Daniel Wilson, Research Advisor, Federal Reserve Bank of San Francisco

Daniel Wilson

Research Advisor

Microeconomic Research

Public finance, Productivity, Investment

Daniel.Wilson (at) sf.frb.org


Working Papers
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Measuring News Sentiment

2017-01 | With Shapiro and Sudhof | January 2017

abstract (+)
We develop and assess new time series measures of economic sentiment based on computational text analysis of economic and financial newspaper articles from January 1980 to April 2015. The text analysis is based on predictive models estimated using machine learning techniques from Kanjoya. We analyze four alternative news sentiment indexes. We find that the news sentiment indexes correlate strongly with contemporaneous business cycle indicators. We also find that innovations to news sentiment predict future economic activity. Furthermore, in most cases, the news sentiment measures outperform the University of Michigan and Conference board measures in predicting the federal funds rate, consumption, employment, inflation, industrial production, and the S&P500. For some of these economic outcomes, there is evidence that the news sentiment measures have significant predictive power even after conditioning on these survey-based measures.
The Economic Effects of Weather: Evidence from Big Data on Small Places

2016-21 | September 2016

abstract (+)
The effects of weather on the economy, outside of agriculture, have been surprisingly understudied. This paper exploits vast granular local data on employment and weather – with over 10 million county-industry-month observations – to estimate dynamic panel data (DPD) models of weather’s short-run effects. The estimates from this model provide an in-depth understanding of exactly how weather affects the economy at the local level. Temperature (by season), precipitation, snowfall, and the frequency of very hot and very cold days within a month are found to have significant effects on local employment growth. The effects are generally transitory, with some key exceptions, and vary substantially across industries and regions. The fitted county DPD model then is used to generate estimates of the total weather effect on national employment growth. I evaluate the in-sample and out-of-sample explanatory power of these estimates, compared with estimates from a national time-series model. While the estimated weather effects from the national time-series model yield a better in-sample fit, the estimated effects from the nationally-aggregated county DPD model provide a better out-of-sample fit.
Inequality and Mortality: New Evidence from U.S. County Panel Data

2013-13 | With Daly | May 2013

abstract (+)
A large body of past research, looking across countries, states, and metropolitan areas, has found positive and statistically significant associations between income inequality and mortality. By contrast, in recent years more robust statistical methods using larger and richer data sources have generally pointed to little or no relationship between inequality and mortality. This paper aims both to document how methodological shortcomings tend to positively bias this statistical association and to advance this literature by estimating the inequality-mortality relationship. We use a comprehensive and rich new data set that combines U.S. county-level data for 1990 and 2000 on age-race-gender-specific mortality rates, a rich set of observable covariates, and previously unused Census data on local income inequality (Gini index and three income percentile ratios). Using panel data estimation techniques, we find evidence of a statistically significant negative relationship between mortality and inequality. This finding that increased inequality is associated with declines in mortality at the county level suggests a change in course for the literature. In particular, the emphasis to date on the potential psychosocial and resource allocation costs associated with higher inequality is likely missing important offsetting positives that may dominate.
Job Creation Tax Credits, Fiscal Foresight, and Job Growth: Evidence from U.S. States

2010-25 | With Chirinko | November 2016

abstract (+)
This paper studies fiscal foresight — alterations of current behavior by forward-looking agents in anticipation of future policy changes – using variation in state job creation tax credits (JCTCs). Nearly half of the U.S. states enacted JCTCs between 1990 and 2007, and their unique experiences provide a rich source of information for assessing the quantitative importance of fiscal foresight. We investigate whether JCTCs affect employment growth before, at, and after the time they go into effect. A theoretical model identifies three key conditions necessary for fiscal foresight, captures the effects of the rolling base feature of JCTCs, and generates several empirical predictions. We evaluate these predictions in a difference-in-difference regression framework applied to monthly panel data on employment, the JCTC effective and legislative dates, and various controls. Failing to account for the distorting effects of fiscal foresight can result in upwardly biased estimates of the impact of the JCTC fiscal policy by as much as 34%. We also find that the cumulative effect of the JCTCs is positive, but it takes several years for the full effect to be realized. The cost per job created is approximately $18,000, which is low relative to cost estimates of recent federal fiscal programs. This figure implies a fiscal multiplier on JCTC tax expenditures of about 1.66.
A State Level Database for the Manufacturing Sector: Construction and Sources

