Findings

Tea in the Harbor

Kevin Lewis

January 20, 2010

Who Supports Health Reform?

David Brady & Daniel Kessler
PS: Political Science & Politics, January 2010, Pages 1-6

Abstract:
In this article, we report results from a new study that surveyed a large, national sample of American adults about their willingness to pay for health reform. As in previous work, we find that self-identified Republicans, older Americans, and high-income Americans are less supportive of reform. However, these basic findings mask three important features of public opinion. First, income has a substantial effect on support for reform, even holding political affiliation constant. Indeed, income is the most important determinant of support for reform. Second, the negative effects of income on support for reform begin early in the income distribution, at annual family income levels of $25,000 to $50,000. Third, although older Americans have a less favorable view of reform than the young, much of their opposition is due to dislike of large policy changes than to reform per se.

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After Enactment: The Lives and Deaths of Federal Programs

Christopher Berry, Barry Burden & William Howell
American Journal of Political Science, January 2010, Pages 1-17

Abstract:
While many scholars have focused on the production of legislation, we explore life after enactment. Contrary to the prevailing view that federal programs are indissoluble, we show that programmatic restructurings and terminations are commonplace. In addition, we observe significant changes in programmatic appropriations. We suggest that a sitting congress is most likely to transform, kill, or cut programs inherited from an enacting congress when its partisan composition differs substantially. To test this claim, we examine the postenactment histories of every federal domestic program established between 1971 and 2003, using a new dataset that distinguishes program death from restructuring. Consistent with our predictions, we find that changes in the partisan composition of congresses have a strong influence on program durability and size. We thus dispel the notion that federal programs are everlasting while providing a plausible coalition-based account for their evolution.

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Terminal Care and The Value of Life Near Its End

Tomas Philipson, Gary Becker, Dana Goldman & Kevin Murphy
NBER Working Paper, January 2010

Abstract:
Medical care at the end of life, estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. However, though many observers have claimed that such spending is often irrational and wasteful, little explicit analysis exists on the incentives that determine end of life health care spending. This paper attempts to provide the first rational and systematic analysis of the incentives behind end of life care. The main argument we make is that existing theoretical and empirical analysis of the value of life do not apply, and often under-values, the value of life near its end and terminal care. We argue that several factors drive up the value of life near its end including the low opportunity cost of medical spending near ones death, the value of hope including living into new innovations, and the potential positive effect of on the value of life from being frail. We calibrate the ex-post value of hope associated with treatments for HIV patients to be as much as four times as high as standard per-capita estimates of treatment effects and as many as two and a half times as high as aggregate values across all cohorts.

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Tax in the Final Frontier: A Theory of Interstellar Tax

Adam Chodorow
Arizona State University Working Paper, December 2009

Abstract:
In his pioneering 1978 article "The Theory of Interstellar Trade," Nobel Laureate Paul Krugman considered how interest charges on goods in transit between the stars should be computed. This article seeks to expand on Krugman's seminal work - and establish my claim to a Nobel Prize - by considering whether income earned in flight should be subject to the federal income tax.

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Social spending, partisan bias and vote choice. Evidence from the US

Lluís Orriols
Electoral Studies, March 2010, Pages 54-65

Abstract:
Most models in political science and political economy assume that benefiting from public spending increases the likelihood of voting for the government. However, we do not have much empirical evidence on the conditions under which recipients of public spending reward governments for their public transfers. This article studies the electoral implications of welfare spending cuts in the early years of the Reagan Presidency, when public spending changes were particularly pronounced. Using 1982 NES data, this paper demonstrates that voters who lost public benefits punished Reagan but this only occurred when they identified with the Democratic Party. By contrast, benefit recipients not affected by government cuts were more likely to support Reagan, but again this was only significant among voters identifying with the party of government. This paper thus finds that governments cannot automatically "buy" votes by using welfare spending, the influence of which is instead cushioned by party identification.

