Research

"Local Government Valuation" (submitted)
(with Oliver Giesecke and Marcelo Sena)

WFA NASDAQ Award for Best Paper on Asset Pricing 2023

We construct a novel data set on the fiscal position of municipalities in the United States and document a secular decline in their financial health. Our data combines financial data from the Annual Comprehensive Financial Reports (ACFRs) of municipalities along with Census data of their revenue and expenditure cash flows. We find that 61% of municipalities operate with a negative net position---akin to a negative book equity position in the corporate context. We find that most of the decline originates from the accumulation of legacy obligations, i.e., pensions and other post-employment benefits (OPEBs); this is recognized by municipal bond markets through higher credit spreads. Since accounting values are backward looking, we turn to the market valuation of local governments' equity by estimating a stochastic discount factor (SDF) that matches the valuation of a wide range of assets in the economy to price untraded future tax and expenditure claims. Market values of equity are also negative for a sizable fraction of municipalities. The negative equity position---in terms of book and market values---for some local governments suggests the presence of implicit insurance by state and federal governments. Our results suggest that as many as half the municipalities with negative market value of equity would need 5 years of higher government intervention.

Presentations: Stanford GSB Finance, UEA 11th European Meeting, Brookings Institution 2022 Municipal Finance Conference, UEA 16th North America Meeting, Midwest Finance Association 2023 Annual Meeting, Western Finance Association 2023 Annual Meeting, AREUEA National Conference 2023, Virtual Municipal Finance Workshop 2024, Texas A&M Econ, UT Dallas Fall Finance Conference 2024, CFEA Conference 2024, UH Econ .

"Local Governments' Response to Fiscal Shocks: Evidence from Connecticut"
with Oliver Giesecke. Earlier circulated as "Zombie Cities"

Best Student Paper (Honorable Mention) at the 15th North American Meeting of the Urban Economics Association 2021

The deteriorating fiscal position of municipalities across the United States raises the question which adjustment mechanisms municipalities have at their disposal and what their effects are. We utilize quasi-experimental variation in the year of property tax assessments in the state of Connecticut to provide causal evidence of the fiscal adjustment following a large decline in property values after the Great Financial Crisis. We find that local governments adjust tax rates to maintain stable tax revenues; there is no change in public employment levels and limited adjustments of public services. Our micro data on people's location further allows us to causally estimate the migration elasticity to a change in property tax rates. We find evidence of inter-state migration in response to an increase in property tax rates; and no statistically significant response of intra-state migration. Detailed property and location choice data reveal the elasticity of migration with regard to the property tax bill. An increase in the property tax bill by ten percent leads to an average increase in the migration propensity by about 1.5%.

Presentations: Columbia University, Columbia Business School, AREUEA National Conference 2021, UEA North America Meeting 2021, EEA-ESEM 2022, NBER SI Urban Economics 2024 (scheduled), AREUEA-ASSA 2025 (scheduled).

Climate Clubs, Efficiency and Participation: Can "Reparations" Help?
(with Prajit Dutta)

The paper studies how international transfers can Pareto improve agreements on emission reductions. It re-interprets as a club model a well-studied model of treaty participation. Without transfers, equilibrium club size is limited to being at most 2 or 3 countries. With bi-lateral transfers, transfers voluntarily given by club members to non-members, club size increases to at least N/2, where N is the total number of countries. Furthermore, inclusive of transfers, there is a Pareto improvement for all N countries. Any further expansion and welfare improvement requires multi-lateral transfers in which non-members can also commit to making transfers. In that setting, there is an equilibrium with full participation of all N countries and Utilitarian Pareto optimal emissions reductions by every country. If the transfer choices are sequentially made, then that globally implemented reduction is the unique equilibrium action.

Presentations: Columbia University Center for Political Economy Workshop 2025 (scheduled), Stanford University Political Economics of Environmental Sustainability Conference 2025 (scheduled).

