Faculty & Research

Austan D. Goolsbee

Robert P. Gwinn Professor of Economics

Address :
5807 South Woodlawn Avenue
Chicago, IL 60637

Austan D. Goolsbee is the Robert P. Gwinn Professor of Economics.

He previously served in Washington as the Chairman of the Council of Economic Advisers and a member of the President's cabinet. His research has earned him recognition as a Fulbright Scholar and an Alfred P. Sloan fellow. In prior years he was named one of the 100 Global Leaders for Tomorrow by the World Economic Forum, and one of the six "Gurus of the Future" by the Financial Times. His ability to explain economics clearly has made Goolsbee popular in the media. Jon Stewart describes him as "Eliot Ness meets Milton Friedman" and he has twice been named as a "star" professor by BusinessWeek's "Guide to the Best Business Schools."

Goolsbee serves on the Economic Advisory Panel to the Federal Reserve Bank of New York and has previously served on the Panel of Economic Advisors to the Congressional Budget Office, the U.S. Census Advisory Commission and as a special consultant for Internet Policy to the Antitrust Division of the Department of Justice. He joined Chicago Booth in 1995.

 

2014 - 2015 Course Schedule

Number Name Quarter
33221 Economics and Strategy in the Information Economy 2015 (Winter)

Other Interests

Improv comedy, triathlons.

 

Research Activities

The Internet; the new economy; government policy; taxes.

The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television, Econometrica (2004).

"Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy (2002).

"In a World Without Borders: The Impact of Taxes on Internet Commerce," Quarterly Journal of Economics (2000).

"What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy (2000).

For a listing of research publications please visit ’s university library listing page.

Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry
Date Posted: Nov  18, 2008
The Internet has the potential to significantly reduce search costs by allowing consumers to engage in low-cost price comparisons online. This paper provides empirical evidence on the impact that the rise of Internet comparison shopping sites has had for the prices of life insurance in the 1990s. Using micro data on individual life insurance policies, the results indicate that, controlling for individual and policy characteristics, a 10 percent increase in the share of individuals in a group usi

Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry
Date Posted: Nov  18, 2008
The Internet may significantly reduce search costs by enabling price comparisons on-line. This paper provides empirical evidence on how Internet comparison shopping sites affected the prices of life insurance in the 1990s. Using micro data on individual insurance policies and controlling for individual and policy characteristics, it shows that increases in Internet use significantly reduced the price of term life insurance. Further evidence shows that prices did not fall with rising Internet usa

In a World Without Borders: The Impact of Taxes on Internet Commerce
Date Posted: Sep  12, 2008
The rapid rise in sales over the Internet has generated debate over the taxation of such transactions since the buyers usually pay no sales tax. This paper uses new data on the purchase decisions of approximately 25,000 online users to examine the effects that local sales taxes have on Internet commerce. The results show that, controlling for many observable characteristics, people who live in locations with high sales taxes are significantly more likely to buy things over the Internet. The esti

Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment
Date Posted: Sep  12, 2008
This paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Most apportionment formulae, by including payroll, turn the state corporate income tax at least partially into a payroll tax. Using panel data from 1978-1994, the results show that this distortion has an important effect on state-level employment. For the average state, reducing the payroll weight from one-third to one-quarter increases manufacturing employment around

Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?
Date Posted: Sep  12, 2008
This paper looks at the impact of investment tax subsidies on the labor market for capital goods workers using data from the 1979-88 Current Population Survey. The results show that investment subsidies drive up the wages of workers who produce capital goods relative to other manufacturing workers. A 10% investment tax credit, for example, raises the relative wage of capital goods workers by 2.5%-3.0% on average and up to around 10%, depending on the workers' characteristics. The evidence is con

Does Government R&D Policy Mainly Benefit Scientists and Engineers?
Date Posted: Sep  12, 2008
Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized. In the U.S., the government has directly funded a large fraction of total R&D spending. This paper shows that there is a serious problem with such government efforts to increase inventive activity. The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the governme