2009-21 | With Chirinko | October 2009

abstract (+)
This document describes the construction of and data sources for a state-level panel data set measuring output and factor use for the manufacturing sector. These data are a subset of a larger, comprehensive data set that we currently are constructing and hope to post on the FRBSF website in the near future. The comprehensive data set will cover the U.S. manufacturing sector and may be thought of as a state-level analog to other widely used productivity data sets such as the industry-level NBER Productivity Database or Dale Jorgenson’s “KLEM” database or the country-level Penn World Tables, but with an added emphasis on adjusting prices for taxes. The selected variables currently available for public use are nominal and real gross output, nominal and real investment, and real capital stock. The data cover all fifty states and the period 1963 to 2006.
supplement (+)
public_cwdata.dta – Stata public use Chirinko-Wilson state manufacturing panel data
public_cwdata.csv – CSV public use Chirinko-Wilson state manufacturing panel data
Tax Competition among U.S. States: Racing to the Bottom or Riding on a Seesaw?

2008-03 | With Chirinko | March 2017

abstract (+)
Dramatic declines in capital tax rates among U.S. states and European countries have been linked by many commentators to tax competition, an inevitable “race to the bottom,” and underprovision of local public goods. This paper analyzes the reaction of capital tax policy in a given U.S. state to changes in capital tax policy by other states. Our study is undertaken with a novel panel data set covering the 48 contiguous U.S. states for the period 1965 to 2006 and is guided by the theory of strategic tax competition. The latter suggests that capital tax policy is a function of “foreign” (out-of-state) tax policy, preferences for government services, home state and foreign state economic and demographic conditions. The slope of the reaction function – the equilibrium response of home state to foreign state tax policy – is negative, contrary to casual evidence and many prior empirical studies of fiscal reaction functions. This result, which stands in contrast to most published findings, is due to two critical elements – allowing for delayed responses to foreign tax changes and for heterogeneous responses to aggregate shocks. Omitting either of these elements leads to a misspecified model and a positively sloped reaction function. Our results suggest that the secular decline in capital tax rates, at least among U.S. states, reflects synchronous responses among states to common shocks rather than competitive responses to foreign state tax policy. While striking given prior empirical findings, these results are fully consistent with the qualitative and quantitative implications of the theoretical model developed in this paper and presented elsewhere in the literature. Rather than “racing to the bottom,” our findings suggest that states are “riding on a seesaw.” Consequently, tax competition may lead to an increase in the provision of local public goods, and policies aimed at restricting tax competition to stem the tide of declining capital taxation are likely to be ineffective.
supplement (+)
wp08-03bk_Supplement.pdf – Supplementary Materials
Keeping Up with the Joneses and Staying Ahead of the Smiths: Evidence from Suicide Data

2006-12 | With Daly | May 2006

abstract (+)
This paper empirically assesses the theory of interpersonal income comparison using a unique data set on suicide deaths in the United States. We treat suicide as a choice variable, conditional on exogenous risk factors, reflecting one’s assessment of current and expected future utility. Using this framework we examine whether differences in group-specific suicide rates are systematically related to income dispersion, controlling for socio-demographic characteristics and income level. The results strongly support the notion that individuals consider relative income in addition to absolute income when evaluating their own utility. Importantly, the findings suggest that relative income affects utility in a two-sided manner, meaning that individuals care about the incomes of those above them (the Joneses) and those below them (the Smiths). Our results complement and extend those from studies using subjective survey data or data from controlled experiments.
Published Articles (Refereed Journals and Volumes)
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The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists

Forthcoming in American Economic Review | With Moretti

abstract (+)
Using data on the universe of U.S. patents filed between 1976 and 2010, we quantify how sensitive is migration by star scientist to changes in personal and business tax differentials across states. We uncover large, stable, and precisely estimated effects of personal and corporate taxes on star scientists’ migration patterns. The long run elasticity of mobility relative to taxes is 1.6 for personal income taxes, 2.3 for state corporate income tax and -2.6 for the investment tax credit. The effect on mobility is small in the short run, and tends to grow over time. We find no evidence of pre-trends: Changes in mobility follow changes in taxes and do not to precede them. Consistent with their high income, star scientists’ migratory flows are sensitive to changes in the 99th percentile marginal tax rate, but are insensitive to changes in taxes for the median income. As expected, the effect of corporate income taxes is concentrated among private sector inventors: no effect is found on academic and government researchers. Moreover, corporate taxes only matter in states where the wage bill enters the state’s formula for apportioning multi-state income. No effect is found in states that apportion income based only on sales (in which case labor’s location has little or no effect on the tax bill). We also find no evidence that changes in state taxes are correlated with changes in the fortunes of local firms in the innovation sector in the years leading up to the tax change. Overall, we conclude that state taxes have significant effect of the geographical location of star scientists and possibly other highly skilled workers. While there are many other factors that drive when innovative individual and innovative companies decide to locate, there are enough firms and workers on the margin that relative taxes matter.
Are State Governments Roadblocks to Federal Stimulus? Evidence on the Flypaper Effect of Highway Grants in the 2009 Recovery Act

