This paper investigates the effect of consumption taxes on firms' product-mix decisions. Using a stacked difference-in-differences design that exploits the staggered transition from a sales tax with cascading risk to a value-added tax in India, and detailed data on listed manufacturing firms' production decisions, we document that affected firms narrow their product scope. Firms reduce internal production of input goods and instead focus on their best-performing products. The evidence is consistent with VAT-induced vertical disintegration, lower manufacturing costs, higher profitability, higher firm value, and improved investment efficiency.
We study whether access to local pollution information causes investors to make greener portfolio allocations, exploiting the rollout of air quality monitoring stations in India. Using a triple-differences framework on the trading records of 19 million investors, we show that retail investors' holdings in "brown" stocks become more negatively related to local pollution after a nearby station appears. This effect is more pronounced on "alert" dates when air quality is reported to be harmful. The effect is strongest among tech-savvy investors likely treated by real-time pollution data, and younger investors, who may be more sensitive to environmental concerns.
We study how households understand and respond to monetary policy by exploiting the open auctions of early-stage crowdfunding and inferring individuals' expectations based on their maximum requested interest rates. Using loan listings from Prosper, we find that borrowers adjust their willingness-to-pay interest rates in response to unexpected Federal funds rate changes, while anticipated shifts have negligible effects. These responses are more pronounced among high-income, high-credit-score borrowers, large loan applicants, and when Federal Reserve communication is transparent. The responses are highly asymmetric: borrowers sharply lower rates during unexpected easing but resist increasing them during unexpected tightening. The results are robust to alternative specifications, including regression-discontinuity-in-time designs and alternative measures of monetary policy shock. Lenders also respond to policy shocks and counteract borrowers' adjustments. Analysis of Robinhood data shows that retail investors mirror this behavior by reducing equity holdings after surprise rate hikes.
Using novel scanner data and a difference-in-differences strategy, we assess how consumers respond to a large-scale tax reform in India that introduces exogenous variation in tax rate changes at the product level. We show a strong and persistent spending response to tax rate changes. The response is highly asymmetrical, with consumers responding significantly more strongly to tax rate increases than to decreases. We find support for both intertemporal and cross-product substitution effects: households shift consumption forward before a tax increase and substitute across goods to avoid paying higher tax. Heterogeneity analysis indicates that consumers with more personal shopping experience exhibit stronger consumption responses.
Working at home benefits entrepreneurs by lowering fixed costs and allowing them to engage in joint market and household production. We evaluate a large-scale reform in Singapore, the Home Office Scheme, that allowed business creation at one's residential property and study whether home-based entrepreneurship spurs entrepreneurial activity. The difference-in-differences estimates show that the reform led to significantly more business creation and that firms newly created in response to the reform had higher survival rates. The effect is more pronounced for low-income female individuals and industries with high startup capital, implying that financial constraints and nonpecuniary benefits likely drive the result.
We hypothesize that social trust, in mitigating contracting incompleteness, may have an important effect on the activeness and effectiveness of delegated portfolio management. Using a complete sample of worldwide open-end mutual funds, we find that trust is positively associated with fund activeness and that trust-related active share delivers superior performance, especially for cross-border investments. Moreover, "trust in the market" and "trust in managers" play important but distinct roles for different types of cross-border delegated portfolio management.
Inspired by findings that air pollution affects mental health and cognition, we examine whether air pollution intensifies a well-known cognitive bias in financial markets. Using proprietary trading data from a large Chinese mutual fund family with complete records for more than 773,000 accounts in 247 cities, we find that air pollution significantly increases investors' disposition effects. Analysis based on two plausible exogenous variations in air quality supports a causal interpretation. Mood regulation is a plausible mechanism.
This study assesses a new mechanism, the deposit channel, in the transmission of interest rate shocks to household consumption using an administrative panel of financial transactions for Turkey. Exploiting variation in consumers' adherence to Islamic rules that forbid earning interest, we show that rate-sensitive consumers significantly reduce their spending after an unanticipated interest rate hike, and the response persists throughout the post-announcement period.
Using New York City taxi tipping records, we develop a measure of real-time utility and quantify the impact of wealth changes on well-being based on prospect theory. A one-standard-deviation increase in the stock market index is associated with a 0.3% increase in the daily average tipping ratio. The effect is short-lived and consistent with a wealth-effect interpretation. Consistent with loss aversion, the impact is primarily driven by wealth loss rather than gain.
Using a comprehensive sample of credit card data from a leading Chinese bank, we show that government bureaucrats receive higher credit lines than comparable non-bureaucrats, but their accounts are also more likely to become delinquent and receive debt forgiveness. Regions associated with greater credit provision to bureaucrats open more branches and receive more deposits from local government. After staggered anti-corruption crackdowns, the premium disappears.
Using a unique dataset that merges motor vehicle events with bankruptcy outcomes and personal data from Singapore, this study finds strong evidence of a gender gap in personal bankruptcy risk. Women have substantially lower odds of bankruptcy than men after controlling for demographic and geographic factors. Using motor vehicle accidents as an instrument, we show that the gender gap is mainly driven by risk-taking behavior, with culture also explaining part of the difference.
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