XIAN JIANG

RESEARCH

WORKING PAPERS

Information and Communication Technology and Firm Geographic Expansion, December 2024

Urban Economics Association Student Prize (Honorable Mention)

• This paper studies how information and communication technology (ICT) affects firm geographic organization and aggregate efficiency. ICT widens firms' geographic span of control by improving their internal communication. Using Census data of US manufacturers, I quantify a spatial equilibrium model where firms endogenously adopt ICT, choose multiple production locations, and trade domestically. I estimate the model by exploiting natural experimental variation from Internet privatization of the early 1990s. Counterfactual shows privatization increased overall efficiency by 1.7%, two-fifths of which came from firm geographic expansion. Policy simulations indicate that coordinated national policies yield larger gains in bridging digital gap than local policies.

The Adoption of Non-Rival Inputs and Firm Scope, March 2024

(with Hannah Rubinton)

• Custom software is distinct from other types of capital in that it is non-rival---once a firm makes an investment in custom software, it can be used simultaneously across its many establishments. Using confidential US Census data, we document that while firms with more establishments are more likely to invest in custom software, they spend less on it as a share of total capital expenditure. We explain these empirical patterns by developing a model that incorporates the non-rivalry of custom software. In the model, firms choose whether to adopt custom software, the intensity of their investment, and their scope, balancing the cost of managing multiple establishments with the increasing returns to scope from the non-rivalrous custom software investment. Using the calibrated model, we assess the extent to which the decline in the rental rate of custom software over the past 40 years can account for a number of macroeconomic trends, including increases in firm scope and concentration.

PUBLICATIONS

Tax Policy and Lumpy Investment: Evidence from China VAT Reform

(with Zhao Chen, Zhikuo Liu, Juan Carlos Suarez-Serrato and Daniel Yi Xu), Review of Economic Studies, Volume 90, Issue 2, March 2023, Pages 634-674

• A universal fact of firm-level data is that investment is lumpy: firms either replace a considerable fraction of their existing capital (spike) or do not invest at all (inaction). This paper incorporates the lumpy nature of investment into the study of how tax policy affects investment behavior. We show that tax policy can directly impact the lumpiness of investment and that the effectiveness of tax incentives in stimulating investment depends crucially on interactions with investment frictions. We illustrate these results by studying one of the largest tax incentives for investment in recent history: China's 2009 VAT reform. Using administrative tax data and a difference-in-differences design, we document that the reform increased investment by 36% and that this effect is driven by additional investment spikes. We then simulate the fiscal cost of stimulating investment through different tax policies using a dynamic investment model that is consistent with the reduced-form effects of the reform. Policies that directly reduce the likelihood of firm inaction (e.g., investment tax credits) are more effective at stimulating investment than policies that only reduce the tax cost of investment (e.g., corporate income tax cuts).

WORK IN PROGRESS

• R&D Mobility (with Rahul Gupta and William Kerr)