in progress

Mortgage Interest Deductions? Not a Bad Idea After All
with Shahar Rotberg
Revision requested by Journal of Monetary Economics
[paper] [slides] []

Previous studies have found that mortgage interest deductions and other homeownership subsidies reduce welfare. However, these studies have failed to properly account for two features of the rental market: the elasticity of the rental supply curve, which determines how much rents change when rental demand shifts, and how many renters spend most of their income on housing, which determines how much changes in rents affect welfare. We develop a method to estimate the rental supply elasticity using empirical evidence on renters' property tax incidence, and we demonstrate that subsidizing homeownership actually increases welfare when both features are accounted for.

A Macroeconomic Perspective on Taxing Multinational Enterprises
with Sebastian Dyrda and Guangbin Hong
Revision requested by Journal of International Economics
VoxEU summary
[paper] [slides] []

We study the macroeconomic consequences of tax policies designed to reduce international profit shifting by multinational enterprises (MNEs) using a model that emphasizes transfer pricing of intangible capital. We prove analytically that such policies would reduce MNEs’ intangible investment, reducing output both at home and abroad. We then quantify the effects of the OECD’s proposed reforms: reallocating the rights to tax MNEs’ profits to the countries where they sell their products; and a minimum global corporate income tax. These policies would reduce profit shifting by more than two-thirds, but would also reduce output in all regions of the global economy.

Trade-Policy Dynamics: Evidence from 60 years of U.S.-China Trade
with George Alessandria, Shafaat Khan, Armen Khederlarian, and Kim Ruhl
Revision requested by Journal of Political Economy
NBER Working Paper #29122
VoxChina summary
[paper] [slides] [] []

We study the growth of Chinese exports to the United States, from autarky during 1950--1970 to 15 percent of overall U.S. imports in 2008, taking advantage of the rich heterogeneity in trade policy and trade growth across products during this period. Central to our analysis is an accounting for the dynamics of trade flows, observed trade policy, and expectations about future policy. In our empirical analysis, we estimate the dynamics of the elasticity of Chinese exports to (i) past tariff changes and (ii) the risk of future tariff hikes. We find that Chinese exports responded slowly to the tariff changes that occurred when China was granted Most Favored Nation status in 1980, and that policy uncertainty was more important in the immediate aftermath of this liberalization than in the lead-up to China's 2001 accession to the World Trade Organization. It is difficult, however, to separately identify these two effects using data alone. In our quantitative analysis, we disentangle these effects by using a structural model to estimate a path of trade-policy expectations. We find that the 1980 reform was largely a surprise and initially had a high probability of being reversed. The likelihood of reversal dropped considerably during the mid 1980s but changed little throughout the late 1990s and early 2000s despite China's accession to the World Trade Organization in 2001.

title = {{Trade-Policy Dynamics: Evidence from 60 Years of U.S.-China Trade}},
author = "Alessandria, George A and Khan, Shafaat Y and Khederlarian, Armen and Ruhl, Kim J and Steinberg, Joseph B",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "29122",
year = "2021",
month = "August",
doi = {10.3386/w29122},
URL = "",

Information, Contract Enforcement and Misallocation
[paper] []

Misallocation of resources can cause large reductions in total factor productivity (TFP). The literature emphasizes financial frictions driven by limited contract enforcement that restrict productive firms’ access to credit. Evidence suggests that information frictions also reduce access to credit, particularly in countries with weak contract enforcement. I study how the interaction between information frictions and limited enforcement affects resource allocation and TFP. I build a model in which lenders have imperfect information about borrowers’ default risk and enforcing repayment is costly. I use the model to illustrate i) how imperfect information of this type causes misallocation, and ii) how limited enforcement exacerbates this effect. I calibrate the model and find that imperfect information causes TFP to fall by up to 23% when I take contract enforcement parameter values from U.S. data, and by up to 32% when I set them to values common in low-income countries.

Real Exchange Rate Undervaluation, Financial Development and Economic Growth
[paper] []

This paper studies the hypothesis that real exchange rate undervaluation can alleviate the economic symptoms of financial underdevelopment, acting as a temporary substitute for institutional reform. This hypothesis is motivated by recent empirical studies that document a link between real exchange rate undervaluation and increased growth in GDP per capita in developing countries. As further motivation I present new evidence that this effect is driven by an interaction between undervaluation and financial frictions. Using panel data on value added in manufacturing sectors at the 3-digit ISIC level for 103 countries, I find that for countries with low levels of financial development, real exchange rate undervaluation is associated with stronger growth in sectors that depend more heavily on external financing. To establish a causal relationship between undervaluation, financial development and growth and evaluate its quantitative implications I build a multi-sector semi-small open economy model with limited enforcement of financial contracts. Qualitative partial equilibrium results indicate that a government policy of subsidizing the purchase of tradeable goods undervalues the real exchange rate and loosens enforcement constraints, leading to temporary increased growth on the transition to a new steady state with higher output. The magnitude of this effect is increasing in the severity of the enforcement problem. For economies with severe enforcement problems this policy increases consumption although the quantitative effect is quite small.

