I am an economist at the Board of Governors of the Federal Reserve, where I forecast business investment in equipment. I received my Ph.D. in economics from MIT in June 2009. Please find links to my CV and research papers below. Thanks to marginalQ.com for hosting this website.
Phone: 202-452-6479
Email: jesse.j.edgerton@frb.gov
Publications:
- Agency Problems in Public Firms: Evidence from Corporate Jets in
Leveraged Buyouts (Journal of Finance, Forthcoming)
This paper uses novel data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average 40% smaller fleets than observably similar public firms. Similar fleet reductions are observed within firms that undergo leveraged buyouts. Quantile regressions indicate that these results are driven by firms in the upper 30% of the conditional jet distribution. Results thus suggest that executives in a substantial minority of public firms enjoy excessive perquisite and compensation packages.
Data: JetNet.com. Some data are also available from the FAA. - Investment Incentives
and Corporate Tax Asymmetries (Journal of Public Economics, 2010)
Recent facts on the importance of corporate losses motivate more careful study of the impact of tax incentives for investment on firms that lose money. I model firm investment decisions in a setting featuring financing constraints and carrybacks and carryforwards of operating losses. I estimate investment responses to tax incentives allowing effects to vary with cash flows and taxable status. Results suggest that asymmetries in the corporate tax code could have made recent bonus depreciation tax incentives at most 4% less effective than they would have been if all firms were fully taxable. Cash flows have more important effects on the impact of tax incentives. Recent declines in cash flows would predict a 24% decrease in the effectiveness of bonus depreciation. Results thus suggest that tax incentives have the smallest impact on investment exactly when they are most likely to be put in place—during downturns in economic activity when cash flows are low.
- Revenue Implications of New York City’s Tax System, with Andrew Haughwout and Rae Rosen.
(Current Issues in Economics and Finance: Second District Highlights, April 2004)
A study of New York City’s tax system finds that over the past three decades, the system has become less reliant on property and general sales taxes and more dependent on corporate and personal income taxes. This shift has made the city’s tax revenues less stable than the revenues of the 1970s and more sensitive to cyclical swings.
- Institutions, Tax Structure and
State–local Fiscal Stress, with Andrew Haughwout and Rae Rosen.
(National Tax Journal, March 2004)
We discuss budgetary institutions and the evolution of tax systems in the state and local sector, drawing on evidence from New York City. An increasing reliance on personal income taxes and a corresponding de–emphasis on property taxes have made the city’s tax revenues significantly less stable and more sensitive to fluctuations in the city’s economy. Nonetheless, adjusting the personal income tax rate to smooth revenues over the business cycle may be an effective way of transferring cyclical shocks from an actor who faces borrowing constraints (the city or state) to actors who do not face such constraints (upper income taxpayers).
Working papers:
- Investment, Accounting, and the Salience of the Corporate Income
Tax (FEDS Working Paper)
This paper develops and tests the hypothesis that accounting rules mitigate the impact of tax policy on investment decisions by obscuring the timing of tax payments. I model a firm that maximizes a discounted weighted average of after-tax cash flows and accounting profits. The cost of capital and the impact of tax incentives for investment both depend on the weight placed on accounting profits. I estimate this weight by comparing the effectiveness of tax incentives that do and do not affect accounting profits. Investment tax credits, which do affect accounting profits, have more impact on investment than accelerated depreciation, which does not. This difference in estimated impact is not obviously driven by discounting, cash flow effects, or measurement error. Results thus suggest that the tax burden on corporate capital could be lower than we would otherwise estimate, and accelerated depreciation provisions are less effective than they otherwise would be.
- Estimating Machinery Supply Elasticities Using Output Price Booms (FEDS Working Paper)
Recent years have seen large increases in the prices of houses, farm products, metals, and oil, often with little clear connection to economic fundamentals. These price increases created plausibly exogenous shifts in demand for construction, farm, and mining machinery. This paper uses these demand shifts to estimate the elasticity of machinery supply. Graphical evidence, OLS, and IV estimates all indicate that the quantity of machinery supplied increased rapidly during the booms, with only modest increases in prices. Pooled sample estimates of the supply elasticity are around 5, much larger than the estimate of 1 from Goolsbee [1998]. Results thus suggest that public policies that stimulate investment demand will have only modest effects on the prices of investment goods.
- Effects of the 2003 Dividend Tax Cut: Evidence from Real Estate Investment Trusts (FEDS Working Paper)
Recent literature has estimated that the 2003 dividend tax cut caused a large increase in aggregate dividend payouts, which would imply that dividend taxation creates large efficiency costs relative to the amount of revenue raised. I document that dividend payouts by real estate investment trusts also rose sharply following the tax cut, even though REIT dividends did not qualify for the cut. Using REITs as a control group in a simple difference-in-differences framework produces small and statistically insignificant estimates of the effect of the tax cut on aggregate dividend payouts. I further document that the ratio of dividend payouts to corporate earnings changed little after the tax cut, and that the ratio of dividend payouts to share repurchases fell dramatically. These facts suggest that contemporaneous increases in earnings and investor demand for payouts drove the observed increases in aggregate dividend payouts, with at most a modest role for the tax cut.
- Taxes and Business Investment: New Evidence from Used Equipment
This paper uses data on transaction prices of used farm machinery, aircraft, and construction machinery to examine the impact and incidence of tax incentives for investment. Theory predicts that incentives applying only to new investment should drive a wedge equal to the value of the incentives between the prices of new equipment and equally productive used equipment. Evidence from the repeal of the investment tax credit in the Tax Reform Act of 1986 produces a large and significant estimated effect of the ITC on the relative price of used farm machinery, with similar, but less robust, results for aircraft. The estimated effect of recent bonus depreciation incentives on the price of used construction machinery is close to zero, however, suggesting that bonus depreciation had little value to machinery buyers.
Work in Progress:
- Credit Supply and Business Investment During the Great Recession: Evidence from Public Records of Equipment Financing
- Financing Frictions and the Efficacy of Tax Incentives: Evidence from Cash Grants for Renewable Energy Investments (with Jim Sallee)