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A Goldilocks Theory of Fiscal Deficits

By Atif Mian, Ludwig Straub, and Amir Sufi

American Economic Review, December 2025

We develop a tractable framework for deficit and debt dynamics. A "free lunch" fiscal deficit—one that raises spending without higher future taxes—is sustainable without zero lower bound (ZLB) only when R < G − φ, where φ is the sensitivity of the...

Firm Responses and Wage Effects of Foreign Demand Shocks with Fixed Labor Costs and Monopsony

By Emmanuel Dhyne, Ayumu Ken Kikkawa, Toshiaki Komatsu, Magne Mogstad, and Felix Tintelnot

American Economic Review, December 2025

We quantify the firm responses and real wage effects of foreign demand shocks. We use Belgian microdata to construct firm-specific measures of demand shocks, which capture that firms pass on foreign demand shocks to domestic suppliers. Our estimates of fi...

When Product Markets Become Collective Traps: The Case of Social Media

By Leonardo Bursztyn, Benjamin Handel, Rafael Jiménez-Durán, and Christopher Roth

American Economic Review, December 2025

Individuals might experience negative utility from not consuming a popular product. With such externalities to nonusers, standard consumer surplus measures, which take aggregate consumption as given, fail to appropriately capture consumer welfare. We prop...

Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter

By J. Carter Braxton, Kyle Herkenhoff, Jonathan Rothbaum, and Lawrence Schmidt

American Economic Review, December 2025

For whom has earnings risk changed, and why? We answer these questions by combining the Kalman filter and EM algorithm to estimate persistent and temporary earnings for every individual at every point in time. We apply our method to administrative earning...

The Beautiful Dataset

By Ignacio Palacios-Huerta

Journal of Economic Literature, December 2025

Natural experiments, high stakes, expert subjects, knowledge of the precise objectives and exact rules, clean measurement, observability of strategies, incentives, actions and consequences, large datasets, exogenous rule changes, distinct social effects, ...

The Economics of Infectious Diseases

By M. Christopher Auld, Eli P. Fenichel, and Flavio Toxvaerd

Journal of Economic Literature, December 2025

We synthesize the literature on economic epidemiology, the interdisciplinary field that draws on the ideas and methods of economics to analyze individual behavior, aggregate disease dynamics, and public policy during infectious disease epidemics. We cover...