journal articles

Tax Evasion and Capital Taxation
with Shahar Rotberg
2023: Journal of Political Economy, Accepted
[paper] [slides] [data + code] []

Wealth inequality has prompted calls for higher taxes on capital income and wealth, but also concerns that rich households would respond by concealing their assets offshore. We use a general equilibrium model to study how taxing capital more heavily would affect offshore tax evasion and how this would affect the broader economy. Without evasion, tax revenue could be increased dramatically, inequality could be reduced, and widespread welfare gains could be achieved. After accounting for evasion, however, tax revenue would rise marginally or even fall, inequality would increase, and widespread welfare losses would result.

Optimal Taxation of Multinational Enterprises: A Ramsey Approach
with Sebastian Dyrda and Guangbin Hong
2024: Journal of Monetary Economics, 141, Forthcoming (Carnegie-Rochester-NYU conference volume)
[paper] [slides] []

What is the optimal design of the international corporate tax system? We revisit this classic question in a multi-country general equilibrium model that incorporates three key features of the modern globalized economy: multinational production; intangible capital; and international profit shifting. Our model's competitive equilibrium is inefficient due to an externality that arises from international spillovers in intangible investment. In the absence of profit shifting, there is little, if anything, a Ramsey planner can do with corporate income taxes to improve the allocation of intangible investment across countries. However, profit shifting allows the planner to use corporate income taxes to internalize the externality and achieve an efficient allocation of intangible investment. To quantitatively investigate the properties of the Ramsey planner's optimal policy in a more realistic setting, we extend our model to an environment with firm heterogeneity and selection into multinational production. Without spillovers, it would be optimal to shut down profit shifting as much as possible. With spillovers, it would be optimal to allow MNEs to continue to shift profits, and if the planner is restricted to Pareto-improving policies, it would be optimal to allow even more profit shifting than under the status quo.

Export Market Penetration Dynamics
2023: Journal of International Economics, 145, 103807
YouTube video of Virtual ITM seminar
[paper] [slides] [data + code] [] []

I develop a dynamic theory of exporting that synthesizes two approaches: static models, in which exporting costs depend on the number of foreign customers a firm serves in the present; and dynamic models, in which these costs depend on whether a firm exported in the past. The theory simultaneously accounts for two sets of established empirical findings: (i) larger markets attract exports from more firms and these exports are more concentrated; and (ii) new exporters are generally smaller and more likely to exit than incumbents. It also accounts for a new set of findings from Brazilian microdata showing that differences between new exporters and incumbents are more pronounced in larger markets. When calibrated to match all of these findings, the theory predicts that trade reforms cause greater but also slower trade growth in smaller markets.

title = {Export market penetration dynamics},
journal = {Journal of International Economics},
pages = {103807},
year = {2023},
author = {Joseph B. Steinberg}

The Macroeconomic Impact of NAFTA Termination
2020: Canadian Journal of Economics, 53, 821-865
Robert Mundell Prize (best CJE paper by a junior in 2019-2020)
[paper] [slides] [data + code] [] []

U.S. President Trump has threatened to leave the North American Free Trade Agreement. How much would each member country gain or lose if this threat is carried out? Would trade imbalances within the region diminish? What would the transition to new roduction and expenditure patterns look like? I provide quantitative answers to these questions using a dynamic general equilibrium model with a multi-sector input-output production structure, heterogeneous firms that make forward-looking export participation decisions, and adjustment frictions in trade and factor markets. Regional trade flows would fall dramatically, and while the U.S. trade deficit with Canada would decline, the deficit with Mexico would grow. Welfare would fall by 0.04%, 0.12%, and 0.2% in the United States, Canada, and Mexico, respectively, and transition dyynamics would significantly affect welfare in both the short run and the long run.

author = {Joseph B. Steinberg},
title = {{The macroeconomic Impact of NAFTA Termination}},
journal = {Canadian Journal of Economics},
volume = {53},
number = {2},
pages = {821-865},
year = {2020}

Comment on “The Economic Effects of Trade Policy Uncertainty” by D. Caldara et al.
2020: Journal of Monetary Economics, 109, 60-64 (Carnegie-Rochester-NYU conference volume)
[paper] [] []