Coveting Thy Neighbor?s Manufacturing: The Dilemma of State Income Apportionment
Date Posted: Sep  12, 2008
This paper examines the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Since such formulae usually include total payroll, they transform, at least partially, the state corporate income tax into a direct factor tax on payroll. Using panel data from 1978-1994 on state-level employment in manufacturing and other sectors, the results show that this distortion has an important impact, in practice. For the average state, moving from equal-weight

Evaluating the Costs and Benefits of Taxing Internet Commerce
Date Posted: Sep  12, 2008
Current tax law--and the current technical architecture of the Internet--make it difficult to enforce sales taxes on most Internet commerce. This has generated considerable policy debate. In this paper, we analyze the costs and benefits of enforcing such taxes including revenue losses, competition with retail, externalities, distribution, and compliance costs. The results suggest that the costs of not enforcing taxes are quite modest and will remain so for several years. At the same time, compli

Evaluating the Costs and Benefits of Taxing Internet Commerce
Date Posted: Sep  12, 2008
Current tax law makes it difficult to enforce sales taxes on most Internet commerce and has generated considerable policy debate. In this paper we analyze the costs and benefits of enforcing such taxes including revenue losses, competition with retail, externalities, distribution, and compliance costs. The results suggest that the costs of not enforcing taxes are quite modest and will remain so for several years. At the same time, compliance costs are also likely to be low. There are benefits to

What Happens When You Tax the Rich? Evidence from Executive Compensation
Date Posted: Sep  12, 2008
This paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995. The data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income. Indeed,this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period; one person a

The Importance of Measurement Error in the Cost of Capital
Date Posted: Sep  12, 2008
Conventional estimates of the impact of taxes on investment may be seriously biased by measurement error in the cost of capital. The existence and size of such error, however, has not been documented. Using panel data on different types of capital equipment, this paper provides direct evidence of measurement error in the tax component of the cost of capital, accounting for about 20 percent of the tax term's variance. Correcting for the error with IV estimation shows that taxes significantly af

Measuring Prices and Price Competition Online: Amazon and Barnes and Noble
Date Posted: Sep  12, 2008
Despite the interest in measuring price sensitivity of online consumers, most academic work on Internet commerce is hindered by a lack of data on quality. In this paper we use publicly available data on the sales ranks of about 20,000 books to derive quantity proxies at the two leading online booksellers. Matching this information to prices, we can directly estimate the elasticities of demand facing both merchants as well as create a consumer price index for online books. The results show sign

Taxes and Organizational Form: The Case of REIT Spin-offs
Date Posted: Sep  12, 2008
In 2001, the IRS issued a ruling allowing firms to engage in nontaxable real estate investment trust (REIT) spin-offs. In a REIT spin-off, a corporation places real estate assets into a subsidiary, which it then distributes to shareholders as a REIT. A nontaxable spin-off triggers no immediate taxation of unrealized gains and the future earnings of REIT generally are not subject to corporate level taxation; the earnings are instead taxed at the investor level. REIT spin-offs thus provide a me

Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?
Date Posted: Sep  12, 2008
This paper looks at the impact of investment tax subsidies on the labor market for capital goods workers. Using data during a decade with considerable variation in the tax cost of capital (1979-1988), the results show that tax subsidies to investment drive up capital goods workers' wages. A 10 percent investment tax credit, for example, raises the relative wages of such workers, on average, by 2.5 percent - 3.0 percent relative to comparable manufacturing workers in other sectors and more for ce

Valuing Internet Retailers: Amazon and Barnes and Noble
Date Posted: Sep  12, 2008
Many Internet retailers must raise margins in the future if they are to survive. This raises the important issues of whether they will be able to raise margins as well as how valuation estimates made today should evaluate projected changes to margins in the future. In this paper, we describe retail strategies of pricing for market share in growing markets and show how measures of the price elasticity of demand facing retailers in the current year can be combined with standard accounting variab

