Daniel P. Murphy

Category: Inequality

  • Demand Stimulus as Social Policy

    with Alan J. Auerbach and Yuriy Gorodnichenko
    Forthcoming, Review of Economic Studies, Read

    Abstract

    We exploit a panel of city-level data with rich demographic information to estimate the distributional effects of Department of Defense spending and its effects on a range of social outcomes. The income generated by defense spending accrues predominantly to households without a bachelor’s degree. These households as well as Black households tend to disproportionately benefit from this spending. Defense spending also promotes a range of beneficial social outcomes that are often targeted by government programs, including reductions in poverty, divorce rates, disability rates, and mortality rates, as well as increases in homeownership, health insurance rates, and occupational prestige. We compare the effects of defense spending with the effects of general demand shocks and explore reasons for the differential effects of the shocks.

  • Housing cycles and gentrification

    Journal of Monetary Economics, 144, 103550, Read

    Abstract

    The analysis in this paper documents a high-frequency link between housing markets and downtown gentrification since the mid-1990s. Specifically, property values and the share of formally educated residents increase more in downtown locations than in suburbs during MSA-wide housing market expansions. This relationship holds conditional on changes in MSA-level high-end incomes and is evident at short (three-year) and longer time horizons. I propose a mechanism to account for this evidence based on stronger pass-through from housing market expansions to housing costs for low-income (less formally educated) households. This evidence has implications for the effects of macroeconomic stabilization policies on inequality.

  • Saving constraints, inequality, and the credit market response to fiscal stimulus

    with Jorge Miranda-Pinto, Kieran James Walsh, Eric R. Young
    European Economic Review, 151, 104355, Read

    Abstract

    We document substantial heterogeneity in the interest rate response to fiscal stimulus (IRRF) across OECD economies. The IRRF is negative in half of the OECD countries, and it declines with income inequality. To interpret this evidence we develop a model in which moderately-low-income households take on debt to maintain a consumption threshold (effectively a saving constraint). Now burdened with debt, these households use additional income to deleverage. In more unequal economies with more saving-constrained households, increases in government spending tighten credit conditions less (relax credit conditions more), leading to smaller increases (larger declines) in the interest rate.

  • Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy

    with Alan J. Auerbach and Yuriy Gorodnichenko
    European Economic Review, 137, 103810, Read

    Abstract

    We evaluate the effects of inequality, fiscal policy, and COVID19 restrictions in a model of economic slack with potentially rigid capital operating costs. Rich households satiate their demand for goods/services (and consume an endowment on the margin), whereas poor households’ spending on goods/services is limited by their income (which in turn depends on spending by the rich and on fiscal transfers). The model implies that inequality has large negative effects on output, while also diminishing the effects of demand-side fiscal stimulus. COVID restrictions can reduce current-period GDP by more than is directly associated with the restrictions themselves when rigid capital costs induce firm exit. Higher inequality is associated with larger restriction multipliers. The effectiveness of fiscal policies depends on inequality and the joint distribution of capital operating costs and firm revenues. Furthermore, COVID19 restrictions can cause future inflation, as households tilt their expenditure toward the future.

  • Welfare consequences of asymmetric growth

    Journal of Economic Behavior & Organization, 126(A), 1-17, Read

    Abstract

    Standard models in macroeconomics and development economics imply that growth in the aggregate enhances welfare for everyone in the economy. I show that instead, if economic growth is biased toward the consumption bundle of the rich, the welfare of the poor may fall. I document the relevance of this mechanism during the latter part of the Twentieth Century by showing that new information technology disproportionately benefited sectors consumed by the rich.