The paper by Caldara et al. develops new measures of trade policy uncertainty (TPU) that are associated with reduced economic activity at the micro and macro levels, and uses a DSGE model with sticky prices and sunk exporting costs to illustrate the economic forces driving these results. This discussion provides two forms of additional context for the authors’ findings. First, I shed light on the reasons that firms care about TPU by linking the authors’ dataset to the U.S. input-output accounts. Second, I use a simple model of price-setting under nominal rigidities to explore the sensitivity of the authors’ quantitative results to some of their modeling assumptions.

title = {{Comment on: “The Economic Effects of Trade Policy Uncertainty” by Dario Caldara, Matteo Iacoviello, Patrick Molligo, Andrea Prestipino, and Andrea Raffo}},
journal = {Journal of Monetary Economics},
volume = {109},
pages = {60-64},
year = {2020},
author = {Joseph B. Steinberg}

Brexit and the Macroeconomic Impact of Trade Policy Uncertainty
2019: Journal of International Economics, 117, 175-195
YouTube video of talk at MOVE Round Table on Economic and Political Impact of Brexit
[paper] [slides] [data + code] [] []

On June 23, 2016, the United Kingdom voted to leave the European Union. The trade policies that will replace E.U. membership are uncertain, however, and speculation abounds that this uncertainty will cause immediate harm to the U.K. economy. In this paper, I use a dynamic general equilibrium model with heterogeneous firms, endogenous export participation, and stochastic trade costs to quantify the impact of uncertainty about post-Brexit trade policies. I find that the total consumption-equivalent welfare cost of Brexit for U.K. households is between 0.4 and 1.2%, but less than a quarter of a percent of this cost is due to uncertainty.

title = {{Brexit and the Macroeconomic Impact of Trade Policy Uncertainty}},
journal = {Journal of International Economics},
volume = {117},
pages = {175-195},
year = {2019},
author = {Joseph B. Steinberg}

On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?
2019: Review of Economic Dynamics, 31, 200-223
[paper] [data + code] [] []

Are U.S. trade deficits caused by high foreign saving—a global saving glut—or low domestic saving—a domestic saving drought? To answer this question, I conduct a wedge accounting analysis of U.S. trade balance dynamics during 1995–2011 using a dynamic general equilibrium model. I find that a global saving glut explains 96 percent of U.S. trade deficits in excess of those that would have occurred naturally as a result of productivity growth and demographic change. Contrary to widespread belief, however, investment distortions, not a global saving glut, account for much of the decline in real interest rates that has accompanied U.S. trade deficits

title = {{On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?}},
journal = {Review of Economic Dynamics},
volume = {31},
pages = {200-223},
year = {2019},
author = {Joseph B. Steinberg}

International Portfolio Diversification and the Structure of Global Production
2018: Review of Economic Dynamics, 29, 195-215
[paper] [data + code] [] []

In recent decades, country portfolio home bias has fallen in advanced economies but not in emerging economies. I use a dynamic general equilibrium model to show that changes in the distribution of global production and absorption explain this pattern. For advanced economies, whose share of world output fell as their trade openness rose, the model predicts an unambiguous drop in home bias. By contrast, emerging economies' growth in both size and trade openness have opposing implications for portfolios. To quantify these forces I calibrate the model to real and counterfactual input–output tables. Jointly, changes in the global production structure account for much of the decline in home bias in advanced economies and lack thereof in emerging economies. Country size and trade openness account for most of this effect. Consistent with theory, the increase in the intermediate share of trade had little impact.

title = {{International Portfolio Diversification and the Structure of Global Production}},
journal = {Review of Economic Dynamics},
volume = {29},
pages = {195-215},
year = {2018},
author = {Joseph B. Steinberg}

Global Imbalances and Structural Change in the United States
with Tim Kehoe and Kim Ruhl
2018: Journal of Political Economy, 126, 761-796 (NBER Working Paper #19339)
Review in The Region
[paper] [slides] [data + code] [] []

Since the early 1990s, as the United States borrowed heavily from the rest of the world, employment in the US goods-producing sector has fallen. We construct a dynamic general equilibrium model with several mechanisms that could generate declining goods-sector employment: foreign borrowing, nonhomothetic preferences, and differential productivity growth across sectors. We find that only 15.1 percent of the decline in goods-sector employment from 1992 to 2012 stems from US trade deficits; most of the decline is due to differential productivity growth. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall.

author = {Kehoe, Timothy J. and Ruhl, Kim J. and Steinberg, Joseph B.},
title = {{Global Imbalances and Structural Change in the United States}},
journal = {Journal of Political Economy},
volume = {126},
number = {2},
pages = {761-796},
year = {2018}

The Next Best Thing to Knowing Someone Who is Usually Right
with Gary Smith and Rob Wertheimer
2006: Journal of Wealth Management, 9, 51-60
[paper] [] []

Mean-variance analysis is widely used for portfolio allocation decisions. The use of historical data for the inputs may be inferior to using informed estimates that reflect one's beliefs about the current financial environment. In this article we show that portfolios based on expert opinion can outperform portfolios based on historical data, and that even better performance can be achieved by taking into account regression to the mean.