How do Incumbents Respond to the Threat of Entry on Their Networks? Evidence from the Major Airlines...
Date Posted: Sep  12, 2008
This paper examines how incumbents respond to the threat of entry of competitors, as distinguished from their response to competitors' actual entry. It uses a case study from the passenger airline industry specifically, the evolution of Southwest Airlines' route network - to identify particular routes where the probability of future entry rises abruptly. When Southwest begins operating in airports on both sides of a route but not the route itself, this dramatically raises the chance they will st

How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds
Date Posted: Aug  25, 2008
This paper examines tax arbitrage in the market for municipal bonds. It uses a puzzle for the literature, however, in that we find little evidence of municipal bond tax arbitrage by non-financial corporations. Even among those firms engaged in arbitrage, many firms do less than a safe-harbor amount allowed by the tax authorities. Such a pattern is consistent with the presence of both fixed and marginal costs of arbitrage. The existence of such costs may help explain the municipal bond puzzle and

Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment
Date Posted: Jul  31, 2008
This paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Most apportionment formulae, by including payroll, turn the state corporate income tax at least partially into a payroll tax. Using panel data from 1978 - 1994, the results show that this distortion has an important effect on state-level employment. For the average state, reducing the payroll weight from one-third to one-quarter increases manufacturing employment arou

Investment Tax Incentives, Prices, and the Supply of Capital Goods
Date Posted: Apr  18, 2008
Using data on the prices of capital goods, this paper shows that much of the benefit of" investment tax incentives does not go to investing firms but rather to capital suppliers through" higher prices. The reduction in the cost of capital from a 10 percent investment tax credit" increases equipment prices 3.5-7.0 percent. This lasts several years and is largest for assets with" large order backlogs, low import competition, or with a large fraction of buyers able to use" investment subsidies.

Taxes, Organizational Form, and the Deadweight Loss of the Corporate Income Tax
Date Posted: Apr  18, 2008
By changing the relative gain to incorporation, corporate taxation can play an important role in a firm's choice of organizational form. General equilibrium models have shown that substantial shifting of organizational form in response to tax rates implies a large deadweight loss of taxation. This paper estimates the impact of taxes on organizational form using data from 1900-1939. The results indicate that the effect of taxes is significant but small. A corporate rate increase of .10 raises

The Business Cycle, Financial Performance, and the Retirement of Capital Goods
Date Posted: Apr  07, 2008
The neoclassical investment literature assumes that capital is homogenous, lives forever and has a constant depreciation rate. More recent theories of investment have shown that when there are distinct capital vintages with embodied technologies, depreciation and capital retirement become economic decisions and this raises important problems with existing empirical work. Direct testing of these issues, however, has been rare because of the lack of micro data. This paper uses new data on the se

Estimating Adjustment Costs with Data on Heterogeneous Capital Goods
Date Posted: Apr  04, 2008
This paper estimates the micro-level costs of adjusting capital using detailed data on" investment decisions in the US airline industry. The data include the capital stock retirement, market values, operating costs, and utilization rates of 16 different types of capital" goods for each airline. This data on heterogeneous capital goods allows us to estimate the" desired stock of capital for each type of plane while controlling for unobserved changes in airline" profitability. The results show

New: Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet
Date Posted: Apr  23, 2006
For some goods, the main cost of buying the product is not the price but rather the time it takes to use them. Only about 0.2% of consumer spending in the U.S., for example, went for Internet access in 2004 yet time use data indicates that people spend around 10% of their entire leisure time going online. For such goods, estimating price elasticities with expenditure data can be difficult, and, therefore, estimated welfare gains highly uncertain. We show that for time-intensive goods like the In

New: The Value of Broadband and the Deadweight Loss of Taxing New Technology
Date Posted: Apr  23, 2006
With fixed costs of developing technology, taxes can generate large efficiency costs by slowing the rate of diffusion and these costs are not accounted for in conventional analyses. This paper illustrates this by analyzing the impact that taxes would have had on broadband Internet access at an early stage of its diffusion around the country, combining data on individual demand by area with data on supplier entry in those markets. Applying a tax to broadband in 1998 would have reduced the quantit

REVISION: Economists' Statement on U.S. Broadband Policy
Date Posted: Apr  13, 2006
Broadband, or high-speed access to the Internet, has generated significant economic benefits. Certain regulations, however, are slowing investment and deterring entry into the broadband market. In this statement, we make two recommendations that would remedy these regulatory defects and thereby lower artificial barriers to competitive provision of broadband services.

