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We compare the twelve-month default probability among subprime borrowers differing only in the number of months before their first lump-sum property tax payment, after which time they may be exposed to reduced liquidity. We show that borrowers with an earlier property tax bill—within three months of origination—have 2% to 6% higher first-year default rates than borrowers facing their first property tax bill ten to twelve months after origination. Lump-sum property tax payments appear to produce a persistent state of low liquidity, the length of which raises the likelihood of default. These results are about one-third the effect size of a transition from 10% positive to 20% negative equity found in the literature. This paper provides causal evidence that liquidity constraints are important predictors of mortgage default.

From 2007 to 2009 U.S. house prices plunged and mortgage defaults surged. While ostensibly consistent with widespread \"ruthless default,\" analysis of detailed mortgage and house price data indicates that borrowers do not walk away until they are deeply underwater—far deeper than traditional models predict. The evidence suggests that lender recourse is not the major driver of this result. We argue that emotional and behavioral factors play an important role in decisions to continue paying. Borrower reluctance to walk away implies that the moral hazard cost of default as a form of social insurance may be lower than suspected.

This paper investigates the mechanism by which the federal government's funding of the arts through the National Endowment for the Arts (NEA) displaces private charitable contributions to non-profit arts organizations. I estimate that private charitable contributions to arts organizations increased by 50 to 60 cents due to a major funding cut to the NEA during the mid-1990s. These increases, however, also coincided with, on average, a 25 cent increase in fund-raising expenditures by arts organizations for every dollar decrease in government grants. The estimate of crowding out found in this paper is relatively large, particularly for a study using a micro-data set. I argue that an appropriate interpretation of an estimate of a crowding-out parameter, in general, depends crucially on the context.

In this article, I estimate that 80% of the population of the five states of the Seventh Federal Reserve District lives in a county that trailed the nation's cumulative growth in real gross domestic product (GDP) and employment from near the start of the twenty-first century through 2023. Further analysis of counties' relative economic performance suggests that the Seventh District states are unique: They have elevated shares of people living in counties that trail the nation in real GDP and employment growth; they experience more lackluster growth; and their underperforming counties experience more sluggish population and median household income growth than those outside District states.1 The prevalence of economic underperformance in the Seventh District states and its unique features suggest that local conditions may be important for understanding these counties' economic outcomes.

What caused the housing boom of the 2000s? A number of researchers have suggested that loose monetary policy durìng the first half of the 2000s was primary cause of the substantial run-up in house prices in many countries. However, using a common statistical approach, we find that monetary policy was not the main factor. That should not be surprising: Although low interest rates raise house prices, the increase in prices during the mid-2000s was much larger than the historical relationship between the two variables would suggest. Instead, we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices. This link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom. Our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms.

The Covid-19 public health crisis has sharply reduced the earnings of millions of U.S. households, following the severe curtailment of economic activity needed to contain the spread of the virus. Meanwhile, households continue to confront their ongoing financial obligations. The ability of households to manage these obligations has important consequences for the speed at which the U.S. economy can recover from the current crisis. Households that are wiped out financially in the coming months will not be in a position to strongly resume spending once the virus containment issues have passed. Moreover, a wave of missed payments on mortgages and other types of household debt could propagate through the financial system-weakening financial institutions, unnerving investors, and further prolonging the economic slump.

In spite of the recent impetus to reform home mortgage markets, particularly as they affect low- and moderate-income (LMI) households, little systematic evidence is available about how potential abuses in mortgage lending manifest in the mortgages held by those households. While racial discrimination in mortgage markets has a long history in the United States, the role of mortgage brokers in lending has only recently increased and become controversial.¹ In this chapter, we uncover two mechanisms through which differential mortgage pricing occurs among LMI homeowners: black borrowers and borrowers who use mortgage brokers pay more for mortgage loans than other borrowers,

The United States during the 1990s and early 2000s witnessed a major paradigm shift in the role and scope of the federal government. In particular, Congress' Contract with America and President Clinton's 1996 welfare reform transferred significant responsibilities to state and local governments as well as to individuals, and concurrently reduced the involvement of the federal government in a variety of public programs. In Essays on the Effects of Devolution, I explore the consequences of policy changes enacted during the 1990s and 2000s in order to gauge the economic response of those affected, assess the benefits and burdens of these policies, and glean lessons from these experiences. I study a major funding cut to the National Endowment for the Arts to determine whether individual donors were able to compensate arts organizations for their losses in funding. I also examine the trends in material well-being of low-income mothers before and after welfare reform. As a result of these kinds of devolutionary policies, the federal government has become increasingly reliant on policy tools that are broader in their goals. To address this issue, I study the effect of the dependent exemption and the Earned Income Tax Credit on households' labor supply decisions.