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Essays in Public Economics

  • Author(s): Suárez Serrato, Juan Carlos
  • Advisor(s): Saez, Emmanuel
  • et al.

This dissertation is a collection of essays written in preparation for the degree of Doctor of Philosophy in Economics. The essays are grouped into three parts that address three areas of public economics.

Part I, On the Effects of Government Spending at the Local Level, includes two chapters co-authored with Philippe Wingender that analyze the effects of government spending at the local level. These chapters propose and exploit a new identification strategy to measure the causal impact of government spending on the economy. In Chapter 2 we use this strategy to estimate the short term effects of government spending at the local level. Our estimates imply that government spending has a local income multiplier of 1.88 and an estimated cost per job of $30,000 per year. In Chapter 3 we analyze the economic incidence of sustained changes in federal government spending at the local level. We develop a spatial equilibrium model to show that when workers value publicly-provided goods, a change in government spending at the local level will affect equilibrium wages through shifts in both the labor demand and supply curves. Our estimates of this model conclude that an additional dollar of government spending increases welfare by $1.45 in the median county.

Part II, On Behavioral Responses to Taxation, includes two chapters that analyze how the behavior of private agents responds to tax incentives. In Chapter 4 we study how individuals respond to non-linear taxes. We use a laboratory experiment to document and characterize a behavioral deviation from the standard economic model and argue that this deviation from the rational benchmark has important consequences for the welfare analysis of non-linear pricing schemes and non-linear taxes as well as for policies that advocate the provision of information regarding marginal incentives. In Chapter 5 we study how entrepreneurs organize their firms and how taxation might influence this choice. We focus on the dynamic choice of organizational form for startup firms and we quantify the impacts of tax and non-tax advantages of incorporation. Results from estimating a dynamic discrete choice model showthat static models underestimate fixed costs of reorganization while overestimating the non- tax advantages of incorporation. The revised estimates also lead to a substantive downward revision of the risk-taking incentive inherent in the flexibility to change organizational forms.

Part III, On Applied Econometrics, is composed of a single chapter co-authored with Charlie Gibbons and Mike Urbancic and addresses the use of fixed effects in applied econo- metrics. Though common in the applied literature, it is known that fixed effects regressions with a constant treatment effect generally do not consistently estimate the sample-weighted treatment effect. Chapter 6 demonstrates the extent of the difference between the fixed effect estimate and the sample-weighted effect by replicating nine influential papers from the American Economic Review.

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