How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines
Date Posted: Oct  03, 2005
We examine how incumbents respond to the threat of entry by competitors (as distinct from how they respond to actual entry). We look specifically at passenger airlines, using the evolution of Southwest Airlines route network to identify particular routes where the probability of future entry rises abruptly. We find incumbents cut fares significantly when threatened by Southwests entry. Over half of Southwests total impact on incumbent fares occurs before Southwest starts flying. These cut

Are Durable Goods Consumers Forward Looking? Evidence from College Textbooks
Date Posted: Jul  06, 2005
Popular wisdom holds that publishers revise college textbooks mainly to kill off the secondary market for used books. While this behavior might be profitable if consumers are myopic, uninformed or have high short-run discount rates (that exceed the publishers'), neoclassical authors have noted that it will typically not be profitable if publishers can precommit not to cut prices and if consumers are forward-looking and have similar discount rates as the publishers; the consumer's willingness to

The Impact of Internet Subsidies in Public Schools
Date Posted: Aug  29, 2004
In an effort to alleviate the perceived growth of a digital divide, the U.S. government enacted a major subsidy for Internet and communications investment in schools starting in 1998. The program subsidized spending by 20-90 percent, depending on school characteristics. Using new data on school technology usage in every school in California from 1996 to 2000 as well as application data from the E-Rate program, this paper shows that the subsidy did succeed in significantly increasing Internet inv

The Impact and Inefficiency of the Corporate Income Tax: Evidence from State Organizational Form Dat...
Date Posted: Sep  18, 2002
By double taxing the income of corporate firms but not unincorporated firms, taxes can play an important role in a firm's choice of organizational form. The sensitivity of the organizational form decision to tax rates can also be used to approximate the efficiency cost of the corporate income tax. This paper uses new cross-sectional data on organizational form across states compiled in the Census of Retail Trade to estimate this sensitivity. The results document a significant impact of the relat

How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds
Date Posted: Aug  16, 2002
Although tax arbitrage is central to the literatures on tax capitalization, implicit taxes, and even capital structure, there is little empirical evidence of the extent to which firms actually engage in tax arbitrage. This paper provides some evidence on the topic by focusing on a simple and observable corporate arbitrage strategy in the market for municipal bonds. It poses a puzzle for the literature, however, in that we find little evidence of municipal bond tax arbitrage by non-financial corp

Measuring Prices and Price Competition Online: Amazon and Barnes and Noble
Date Posted: Aug  01, 2002
Despite the interest in measuring price sensitivity of online consumers, most academic work on Internet commerce is hindered by a lack of data on quantity. In this paper we use publicly available data on the sales ranks of about 20,000 books to derive quantity proxies at the two leading online booksellers. Matching this information to prices, we can directly estimate the elasticities of demand facing both merchants as well as create a consumer price index for online books. The results show signi

The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television
Date Posted: Jan  23, 2002
This paper examines the introduction of Direct Broadcast Satellites as an alternative to cable television and the welfare gains such satellites generated for consumers. The extent to which satellites compete with cable has become an important issue in the debate over re-regulation of cable prices. We estimate a consumer level demand system for satellite, basic cable, premium cable and local antenna using extensive micro data on the television choices of more than 15,000 people as well as price

Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry
Date Posted: Oct  05, 2001
The Internet has the potential to significantly reduce search costs by allowing consumers to engage in low-cost price comparisons online. This paper provides empirical evidence on the impact that the rise of Internet comparison shopping sites has had for the prices of life insurance in the 1990s. Using micro data on individual life insurance policies, the results indicate that, controlling for individual and policy characteristics, a 10 percent increase in the share of individuals in a group u

