Authors: Davide Melcangi
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The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
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Staff Reports
The Marginal Propensity to Hire
Number 875
December 2018 Revised May 2022
December 2018 Revised May 2022
JEL classification: E24, E44, G01, G32
When financial constraints bind, firms adjust employment in response to cash flow shocks. A 2010 revaluation of business rates, a United Kingdom tax levied on business-occupied properties, implied that similar firms, occupying similar properties in narrow geographical locations, experienced different tax changes. I find that, on average, for every £1 of additional cash flow triggered by the tax change, 39 pence were spent on employment, with small and leveraged firms responding the most. A general equilibrium model with firm heterogeneity and financial frictions rationalizes these findings, and quantitatively determines the aggregate effects of a fiscal transfer to firms.
Author Disclosure Statement(s)
Davide Melcangi
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Data used in the paper contains information provided by the Valuation Office Agency under the Open Government Licence v3.0, United Kingdom. The UK Data Service agrees that outputs are non-disclosive, and cannot be used to identify a person or organization. The use of the Business Structure Database (BSD) does not imply the endorsement of the data owner or the UK Data Service at the UK Data Archive in relation to the interpretation or analysis of the data.
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Data used in the paper contains information provided by the Valuation Office Agency under the Open Government Licence v3.0, United Kingdom. The UK Data Service agrees that outputs are non-disclosive, and cannot be used to identify a person or organization. The use of the Business Structure Database (BSD) does not imply the endorsement of the data owner or the UK Data Service at the UK Data Archive in relation to the interpretation or analysis of the data.
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