Forthcoming in American Economic Journal: Economic Policy | With Leduc

abstract (+)
We examine how state governments adjusted spending in response to the large temporary increase in federal highway grants under the 2009 American Recovery and Reinvestment Act (ARRA). The mechanism used to apportion ARRA highway grants to states allows us to isolate exogenous changes in these grants. We find that states increased highway spending over 2009 to 2011 more than dollar-for-dollar with the ARRA grants they received. We examine whether rent-seeking efforts could help explain this result. We find states with more political contributions from the public-works sector tended to spend more out of their ARRA highway funds than other states.
State Incentives for Innovation, Star Scientists and Jobs: Evidence from Biotech

Journal of Urban Economics 79, 2014, 20-38 | With Moretti

abstract (+)
We evaluate the effects of state-provided financial incentives for biotech companies, which are part of a growing trend of placed-based policies designed to spur innovation clusters. We estimate that the adoption of subsidies for biotech employers by a state raises the number of star biotech scientists in that state by about 15 percent over a three year period. A 10% decline in the user cost of capital induced by an increase in R&D tax incentives raises the number of stars by 22%. Most of the gains are due to the relocation of star scientist to adopting states, with limited effect on the productivity of incumbent scientists already in the state. The gains are concentrated among private sector inventors. We uncover little effect of subsidies on academic researchers, consistent with the fact that their incentives are unaffected. Our estimates indicate that the effect on overall employment in the biotech sector is of comparable magnitude to that on star scientists. Consistent with a model where workers are fairly mobile across states, we find limited effects on salaries in the industry. We uncover large effects on employment in the non-traded sector due to a sizable multiplier effect, with the largest impact on employment in construction and retail. Finally, we find limited evidence of a displacement effect on states that are geographically close, or states that economically close as measured by migration flows.
Infrastructure Spending as Fiscal Stimulus: Assessing the Evidence

Review of Economics and Institutions 5, Winter 2014, 1-24

abstract (+)
Transportation spending often plays a prominent role in government efforts to stimulate the economy during downturns. Yet, despite the frequent use of transportation spending as a form of fiscal stimulus, there is little known about its short- or medium-run effectiveness. Does it translate quickly into higher emploiyment and economic activity or does it impact the economy only slowly over time? This paper reviews the empirical finding in the literature for the United States and other developed economies and compares the effects of transportation spending to those of other types of government spending.
Relative Status and Well-Being: Evidence from U.S. Suicide Deaths

Review of Economics and Statistics 95(5), December 2013, 1480-1500 | With Daly and Johnson

abstract (+)
We assess the importance of interpersonal income comparisons using data on suicide deaths. We examine whether suicide risk is related to others’ income, holding own income and other individual and environmental factors fixed. We estimate models of the suicide hazard using two independent data sets: (1) the National Longitudinal Mortality Study and (2) the National Center for Health Statistics’ Multiple Cause of Death Files combined with the 5 percent Public Use Micro Sample of the 1990 decennial census. Results from both data sources show that, controlling for own income and individual characteristics, individual suicide risk rises with others’ income.
Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment

In NBER Macroeconomic Annual 2012, 27, ed. by Jonathan Parker and Michael Woodford | University of Chicago Press, 2013. 89-142 | With Leduc

abstract (+)
We examine the dynamic macroeconomic effects of public infrastructure investment both theoretically and empirically, using a novel data set we compiled on various highway spending measures. Relying on the institutional design of federal grant distributions among states, we construct a measure of government highway spending shocks that captures revisions in expectations about future government investment. We find that shocks to federal highway funding has a positive effect on local GDP both on impact and after 6 to 8 years, with the impact effect coming from shocks during (local) recessions. However, we find no permanent effect (as of 10 years after the shock). Similar impulse responses are found in a number of other macroeconomic variables. The transmission channel for these responses appears to be through initial funding leading to building, over several years, of public highway capital which then temporarily boosts private sector productivity and local demand. To help interpret these findings, we develop an open economy New Keynesian model with productive public capital in which regions are part of a monetary and fiscal union. We show that the presence of productive public capital in this model can yield impulse responses with the same qualitative pattern that we find empirically.
supplement (+)
wp12-04bk.pdf – Working Paper 2012-04
wp12-04bkAppendices.pdf – Appendices to Working Paper 2012-04
Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act

