In Chapter 1 of this dissertation, I study the effect of student debt on the post-schooling migration decisions of high-skill workers in the United States. Over the past 40 years, the U.S. has experienced significant skill-based geographic sorting, with high-skill workers increasingly concentrating in large cities. During the same period, the growth of student debt has far exceeded the rate of inflation. In this chapter, I document a link between these two facts. I first estimate the causal effect of student debt on post-schooling location choices by exploiting an expansion of federal student loan limits. Using a difference-in-differences framework, I find that $10,000 of additional debt increases the probability that individuals locate in large metropolitan counties by 6.5 percentage points. By incorporating student debt into a standard spatial equilibrium model, I find that the rise in student debt from 1980 to 2019 can account for 5-19 percent of the increase in skill-based sorting over this period. Counterfactual simulation of three policy proposals – debt forgiveness, tuition-free college, and income-driven repayment – show that only income-driven repayment can eliminate distortions to location choices while improving welfare.

The remaining chapters focus on public-sector employee pension systems in the United States and the over $3 trillion in debt associated with them. In Chapter 2, I consider the political economy problem of setting pension benefit levels, where politicians balance the demands of general voters and public-sector unions. More specifically, I empirically show that expanded collective bargaining rights for public-sector employees significantly increased pension plan generosity in the 20th century, and is associated with higher levels of unfunded liabilities in the 21st century. I also provide descriptive evidence that increased plan generosity resulted in higher levels of unfunded liabilities because local governments shirked their expected contributions to pension funds and made overly optimistic assumptions on investment returns, both of which were made possible by systematic information asymmetries around public pension plans.

In Chapter 3, I examine the implications of public-sector pension debt for the local economy. I exploit plausibly exogenous shocks to the reported levels of unfunded pension liabilities in a difference-in-differences framework to investigate the speed and extent to which debt shocks are capitalized into house prices. I find that increases in public debt depress local house prices relatively quickly (within 9 months). Additionally, this effect is driven by responses in the price of single-family homes, owners of which may be more likely to rely on public goods that are subject to cuts following spikes in reported pension under-funding.

My dissertation consists of three essays on U.S. regional economics. The aim of the research is to understand the variations in economic outcomes across regions and how those persistent differences can be reduced. In particular, I study the geographic patterns and the determinants of internal migration, and examine the development of social capital.

In the first chapter, I document U.S. internal migration between the period from 1960-2000 using a newly collected data set. I find that the recent decline in migration is driven by lower migration across states, while within state migration has increased during the observed periods. To explain this, I use a gravity framework and estimate the effect of state borders on migration flows. I find that the border effect is strongly significant, and within state migration is 3.2 times higher than across state migration. Furthermore, the border effect has increased from 2.7 in 1960 to 3.6 in 2000. I show that the differences in social and economic characteristics between areas contribute to a larger state border effect, and the increase of the border effect over time is associated with the rising differences in house prices as states implement more restrictive land use regulations. I find that this is due to lower in-migration in states that are highly regulated in land uses. For high income destinations, the rise in regulations can explain all of the increase in the border effect.

In the second chapter, I examine the effect of political differences on migration decisions and provide empirical evidences of partisan geographic sorting among American migrants. Using presidential election returns and the same migration data for the period from 1960-2000, I show that political differences between areas decrease migration, as Americans prefer to live in areas with similar ideology and political views. I find that there are a lower number of migrants between places that supported different political parties, and migration flows decrease as differences in vote shares increase. In addition, I do not find evidence that Americans are increasingly sorting by partisanship over time, which is previously known in the literature as the “big sort” hypothesis.

The last chapter studies the level of social trust across regions in the United States, and how it arises using natural disasters as exogenous shocks between 1973 and 2010. Every year, the United States is hit by natural disasters that take away lives and cause property damage. In the event of a natural disaster, the victims are more likely to have increased interaction with others. If the experience of increased social interaction is positive, this can positively affect the level of social trust. To test this, I combine two U.S. survey data sets with the natural disaster data, and find that the individuals who have recently experienced natural disasters are more likely to have higher level of trust. One standard deviation increase in natural disasters is associated with an increase of 0.014 standard deviations in trust. I also provide evidence of positive social experiences by showing that natural disasters are associated with an increase in cooperation with neighbors.

This dissertation is comprised of a series of essays in public economics, development economics, labor economics, and behavioral economics, that provide a comprehensive illustration of the core of my research agenda. In the first paper, Ifocus on the transfer side of public economics. More specifically, I study the effects of a cash transfer program on individuals’ transition to adulthood. In the second and third papers, I focus on the taxation side of public economics. In the second paper, I focus on top-income earners and how they react to a change in the top personal income tax rates. Finally, in the third paper, I focus on how individuals make their tax compliance decisions, in particular, in the role of tax morale mechanisms. Collectively, this series of essays contribute to building our understanding of how individuals interact with tax and transfer policies. Empirical evidence on these interactions are key inputs for the discussion of optimal policy design.