I finished my Ph.D. in the Department of Economics at the Massachusetts Institute of Technology in June 2009. In August, I began work as an economist at the Board of Governors of the Federal Reserve, where I forecast business investment in equipment and software. Please find links to my papers below.
Phone: 202-452-6479
Email: jesse.j.edgerton@frb.gov
Working papers:
- Agency Problems in Public Firms: Evidence from Corporate Jets in
Leveraged Buyouts (June 2010)
This paper uses rich, new 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 42% smaller jet fleets than observably similar publicly traded firms. When public firms are taken private by private equity funds in a leveraged buyout, they reduce the average size of their jet fleets by 47% within three years. I discuss assumptions under which these two figures represent estimates of lower and upper bounds on the average treatment effect across all firms of taking a firm from public to private in a leveraged buyout. Quantile regressions indicate that results at the mean are driven by firms in the upper 30% of the jet distribution. Results thus suggest that executives in some, but not all, public firms enjoy more generous perquisites than they would if subject to the pressures of private equity ownership.
- Investment, Accounting, and the Salience of the Corporate Income Tax (October 2009)
This paper develops the argument that accounting rules make the corporate income tax less salient and less distortionary by obscuring the timing of tax payments. I develop and estimate a model of investment where firms maximize a discounted weighted average of after-tax cash flows and accounting profits. The cost of capital, the tax wedge on the return on capital, and the impact of tax incentives for investment 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. I argue that the difference in estimated impact is not driven by discounting, cash flow effects, or measurement error. The difference is larger among firms with higher measures of earnings management. Results thus suggest that the tax burden on corporate capital is 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 (October 2009)
Recent years have seen large movements in the prices of houses, farm products, metals, and oil. These movements created plausibly exogenous shifts in demand for construction, farm, and mining machinery. This paper uses these shifts in demand 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 would have only modest effects on the prices of investment goods.
- Investment Incentives
and Corporate Tax Asymmetries (Updated May 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.
- Effects of the 2003 Dividend Tax Cut: Evidence from Real Estate Investment Trusts (Updated April 2010)
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 (Updated November 2009)
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.