American Economic Journal: Economic Policy 4(3), August 2012, 251-282

abstract (+)
This paper estimates the “jobs multiplier” of fiscal spending using the state-level allocations of federal stimulus funds from the American Recovery and Reinvestment Act (ARRA) of 2009. Because the level and timing of stimulus funds that a state receives are potentially endogenous, I exploit the fact that most of these funds were allocated according to exogenous formula factors such as the number of federal highway miles in a state or its youth share of population. The estimates imply that each million dollars of announced stimulus in a state was associated with approximately eight jobs created or saved in that state as of one year after the ARRA was enacted. The implied cost per job is about $125,000.
Dark Contrasts: The Paradox of High Rates of Suicide in Happy Places

Journal of Economic Behavior and Organization 80(3), 2011, 435-442 | With Daly, Oswald, and Wu

abstract (+)
Suicide kills more Americans than die in motor accidents. Its causes remain poorly understood. We suggest in this paper that the level of others’ happiness may be a risk factor for suicide (although one’s own happiness likely protects one from suicide). Using U.S. and international data, the paper provides evidence for a paradox: the happiest places tend to have the highest suicide rates. The analysis appears to be the first published study to be able to combine rich individual-level data sets–one on life satisfaction in a newly available random sample of 1.3 million Americans and another on suicide decisions among an independent random sample of about 1 million Americans–to establish this dark-contrasts paradox in a consistent way across U.S. states. The study also replicates the finding for the Western industrialized nations. The paradox, which holds individual characteristics constant, is not an artifact of population composition or confounding factors (or of the ecological fallacy). We conclude with a discussion of the possible role of relative comparisons of utility.
Can Lower Taxes Be Bought? The Role of Business Rent-Seeking in Tax Competition among U.S. States

National Tax Journal 63(4), 2010, 967-994 | With Chirinko

abstract (+)
The standard model of strategic tax competition–the noncooperative tax-setting behavior of jurisdictions competing for a mobile capital tax base–assumes that government policymakers are perfectly benevolent, acting solely to maximize the utility of the representative resident in their jurisdiction. We depart from this assumption by allowing for the possibility that policymakers also may be influenced by the rent-seeking (lobbying) behavior of businesses. Businesses recognize the factors affecting policymakers’ welfare and may make campaign contributions to influence tax policy. This extension to the standard strategic tax competition model implies that business contributions may affect not only the levels of equilibrium tax rates but also the slope of the tax reaction function between jurisdictions. Thus, business campaign contributions may directly influence business tax rates, as well as indirectly shape tax competition, and enhance or retard the mobility of capital across jurisdictions. Based on a panel of 48 U.S. states and unique data on business campaign contributions, our empirical work uncovers four key results. First, we document a significant direct effect of business contributions on tax policy. Second, the economic value of a $1 business campaign contribution in terms of lower state corporate taxes is approximately $6.65. Third, the slope of the reaction function between tax policy in a given state and the tax policies of its competitive states is negative, and this slope is robust to business campaign contributions. Fourth, we document the sensitivity of the empirical results to state effects.
Beggar Thy Neighbor? The In-State, Out-of-State, and Aggregate Effects of R&D Tax Credits

Review of Economics and Statistics 91(2), 2009, 431-436

abstract (+)
The proliferation of R&D tax incentives among U.S. states in recent decades raises two important questions: (1) Are these tax incentives effective in achieving their stated objective, to increase R&D spending within the state? (2) To the extent the incentives do increase R&D within the state, how much of this increase is due to drawing R&D away from other states? In short, this paper answers (1) “yes” and (2) “nearly all,” with the implication that the net national effect of R&D tax incentives on R&D spending is near zero. The paper addresses these questions by exploiting the cross-sectional and time-series variation in R&D tax credits, and in turn the user cost of R&D, among U.S. states from 1981-2004 to estimate an augmented version of the standard R&D factor demand model. I estimate an in-state user cost elasticity (UCE) around -2.5 (in the long-run), consistent with previous studies of the R&D cost elasticity. However, the R&D elasticity with respect to costs in neighboring states, which has not previously been investigated, is estimated to be around +2.5, suggesting a zero-sum game among states and raising concerns about the efficiency of state R&D credits from the standpoint of national social welfare.
supplement (+)
wp05-08bk.pdf – Working Paper 2005-08, expanded form of published article.
RDusercost.xls – Data set
Happiness, Unhappiness, and Suicide: An Empirical Assessment