Hurricanes, Adaptation and Capital Formation

A number of recent papers have investigated the impact of hurricanes on economic growth. However, there is limited understanding of the investment component of local growth after hurricanes. Using hand collected and web-scraped statutory property tax rate data in the U.S., I find that local governments respond to hurricane impact by raising tax rates. I find the hike in tax rates is persistent for 3-4 years after hurricane impact. The response is four times larger for major hurricanes compared to minor hurricanes. However, the increase in tax rates is not expected to be large enough to cause significant out-migration after the average hurricane. I supplement these findings with a novel data set of firm facility-level hurricane impact. I find that firms initially decrease investment in the quarter following hurricane impact and increase it in the final quarters of the second year after impact. Taken together, my paper presents a novel set of stylized facts on government and firm adaptation investment response that can be interpreted in light of recent general equilibrium models with disaster risk.

Presentations: AERE WEA Meeting 2023, Columbia University, Columbia Financial Economics, Midwest Finance Association 2024, AERE MEA Meeting 2024.

"Something Biased This Way Comes: The Effect of Media on Local Elections in the US"
with Dario Romero

Using the staggered expansion of Sinclair Broadcast Group (SBG), a conservative leaning TV station operator, from 2012 to 2017, we study how introducing a biased TV station operator affects electoral outcomes. We use the failed acquisition by SBG of a major station operator to control for the selection effect of market entry. Our findings reveal that SBG acquisition increases the likelihood of a Republican candidate winning House elections, contrasting with a negative impact on Republican performance in presidential elections. Importantly, we document a persistent ideological shift to more conservatism for the winner in House elections, which strengthens over time. When decomposing the ideological effect, we find a shift to relatively more conservatism for both Republicans and Democratic candidates in the House elections, even though the pool of Democratic candidates in the primaries becomes more liberal on average. Additionally, we show that Republican candidates receive increased donations in SBG-acquired areas. This study underscores the significance of analyzing electoral settings  beyond national elections where not only voters' preferences but also candidates' strategies and ideology are influenced, highlighting the potential impact of biased media on electoral outcomes and the importance of media ownership regulations.

Presentations: 6th Economics of Media Bias Workshop 2023, NYU Abu Dhabi, LACEA LAMES 2024.

"Do Rounding-Off Heuristics Matter? Evidence from Bilateral Bargaining in the U.S. Housing Market"
with Franklin Qian, Ye Zhang, and Tianxiang Zheng
subsumes our earlier draft, The Microstructure of the U.S. Housing Market: Evidence from Millions of Bargaining Interactions

Using confidential offer-level data on the US housing market, this paper examines rounding-off heuristics in the bilateral bargaining process. We demonstrate that home sellers and home buyers follow different rounding-off heuristics. Sellers' list prices cluster more frequently around charm numbers (e.g. 349,999) compared to buyers' offer prices and negotiated final sales prices which have relatively more salient round numbers. These charm list prices dominate round list prices by yielding a higher sales price and a shorter time on the market. Buyer counteroffers are driven by seller list price choices -- buyers are more likely to respond to a round/charm list price with an offer price at the corresponding rounding level with trivial adjustments. However, when sellers use round numbers as initial list prices, buyers are relatively more likely to use offer prices with greater counteroffer adjustments. These empirical findings provide novel insights into bilateral bargaining behavior in the U.S. housing market. We provide plausible mechanisms for our results.

Presentations:  Atlanta Fed 2022, Columbia Experimental Design Workshop 2023,  Yale Junior Finance Conference 2023, Duke Fuqua 2023,  Bauer Houston Brownbag 2023, AREUEA-ASSA Annual Conference 2024,  Stockholm School of Economics Brownbag 2024.

"Repricing Avalanches in the Billion Prices Data"
with Laura Leal, Makoto Nirei and José Scheinkman

Nirei and Scheinkman (2021) proposed an equilibrium model of price adjustments with menu-costs with a finite number of firms and derived a “reproduction number” for repricing and a limit functional form for the distribution of the number of simultaneously price-adjusting firms. We show that the distribution of price-changes in data from the Billion Prices Project is well fitted by this functional form and exhibits a reproduction number that is close to unity, indicating that complementarity in price-changes plays a major role in repricings.