"Taxes, Regulations and Business Structure in the US" (Job Market Paper)

Abstract:   The United States has experienced a dramatic shift in the distribution of output across different business structures in the US since the 1980s. The share of output of pass-through entities (S-corporations, LLCs, partnerships, sole proprietorships) almost doubled, while that of C-corporations declined by one-fourth. During this period, there have been notable changes in the tax structure and tax avoidance within these entities. Using a dynamic growth model with endogenous tax avoidance, occupation choice, and uninsurable entrepreneurial risk, I study the extent to which changes in taxation can account for the observed reallocation of output. My quantitative results indicate that changes in tax rates account for 14 percent of the reallocation of output share observed in the US. I also find that the cumulative effect of changes in taxation, borrowing ability, and tax avoidance accounts for about 26 percent of the reallocation of output. Moreover, other regulatory changes – reflected in overhead costs – can lead to a substantial output reallocation toward pass-through entities. A policy experiment of imposing a tax on top wealth holders leads to a significant increase in the net-tax gap, and more resources allocated to tax avoidance activities, and a decline in government revenue.

Presented at: Midwest Macro Meeting Fall 2022 (November 2022), Southern Economic Association 93rd Annual Meeting (November 2023)

"Marriage, Entrepreneurship and Female Labor Force Participation in the US"  (November 2023 version)

Abstract: The United States has experienced a remarkable decline in the rate of firm entry and the share of entrepreneurs since the 1980s. I document that entrepreneurship is more prevalent in married households and among men, and that these groups went through a greater decline in entrepreneurship. I document that changes in the number of married households and the increase in female labor force participation account for over 40 percent of the overall fall in entrepreneurship since the 1980s. To understand the relationship between demographic composition factors and entrepreneurship, I develop a model with an occupation choice for individuals of different marital status, college skills, and gender. The model takes into account important features of the data, including the extent of marital sorting, the skill premium, the gender wage gap, and the gender business income gap. My results indicate that changes in the demographic composition (share of married households, fraction of skilled individuals, marital sorting) account for 76% of the decline in entrepreneurship, 68.4% of the fall in married entrepreneurs, and 70.5% of the decrease in male entrepreneurs. Moreover, considering all changes account for 82.8% of the observed fall in entrepreneurship.

Presented at: Midwest Macro Meeting Fall 2023 (November 2023)  

"Entrepreneurship, Inequality, and Redistribution" joint with Hakki Yazici (University of Bristol)

Abstract: We study optimal taxation in a model of entrepreneurship in which the mismatch between entrepreneurial ability and wealth creates productive inefficiency in the presence of financial frictions. Redistribution can be helpful in bringing the economy to its production possibilities frontier by reducing wealth inequality but is costly as taxation distorts wealth creation. We develop a theoretical model to derive optimal capital tax formulas that reflect this trade-off.  Our tax formulas reveal that optimal redistribution is increasing in the degree of the ability-wealth mismatch and decreasing in the tax elasticity of aggregate wealth. Then, we develop a quantitative model incorporating occupational choice, financial frictions, and uninsurable entrepreneurial risk to analyze the quantitative implications of this trade-off. The government maximizes a Utilitarian social welfare function by choosing taxes and transfers in the economy. We are currently in the stage of calibrating it to the US Economy.