Working papers:

The United States tax system allows taxpayers to deduct state and local taxes from their taxable incomes. Using local referendum results, we first document a positive relation between the demand for public goods and the share of residents deducting local taxes. Based on this evidence, we develop a theoretical model of public goods capitalization that accounts for the deductibility of taxes. We provide empirical support for the model using cross-sectional and temporal variation in local tax deductions, thereby confirming that federal tax deductions increase the demand for local public goods. Because the incidence of this fiscal subsidy increases with income and wealth, our results provide new insights into the equity of the current tax system.

This study shows that borrowers who benefit from the mortgage interest deduction pay an interest rate that is on average 10 to 12 basis points higher than that of otherwise similar borrowers. This result implies that mortgage originators capture between 11 to 18 percent of this government subsidy. Consistent with a model of individual price discrimination, this additional markup increases with borrowers’ marginal tax rate and with market frictions, including originators’ concentration, search cost, and leverage in bargaining. Thus, the study suggests that interest deductibility functions as price support in credit markets characterized by high market frictions.

We study the change in local governments’ credit risk in response to a fiscal shock impacting their residents. We conduct a policy experiment surrounding the 2017 Tax Cuts and Jobs Act, which significantly reduced residents’ ability to deduct local taxes. We show that a 10 percentage point decrease in the share of residents benefiting from the deductibility of local taxes increases general obligation bonds issuance cost by 15.8 basis points. We then confirm this risk premium using secondary market transaction data. We additionally show that the residents fiscal shock is priced into municipal bonds specifically in states where residents must approve local bonds issuance. Our paper therefore highlights the monitoring role of residents in the financing of local public goods.


Some governments subsidize housing by allowing households to deduct housing expenses from their taxable incomes. These deductions provide considerable monetary benefits to homeowners, but they also have significant downstream implications for tax receipts, the housing market, and welfare. This article explores a large body of work that evaluates the impact of these fiscal deductions on mortgage demand and interest rates, tenure decisions and homeownership rates, housing prices, and welfare. It also reviews recent studies that investigate the distributional impact of housing deductions using the fiscal shock from the Tax Cuts and Jobs Act.

Work in Progress:

  • Sharing Economy and Resilience to Natural Disasters: Evidence from Airbnb Markets with Brent W. Ambrose, & Jiro Yoshida.

Refereed publications:

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