Journal of European Economic Association 7, 2009, 539-549 | With Daly

abstract (+)
The use of subjective well-being (SWB) data for investigating the nature of individual preferences has increased tremendously in recent years. There has been much debate about the cross-sectional and time-series patterns found in these data, particularly with respect to the relationship between SWB and relative status. Part of this debate concerns how well SWB data measures true utility or preferences. In a recent paper, Daly, Wilson, and Johnson (2007) propose using data on suicide as a revealed preference (outcome-based) measure of well-being and find strong evidence that reference-group income negatively affects suicide risk. In this paper, we compare and contrast the empirical patterns of SWB and suicide data. We find that the two have very little in common in aggregate data (time series and cross-sectional), but have a strikingly strong relationship in terms of their determinants in individual-level, multivariate regressions. This latter result cross-validates suicide and SWB micro data as useful and complementary indicators of latent utility.
IT and Beyond: The Contribution of Heterogeneous Capital to Productivity

Journal of Business and Economic Statistics 27(1), January 2009, 52-70

abstract (+)
This article explores the relationship between capital composition and productivity using a unique, detailed dataset on firm investment in the United States in the late 1990s. I develop a methodology for estimating the separate effects of multiple capital types in a production function framework. I back out the implied marginal products of each capital type and compare these with rental price data. I find that although most capital types earned normal returns, information and communications technology capital goods had marginal products substantially above their rental prices. The article also provides evidence of complementarities and substitutabilities among capital types and between capital types and labor.
State Investment Tax Incentives: A Zero-Sum Game?

Journal of Public Economics 92(12), December 2008, 2,362-2,384 | With Chirinko

abstract (+)
Over the past four decades, state investment tax incentives have proliferated. This emergence of state investment tax credits (ITC) and other investment tax incentives raises two important questions: (1) Are these tax incentives effective in achieving their stated objective, to increase investment within the state?; (2) To the extent these incentives raise investment within the state, how much of this increase is due to investment drawn away from other states? To begin to answer these questions, we construct a detailed panel data set for 48 states for 20-plus years. The dataset contains series on output and capital, their relative prices, and establishment counts. The effects of tax variables on capital formation and establishments are measured by the Jorgensonian user cost of capital that depends in a nonlinear manner on federal and state tax variables. Cross-jurisdictional differences in state investment tax credits and state corporate tax rates entering the user cost, combined with a panel that is long in the time dimension, are key to identifying the effectiveness of state investment incentives. Two models are estimated. The Capital Demand Model is motivated by the first-order condition for a profit-maximizing firm and relates at the state level the capital/output ratio to the relative user cost of capital. The Twin-Counties Model exploits both the spatial breaks (“discontinuities”) in tax policy at state borders and our panel data set to relate at the county level the relative user cost to the location of manufacturing establishments. Using the Capital Demand Model, we find that own-state capital formation is substantially increased by tax-induced reductions in the own-state price of capital and, more interestingly, substantially decreased by tax-induced reductions in the price of capital in competitive-states. Similarly, using our Twin-Counties Model, we find that county manufacturing establishment counts around state borders are higher on the side of the border with the lower price of capital, but the difference is economically small, suggesting that establishments are much less mobile than overall capital. Extensions of the Capital Demand Model also reveal that state capital tax policy appears to be a zero-sum game among the states in that an equiproportionate increase in own-state and competitive-states user costs tends to have no effect on own-state capital formation.
Investment Behavior of U.S. Firms over Heterogeneous Capital Goods: A Snapshot

Review of Income and Wealth 54(2) , June 2008, 269-278

abstract (+)
Recent research has indicated that investment in certain capital types, such as computers, has fostered accelerated productivity growth and enabled a fundamental reorganization of the workplace. However, remarkably little is known about the composition of investment at the micro level. This short paper takes an important first step in filling this knowledge gap by looking at the newly available micro data from the 1998 Annual Capital Expenditure Survey (ACES), a sample of roughly 30,000 firms drawn from the private, nonfarm economy. The paper establishes a number of stylized facts. Among other things, I find that in contrast to aggregate data the typical firm tends to concentrate its capital expenditures in a very limited number of capital types, though which types are chosen varies greatly from firm to firm. In addition, computers account for a significantly larger share of firms’ incremental investment than they do of lumpy investment.
Micro and Macro Data Integration: The Case of Capital