@article {Smith51,
author = {Smith, Gary and Steinberg, Joseph and Wertheimer, Robert},
title = {{The Next Best Thing to Knowing Someone Who is Usually Right}},
volume = {9},
number = {3},
pages = {51--60},
year = {2006},
journal = {The Journal of Wealth Management}

other publications

What Will Happen When Foreigners Stop Lending to the United States?
2013: Federal Reserve Bank of Minneapolis, Economic Policy Papers, 13-4 (with Tim Kehoe and Kim Ruhl)
[paper] [] []

Since the early 1990s, the United States has borrowed heavily from its trading partners. This paper presents an analysis of the impact of an end to this borrowing, an end that could occur suddenly or gradually.

Modeling U.S. borrowing as the result of what Bernanke (2005) calls a global saving glut—where foreigners sell goods and services to the United States but prefer purchasing U.S. assets to purchasing U.S. goods and services—we capture four key features of the United States and its position in the world economy over 1992–2012. In the model, as in the data: (1) the U.S. trade deficit first increases, then decreases; (2) the U.S. real exchange rate first appreciates, then depreciates; (3) the U.S. trade deficit is driven by a deficit in goods trade, with a steady U.S. surplus in service trade; and (4) the fraction of U.S labor dedicated to producing goods—agriculture, mining and manufacturing—falls throughout the period.

Using this model, we analyze two possible ends to the saving glut: an orderly, gradual rebalancing and a disorderly, sudden stop in foreign lending as occurred in Mexico in 1995–96. We find that a sudden stop would be very disruptive for the U.S. economy in the short term, particularly for the construction industry. In the long term, however, a sudden stop would have a surprisingly small impact. As the U.S. trade deficit becomes a surplus, gradually or suddenly, employment in goods production will not return to its level in the early 1990s because much of this surplus will be trade in services and because much of the decline in employment in goods production has been, and will be, due to faster productivity growth in goods than in services.

author={Timothy J. Kehoe and Kim J. Ruhl and Joe Steinberg},
title={{What will happen when foreigners stop lending to the United States?}},
institution={Federal Reserve Bank of Minneapolis},
type={Economic Policy Paper},
abstract={Since the early 1990s, the United States has borrowed heavily from its trading partners. This paper presents an analysis of the impact of an end to this borrowing, an end that could occur suddenly or gradually.},

Inequality and Redistribution During the Great Recession
2012: Federal Reserve Bank of Minneapolis, Economic Policy Papers, 12-1 (with Fabrizio Perri)
[paper] [] []

In this paper, we explore the impact of the Great Recession on economic inequality and redistribution in the United States. We analyze many sorts of inequality (in earnings, disposable income, consumption expenditures and wealth) for different sections of the economic distribution. Here we highlight three central findings.
• In 2010, the bottom 20 percent of the U.S. earnings distribution was doing much worse, relative to the median, than in the entire postwar period. This is because their earnings (including wages, salaries, and business and farm income) fell by about 30 percent relative to the median over the course of the recession. This lowest quintile also did poorly in terms of wealth, which declined about 40 percent.
• Redistribution through taxes and transfer programs reached historically high levels in 2010. As a result, spending power, captured by disposable income and consumption expenditures on nondurables, of this same lowest 20 percent did not significantly change relative to other economic groups during the recession.
• Although government redistribution protected households from fully bearing the impact of an earnings decline, households that experienced such a decrease nonetheless endured sizable drops in disposable income and drops in consumption expenditures.

author={Fabrizio Perri and Joe Steinberg},
title={{Inequality and redistribution during the Great Recession}},
institution={Federal Reserve Bank of Minneapolis},
type={Economic Policy Paper},
abstract={In this paper, we explore the impact of the Great Recession on economic inequality and redistribution in the United States. We analyze many sorts of inequality (in earnings, disposable income, consumption expenditures and wealth) for different sections of the economic distribution.},


Heterogeneous Agent Trade
by M. Waugh
The Long and Short (Run) of Trade Elasticities
by C. Boehm, A. Levchenko, N. Pandalai-Nayar
The Economic Effects of Trade Policy Uncertainty
by A. Caldara, M. Iaoviello, P. Molligo, A. Prestipino, and A. Raffo
Protectionism and the Business Cycle
by A. Barattieri, M. Cacciatore, and F. Ghironi
Trade Adjustment Dynamics and the Welfare Gains from Trade
by G. Alessandria, H. Choi, and K. Ruhl
Trade Integration and the Trade Balance in China
by G. Alessandria, H. Choi, and D. Lu