Evidence on Learning and Network Externalities in the Diffusion of Home Computers
Date Posted: Aug  10, 2001
In this paper we examine the importance of local spillovers such as network externalities and learning from others in the diffusion of home computers using data on 110,000 U.S. households in 1997. Controlling for many individual characteristics, we find that people are more likely to buy their first home computer in areas where a high fraction of households already own computers or when a large share of their friends and family own computers. Further results suggest that these patterns are unl

Competition in the Computer Industry
Date Posted: Jun  28, 2001
This paper estimates the relative price sensitivity of individuals' choice of whether to buy computers online versus in retail stores using a new data source on the computer purchase behavior of more than 20,000 people. To estimate the degree of competition between the two channels, the paper uses a two step approach. First, it fits hedonic regressions for the prices paid for a computer in a retail store as a function of characteristics. The coefficients on the city fixed effects in these reg

Taxes, High-Income Executives, and the Perils of Revenue Estimation in the New Economy
Date Posted: Apr  10, 2001
This paper attempts to help explain the unforecasted, excess' personal income tax revenues of the last several years. Using panel data on executive compensation in the 1990s, it argues that because the gains on most stock options are treated as ordinary income for tax purposes, rising stock market valuations are directly tied to non-capital gains income. This blurred line between capital and wage income for has affected tax revenue in three ways, at least for these high-income people. First,

The Importance of Measurement Error in the Cost of Capital
Date Posted: Apr  10, 2001
Conventional estimates of the impact of taxes on investment may be seriously biased by measurement error in the cost of capital. The existence and size of such error, however, has not been documented. Using panel data on different types of capital equipment, this paper provides direct evidence of measurement error in the tax component of the cost of capital, accounting for about 20 percent of the tax term's variance. Correcting for the error with IV estimation shows that taxes significantly af

Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?
Date Posted: Sep  20, 2000
This paper looks at the impact of investment tax subsidies on the labor market for capital goods workers using data from the 1979-88 Current Population Survey. The results show that investment subsidies drive up the wages of workers who produce capital goods relative to other manufacturing workers. A 10% investment tax credit, for example, raises the relative wage of capital goods workers by 2.5%-3.0% on average and up to around 10%, depending on the workers' characteristics. The evidence is

In a World Without Borders: The Impact of Taxes on Internet Commerce
Date Posted: Sep  10, 2000
The rapid rise in sales over the Internet has generated debate over the taxation of such transactions since the buyers usually pay no sales tax. This paper uses new data on the purchase decisions of approximately 25,000 online users to examine the effects that local sales taxes have on Internet commerce. The results show that, controlling for many observable characteristics, people who live in locations with high sales taxes are significantly more likely to buy things over the Internet. The e

Does Government R&D Policy Mainly Benefit Scientists and Engineers?
Date Posted: Aug  14, 2000
Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized. In the U.S., the government has directly funded a large fraction of total R&D spending. This paper shows that there is a serious problem with such government efforts to increase inventive activity. The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the gover

It's Not About the Money: Why Natural Experiments Don't Work on the Rich
Date Posted: Jul  26, 2000
An influential literature on the effects of marginal tax rates on the behavior of the rich has claimed that the elasticity of taxable income with respect to the net of tax share is very high possibly exceeding one. These high estimated elasticities imply that cutting taxes on the rich does not lose much revenue possibly increases it and that progressivity generates a large amount of deadweight loss. To identify this elasticity, these studies have conducted natural experiments' comparing the r

What Happens When You Tax the Rich? Evidence from Executive Compensation
Date Posted: Jun  10, 2000
This paper reexamines the responsiveness of taxable income to changes in in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995. The data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income. This small group of executives can account for as much as 20% of the aggregate change in wage and salary income for the 1 million richest taxpayers and one person alone can account for over 2%. But the decl

Taxes and the Quality of Capital
Date Posted: May  07, 2000
This paper shows that tax policy toward investment, by changing the relative prices of capital varieties, can have a direct effect on the quality of capital goods that firms purchase. The empirical results indicate that this impact is economically important and readily apparent in disaggregated data on farming, mining, and construction machinery.The paper also applies a general method for aggregation using index number theory which suggests that all of the investment increase generated by tax s