"Taxes, Regulations and Business Structure in the US" (November 2023)

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)

"Entrepreneurship, Marriage and Female Labor Force Participation in the US"  (October 2024)

Abstract: The United States has experienced a significant decline in firm entry rates and entrepreneurship since the 1980s. I document that this decline is more pronounced among married households and men, coinciding with changes in demographic composition (including the share of married households, skilled individuals, and marital sorting) and the rise in female labor force participation. To explore the relationship between demographic shifts and entrepreneurship, I develop a model of occupational choice that incorporates marital status, education, and gender. My findings suggest that changes in demographic composition account for 76% of the decline in entrepreneurship in the U.S.

Presented at: Midwest Macro Meeting Fall 2023 (November 2023), European Economic Association Rotterdam (August 2024)  

"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.