In A New Architecture for The U.S. National Accounts, NBER/CRIW Volume, ed. by Jorgenson, Landefeld, and Nordhaus | Chicago: University of Chicago, 2006. 541-609 | With Becker, Jarmin, Klimek, and Haltiwanger

abstract (+)
Micro and macro data integration should be an objective of economic measurement as it is clearly advantageous to have internally consistent measurement at all levels of aggregation–firm, industry and aggregate. In spite of the apparently compelling arguments, there are few measures of business activity that achieve anything close to micro/macro data internal consistency. The measures of business activity that are arguably the worst on this dimension are capital stocks and flows. In this paper, we document, quantify and analyze the widely different approaches to the measurement of capital from the aggregate (top down) and micro (bottom up) perspectives. We find that recent developments in data collection permit improved integration of the top down and bottom up approaches. We develop a prototype hybrid method that exploits these data to improve micro/macro data internal consistency in a manner that could potentially lead to substantially improved measures of capital stocks and flows at the industry level. We also explore the properties of the micro distribution of investment. In spite of substantial data and associated measurement limitations, we show that the micro distributions of investment exhibit properties that are of interest to both micro and macro analysts of investment behavior. These findings help highlight some of the potential benefits of micro/macro data integration.
Quantifying Embodied Technological Change

Review of Economic Dynamics 7(1), January 2004, 1-26 | With Sakellaris

abstract (+)
We estimate the rate of embodied technological change directly from plant-level manufacturing data on current output and input choices along with histories on their vintages of equipment investment. Our estimates range between 8 percent and 17 percent for the typical U.S. manufacturing plant during the years 1972-1996. Any number in this range is substantially larger than is conventionally accepted with some important implications. First, the role of investment-specific technological change as an engine of growth is even larger than previously estimated. Second, existing producer durable price indexes do not adequately account for quality change. As a result, measured capital stock growth is biased. Third, if accurate, the Hulten and Wykoff (1981) economic depreciation rates may primarily reflect obsolescence.
Importing Technology

Journal of Monetary Economics 51(1), January 2004, 1-32 | With Caselli

abstract (+)
We look at disaggregated imports of various types of equipment to make inferences on cross-country differences in the composition of equipment investment. We make three contributions. First, we document strikingly large differences in investment composition. Second, we explain the differences as being based on each equipment type’s degree of complementarity with other factors whose abundance differs across countries. Third, we show that the composition of capital has the potential to account for some of the large observed differences in total factor productivity across countries.
Embodying Embodiment in a Structural, Macroeconomic Input-Output Model

Economic Systems Research 15(3), September 2003, 371-398

abstract (+)
In this paper, I develop a regression-based system of labor productivity equations that account for capital-embodied technological change, and I incorporate this system into IDLIFT, a structural, macroeconomic input-output model of the U.S. economy. Builders of regression-based forecasting models have long had difficulty finding labor productivity equations that exhibit the “Solowian” property that movements in investment should cause accompanying movements in labor productivity. The production theory developed by Solow and others dictates that this causation is driven by the effect of traditional capital deepening as well as technological change embodied in capital. Lack of measurement of the latter has hampered the ability of researchers to estimate properly the productivity-investment relationship. Recent research by Wilson (2001) has alleviated this difficulty by estimating industry-level embodied technological change. In this paper, I utilize those estimates to construct capital stocks adjusted for technological change and then use these adjusted stocks to estimate Solow-type labor productivity equations. It is shown that replacing IDLIFT’s former productivity equations, based on changes in output and time trends, with the new equations, results in a convergence between the dynamic behavior of the model and that predicted by traditional (Solowian) production theory.
Is Embodied Technology the Result of Upstream R&D? Industry-Level Evidence

Review of Economic Dynamics 5(2), April 2002, 285-317

abstract (+)
This paper provides an exploratory analysis of whether data on the research and development (R&D) spending directed at particular technological/product fields can be used to measure industry-level capital-embodied technological change. Evidence from the patent literature suggests that the R&D directed at a product, as the main input into the “innovation” production function, is proportional to the value of the innovations in that product. I confirm this hypothesis by showing that the decline in the relative price of a good is positively correlated with the R&D directed at that product. The hypothesis implies that the technological change, or innovation, embodied in an industry’s capital is proportional to the R&D that is done (“upstream”) by the economy as a whole on each of the capital goods that a (“downstream”) industry purchases. Using R&D data from the National Science Foundation, I construct measures of capital-embodied R&D. I find they have a strong effect on conventionally measured total-factor productivity growth, a phenomenon that seems to be due partly to the mismeasurement of quality change in the capital stock and partly to a positive correlation between embodied and disembodied technological change. Finally, I find the cross-industry variation in empirical estimates of embodied technological change accord with the cross-industry variation in embodied R&D.
Estimating Returns to Scale: Lo, Still No Balance

