock. Our results suggest that industry prices are not particularly sticky with respect to large oil shocks. Further, we find oil price changes account for roughly 10% of cross-sectional variation in industry price changes.
How do minimum wage increases affect prices, employment, and wages? This question is amongst the most-studied in all of economics, but the existing literature does not account for the existence of cross-state spillovers, which are a consequence of the chain structures of modern firms. That is, DellaVigna and Gentzkow (2019) find that the vast majority of retail chains pursue a uniform pricing strategy; they set prices at the chain level. We show through our model that, as a consequence of these uniform pricing patterns, an increase in minimum wages in state i will also affect prices in other states j, and consequently, the SUTVA assumption in the standard research design is violated. Using Nielsen Retail Scanner Data on store prices, we find empirically that once these chain structures are accounted for, (i) the direct effect of minimum wage increases in state i on prices in state i is larger (i.e., the extent of price pass-through to consumers is higher) and (ii) the spillover effects of minimum wage increases in state i on prices in other states j is substantial and statistically-significant. We aim to analyze effects on employment and wages in the future.
How do people update their beliefs on contentious political issues when they receive new information? Do they do so in a rational manner? To investigate this, we perform two separate experiments. In the first experiment, we study the extent to which people claim their beliefs on a highly salient political issue depend on pertinent empirical facts (provided as hypotheticals). We then compare these responses to how beliefs actually change when people learn new empirical facts, which provides us with insight about the prevalence of motivated reasoning. In the second experiment, we provide individuals with informative but noisy signals, which accordingly may either conform with or contradict their ideological preconceptions. We find that people asymmetrically revise their beliefs when receiving pleasing versus displeasing news, which provides evidence of motivated political reasoning.
US businesses can be C-corporations or pass-throughs in the forms of S-corporations and partnerships. C-corporate form confers benefits from perpetual existence, limited liability, potential for public trading of shares, and ability to retain earnings. However, legal changes especially since the 1980s have improved the status of pass-throughs. The C-corporate form has typically been subject to a tax wedge, which has diminished since the 1960s. In our formal model, the tax wedge determines the fraction of firms opting for C-corporate form, the level of output (business productivity), and the C-corporate share of output. This framework underlies our empirical analysis, wherein long-difference regressions for 1978–2013 show that a higher tax wedge reduces the C-corporate share of net capital stock and gross assets. A calibrated model, fit to observed total factor productivity (TFP) and C-corporate share of economic activity, implies that, for 1958–2013, the declining tax wedge and gap between C-corporate and pass-through productivity contributed 0.37% per year out of a total TFP growth rate of 1.09% per year. From 1994 to 2004, the TFP growth rate was unusually high at 2.00% per year, and the estimated contribution from the falling productivity gap between C-corporate and pass-through status was particularly large at 0.77% per year. The last channel lines up with legal changes related especially to limited liability companies.