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Essays in Public Finance and Local Public Policies

  • Author(s): Kim, Wookun
  • Advisor(s): Fajgelbaum, Pablo D
  • et al.
Abstract

This dissertation includes two essays in applied microeconomics. In Chapter 1, I investigate how much people value local government spending. This is important to measure to better inform government policies and theories of public finance and urban economics, especially when considering how to allocate government spending across locations. To estimate this, I build a quantitative spatial general equilibrium model and combine it with the empirical environment of South Korea where I can leverage a quasi-natural experiment of tax policy reforms to estimate the valuation. I find that an extra dollar of local government spending is valued at 75 cents of their private consumption equivalent. Having obtained the estimate, I embed the measurement into a broader model of the South Korean economy and ask a broader question that involves a general equilibrium analysis of the optimal fiscal transfers across locations: what is the best way to transfer tax revenue across locations in the context where this revenue would be used to finance local government spending. What I find is that fiscal arrangements with small redistribution relative to the actual extent of redistribution observed in South Korea would have positive aggregate e˙ects on welfare. However, completely eliminating the transfer scheme would result in a large welfare loss. In addition to these substantive findings, this chapter has a methodological contribution. The key aspect is to account for two forms of mobility: where people choose to live, or migration, and where people choose to work, or commuting, which have been thus far studied separately. Throughout my analysis, I show that accounting for both of these margins of mobility is key to correctly estimating the valuation for local government spending and measuring fundamental parameters in the spatial economics literature, which also appear in my framework, namely the elasticities of migration and commuting with respect to spatial frictions. In Chapter 2, I examine the effects of pro-natalist cash transfers on fertility outcomes in South Korea. I exploit the rich cross-sectional variation in cash-transfer generosity over time using 15 years to identify the causal effects of these transfers on the number of births and their health outcomes. Overall, the results provide evidence that cash transfer is an effective policy measure to increase completed fertility and the number of children every born per woman without adversely impacting infant health outcomes and sex composition at birth. Decomposing the birth rates by parity, I find that cash transfers offered for a specific birth parity only affected the parity-specific birth rates. Furthermore, the cash transfers did not change the fertility rate of adolescents.

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