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Social identity and preferences over redistribution

Esteban Klor & Moses Shayo
Journal of Public Economics, forthcoming

Abstract:
We design an experiment to study the effects of social identity on preferences over redistribution. The experiment highlights the trade-off between social identity concerns and maximization of monetary payoffs. Subjects belonging to two distinct natural groups are randomly assigned gross incomes and vote over alternative redistributive tax regimes, where the regime is chosen by majority rule. We find that a significant subset of the subjects systematically deviate from monetary payoff maximization towards the tax rate that benefits their group when the monetary cost of doing so is not too high. These deviations cannot be explained by efficiency concerns, inequality aversion, reciprocity, social learning or conformity. Finally, we show that behavior in the lab helps explain the relationship between reported income and stated preferences over redistribution observed in survey data.

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Ideological Change and the Economics of Voting Behavior in the US, 1920-2008

Jan-Emmanuel De Neve
London School of Economics Working Paper, December 2009

Abstract:
This paper tests the proposition that voters advance a more liberal agenda in prosperous times and shift towards being more conservative in dire economic times. A reference-dependent utility model establishes a dynamic relationship between income growth and voting behavior by way of the demand for public goods and the optimal tax rate. This income growth model may serve as an alternative to the redistributive model of voter preferences. Ordinary and instrumented statistical analyses of a new time series for the US median voter are encouraging of the theory. This work links voting behavior to economic business cycles and shows that ideological change is endogenous to income growth rates.

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The Evolution of Ideology, Fairness and Redistribution

Alberto Alesina, Guido Cozzi & Noemi Mantovan
NBER Working Paper, December 2009

"This model with its emphasis on fairness seems ideal to address issues of social justice like equalizing initial conditions versus redistribution. That is, an alternative view about social justice could be that everybody should start from the same initial conditions, and therefore inherited wealth, no matter how generated, should be heavily taxed to equalize everybody at birth. This of course would have implications on savings, capital accumulation, and the amount of bequest, but the structure provided by this model seems ideal to study this set of issues. Another generalization would be to allow non linear tax structures to permit for more progressive income and wealth taxation."

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Preventing State Budget Crises: Redefining 'Tax Cuts' and 'Tax Hikes'

David Scott Gamage
California Law Review, forthcoming

Abstract:
Forty-nine of the U.S. states have balanced budget requirements, and every state acts as though bound by such constraints. These constraints create fiscal volatility - the states must either cut spending or raise taxes during economic downturns, while doing the opposite during upturns. This paper discusses how states should cope with fiscal volatility on both the levels of ordinary politics and of institutional-design policy. On the level of ordinary politics, the paper applies principles of risk allocation theory to conclude that states should primarily adjust the rates of broad-based taxes as their economies cycle, rather than fluctuating public spending. States should raise their tax rates during economic downturns and lower them during periods of growth. On the level of institutional-design policy, the key question is how we define terms like "tax cuts" and "tax hikes." By adopting a new baseline for defining these terms, states can increase the likelihood of using tax rate adjustments to cope with fiscal volatility rather than (more harmful) spending fluctuations.

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Taxes and female labor supply

Remzi Kaygusuz
Review of Economic Dynamics, forthcoming

Abstract:
The Economic Recovery Act of 1981 and the Tax Reform Act of 1986 changed the U.S. income tax structure in a dramatic fashion. In particular, these two reforms reduced the marginal tax rates for married households. In this paper I investigate what part of the rise in labor force participation of married women between 1980 to 1990 (a rise of 13 percentage points) can be accounted by the changes in taxes. I build an heterogeneous agent model populated by married households. Households differ by age and educational attainment levels of their members and decide whether the second earner, the wife, should participate in the labor market. I select parameter values so that the model economy is consistent with the 1980 U.S. economy in terms of income tax structure, wages (skill premium and gender gap), marital sorting (who is married with whom), and female labor force participation. Using counterfactual experiments I find that 20-24% of the rise in married female labor force participation is accounted for by the changes in the income tax structure. Changes in wages account for 62-64%, and changes in marital sorting account for 14-16% of the rise in the participation rate of married women.


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