Emily Horton

Job market candidate, University of Michigan Economics

Fields: Public Finance and Labor




Are tax benefits priced into home values?  Evidence from the Tax Cuts and Jobs Act (Job Market Paper) [Working Paper]

This paper measures the effect of homeownership tax deductions on home values using the Tax Cuts and Jobs Act, which substantially reduced the tax benefits to homeownership starting in 2018. Homes vary in exposure to the 2018 changes due to differences in the incomes, mortgage amounts, state income taxes, and property taxes of potential buyers. Event studies comparing the price growth of more and less exposed homes within the same city offer no evidence that home prices fell due to the tax change. Estimated standard errors rule out that even a quarter of the tax increase passed through to lower home prices within two years of the policy change. The tax increase reduced housing supply, as evidenced by a slowdown in new building in relatively exposed areas in cities with relatively elastic housing supply, which dampened the price decrease. Because prices did not fall when taxes increased, the after-tax cost of homeownership increased by roughly the same amount that taxes increased.

Optimal Transfers with Children's Utility (with Lea Bart) [Working paper]

This paper estimates the optimal tax and transfer system when the social planner’s objective is to maximize utility of all individuals, including children, and can use household composition as a fixed tag. While existing research has estimated optimal transfer schedules, it has typically done so only in the context of adults, or without considering children’s utility as part of the planner’s objective function. Given the large extent to which U.S. transfer policy prioritizes redistribution to children, children’s consumption needs are of first order importance to optimal transfer policy analysis. We simulate the optimal tax and transfer system for unmarried households accounting for children’s consumption, adults’ consumption, and adults’ labor supply responses on the intensive and extensive margin. We place particular emphasis on estimating the optimal transfers to non-earning households of different compositions, and compare these estimates to expected benefits for non-earners in the United States. We find that current transfers to non-earners are well below optimal for all unmarried households, especially those with children.

Banks and Tax-Exempt Debt Arbitrage (with James R. Hines Jr.) [Working paper]

Interest paid by U.S. state and local bonds is tax-exempt, making these bonds attractive to investors – though a tax rule limits arbitrage opportunities by restricting associated interest expense deductions. Prior to 1986, U.S. banks were not subject to the interest deduction limitation, making banks preferred holders of tax-exempt debt. U.S. banks used tax-exempt debt to reduce their tax liabilities by roughly 20% in the 1950s and 45% in the 1960s, rising to as much as 80% by the early 1980s. Despite their special exemption, and in part because of their widespread holdings, banks did not benefit from investing in tax-exempt bonds, as competition between banks reduced bond yields to the point of investor indifference. The absence of a tax benefit from arbitrage appears not only in observed bond yields, but also in banks’ considerable unused potential for further tax reductions. After the Tax Reform Act of 1986 removed their special tax exemption, banks significantly reduced their holdings of tax-exempt debt, particularly among banks most severely impacted by the rule change.

The Role of Firms in Transmitting Worker-Level Policies into Wages: Evidence from Payroll Taxes (with Ashley Craig and Paul Kindsgrab)

This paper theoretically and empirically studies the role of firms in transmitting worker-level policies (e.g. mandated benefits, payroll taxes) into wages. When firms have labor market power, the wage impact of worker-level policies on a given type of worker can vary across firms. Using a static wage-posting model, we theoretically characterize the aspects of firms that determine how worker-level policies impact wages. Using administrative linked employer-employee data to study a German payroll tax reform, we find that similar workers experienced differential wage changes depending on the reform's impact on their employer's labor costs, one of the firm dimensions highlighted by the model.