Journal of Macroeconomics 22(2), Spring 2000, 285-314

abstract (+)
Using detailed data and a unique instrument set, estimates of returns to scale in U.S. manufacturing were obtained at various levels of aggregation. With a few key exceptions, empirical puzzles previously found are confirmed and further investigated. One implication of these findings is that there is essentially no evidence of large increasing returns necessary in many recent macro models. Also, the finding of significant heterogeneity among 4-digit sectors casts doubt on the use of the representative firm paradigm in macroeconomic modeling. These results suggest the presence of vast reallocation effects among firms within sectors, manifesting itself as decreasing returns.
FRBSF Publications
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How Important Is Information from FOMC Minutes?

Economic Letter 2016-37 | December 19, 2016 | With Nechio

Clearing the Fog: The Effects of Weather on Jobs

Economic Letter 2016-29 | October 3, 2016 | With van der List

Residual Seasonality and Monetary Policy

Economic Letter 2015-27 | August 24, 2015 | With Rudebusch and Pyle

The Puzzle of Weak First-Quarter GDP Growth

Economic Letter 2015-16 | May 18, 2015 | With Rudebusch and Mahedy

Competing for Jobs: Local Taxes and Incentives

Economic Letter 2015-06 | February 23, 2015

Innovation and Incentives: Evidence from Biotech

Economic Letter 2014-37 | December 8, 2014 | With Moretti

Fueling Road Spending with Federal Stimulus

Economic Letter 2014-25 | August 25, 2014 | With Leduc

Taxes, Transfers, and State Economic Differences

Economic Letter 2013-36 | December 2, 2013 | With Malkin

Fiscal Headwinds: Is the Other Shoe About to Drop?

Economic Letter 2013-16 | June 3, 2013 | With Lucking

Highway Grants: Roads to Prosperity?

Economic Letter 2012-35 | November 26, 2012 | With Leduc

U.S. Fiscal Policy: Headwind or Tailwind?

Economic Letter 2012-20 | July 2, 2012 | With Lucking

Government Spending: An Economic Boost?

Economic Letter 2012-04 | February 6, 2012

What’s in Your Wallet? The Future of Cash

Economic Letter 2011-33 | October 24, 2011 | With Gerst

Is the Recent Productivity Boom Over?

Economic Letter 2010-28 | September 20, 2010

Fiscal Crises of the States: Causes and Consequences

Economic Letter 2010-20 | June 28, 2010 | With Gerst

The U.S. and World Economic Geography Before and After the Downturn: Conference Summary

Economic Letter 2010-13 | April 26, 2010

State Business Taxes and Investment: State-by-State Simulations

Economic Review | 2010 | With Chirinko

Are Fiscal Stimulus Funds Going to the “Right” States?

Economic Letter 2009-14 | April 17, 2009

Tax Credits for Job Creation and Retention: What Can We Learn from the States?

Economic Letter 2009-08 | February 20, 2009 | With Notzon

Research on the Effects of Fiscal Stimulus: Symposium Summary

Economic Letter 2008-20 | July 3, 2008

Recent Trends in Economic Volatility: Conference Summary

Economic Letter 2008-06 | February 15, 2008 | With Notzon

Relative Comparisons and Economics: Empirical Evidence

Economic Letter 2007-30 | October 5, 2007 | With Daly

Changes in Income Inequality across the U.S.

Economic Letter 2007-28 | September 21, 2007 | With Regev

The Mystery of Falling State Corporate Income Taxes

Economic Letter 2006-35 | December 8, 2006

Productivity Growth: Causes and Consequences–Conference Summary

Economic Letter 2006-02 | February 24, 2006

The Rise and Spread of State R&D Tax Credits

Economic Letter 2005-26 | October 14, 2005

Are State R&D Tax Credits Constitutional? An Economic Perspective

Economic Letter 2005-11 | June 3, 2005

Do Differences in Countries’ Capital Composition Matter?

Economic Letter 2004-09 | April 9, 2004

Are We Running Out of New Ideas? A Look at Patents and R&D

Economic Letter 2003-26 | September 12, 2003

Where to Find the Productivity Gains from Innovation?

Economic Letter 2003-04 | February 21, 2003

Productivity in the Twelfth District

Economic Letter 2002-33 | November 8, 2002

ETC (embodied technological change), etc.

Economic Letter 2002-05 | March 1, 2002

Other Works
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User Cost in Darity, William A., Jr.

In International Encyclopedia of Social Sciences, 2nd edition | Detroit: Macmillan Reference USA, 2008

State Investment Tax Incentives: A Few Facts

State Tax Notes 43(8), 2007 | With Chirinko

State Investment Tax Incentives: What Are the Facts?

Proceedings of the 99th Annual Conference on Taxation, 2007 | With Chirinko

abstract (+)
There is an ongoing debate in the U.S. among policymakers and the courts concerning the practical effects of state investment tax incentives. However, this debate often suffers from a lack of clear information on the extent of such incentives among states and how these incentives have evolved over time. This paper takes a first step toward addressing this shortcoming. Compiling information from all 50 states and the District of Columbia over the past 40 years, we are able to paint a picture of the variation in state investment tax incentives across states and over time. In particular, we document three stylized facts: (1) Over the last 40 years, state investment tax incentives have become increasingly large and increasingly common among states; (2) these incentives, as well as the level of the overall after-tax price of capital, are to a large extent clustered in certain regions of the country; and (3) states that enact investment tax credits tend to do so around the same time as their neighboring states.
What Do We Know about the Interstate Economic Effects of State Tax Incentives?

Georgetown Journal of Law and Public Policy 4(1), Winter 2006, 133-164 | With Stark

abstract (+)
Over the last few decades, state and local governments increasingly have adopted tax and other policies to encourage economic development within their borders. These programs have recently come under attack as potentially inconsistent with the U.S. Supreme Court’s dormant Commerce Clause jurisprudence. In an opinion issued in late 2004, the Sixth Circuit Court of Appeals invalidated Ohio’s investment tax credit, contending that it discriminates against interstate commerce. The U.S. Supreme Court has granted certiorari in the case. In the meantime, similar litigation is underway in other states. In reaction to these developments, legislation has been introduced in Congress to protect the right of states to provide tax incentives. To shed light on the issues involved in these ongoing controversies, we offer an introduction to existing research concerning the economic effects of state tax incentives. There is a voluminous literature concerning the efficacy of state business subsidies. Surprisingly, however, very few econometric studies have examined the multistate impact of tax credits for physical investment (for example, the investment tax credit) or research and development (R&D tax credits). This focus may be due in part to the fact that, up until now, the issue was primarily one for state and local policymakers. Yet the interstate economic effects have significance for the Commerce Clause analysis of state tax incentives. Our goal is to provide a general introduction to these issues and to shed some light on the complexities involved in evaluating interstate economic effects.
Capital-Embodied Technological Change: Measurement and Productivity Effects

Ph.D. Dissertation, University of Maryland, May 2001

abstract (+)
This thesis develops new methods for measuring capital-embodied technological change and its effects on productivity. Rates of embodied technological change are necessary to properly measure the productive stock of capital. Results from the hedonic pricing literature have been used for this purpose, though not without controversy. In this dissertation, I first develop an alternative, production-side approach to estimating embodied technological change. The method exploits the large variation in plant-level investment histories available in the Longitudinal Research Database at the U.S. Census Bureau. The empirical results show that the rate of embodied technological change (or, equivalently, obsolescence) in U.S. manufacturing from 1972-96 is between 7 and 17 percent. Any number in this range is substantially larger than price-based estimates. A method of measuring embodied technological change via data on research and development (R&D) is also developed. I propose an index that captures the amount of R&D embodied in an industry’s capital. Combining (and adjusting) data from the National Science Foundation and the Commerce Department, I construct a weighted average of the R&D done on the equipment capital that an industry purchases for 62 industries that span the U.S. private economy. I find that the mean level of embodied R&D over 1972-96 is positively and significantly correlated with the estimates of embodied technological change that I obtained in the first part of the dissertation. Furthermore, embodied R&D has a positive and significant effect on conventionally-measured total factor productivity growth (as one would expect if conventionally-measured capital stocks do not account for embodied technology). Estimates of embodied technological change are used to construct quality-adjusted measures of capital for the purpose of estimating industry-level labor productivity equations. These equations are incorporated into a full structural input-output forecasting model. Finally, the model’s behavior in response to shocks in investment is analyzed.