Giving and taking
Dividing the Dollar with Formulas
Journal of Politics, forthcoming
In advanced democracies, most government spending is allocated according to criteria approved by a legislature but implemented by the bureaucracy. I ask whether this fact imposes a binding constraint on the ability of legislators to engage in targeted redistribution, by constructing a model in which legislators are constrained to allocate spending by a formula of limited dimension — in contrast to benchmark models where proposers have the flexibility to manipulate the payoffs of individual members directly. The model predicts oversized winning coalitions, positive distributions outside of the winning coalition, and the emergence of persistent voting blocs. I then apply the model to a sample of 31 US federal spending bills, using new data connecting spending outcomes to authorizing legislation. I find that most allocation formulas for spending programs involve five or fewer factors. Formulaic allocation imposes a tight constraint on targeting, eliminating more than 90% of congressional proposers’ degrees of freedom.
Policy uncertainty and aggregate fluctuations
Haroon Mumtaz & Paolo Surico
Journal of Applied Econometrics, forthcoming
This paper estimates the impact on the US economy of four types of uncertainty about (i) government spending, (ii) tax changes, (iii) public debt, and (iv) monetary policy. Uncertainty about government debt has a large and persistent effect on output, consumption, investment, consumer confidence, and business confidence. Uncertainty about tax changes also has detrimental consequences for real activity but the effect of spending and monetary policy uncertainty appears to be small. About 25% of output fluctuations are accounted for by policy uncertainty, with government debt making the largest contribution at longer horizons.
Entrepreneurship and State Taxation
Mark Curtis & Ryan Decker
Federal Reserve Working Paper, January 2018
Entrepreneurship plays a vital role in the economy, yet there exists little well-identified research into the effects of taxes on startup activity. Using recently developed county-level data on startups, we examine the effect of states' corporate, personal and sales tax rates on new firm activity and test for cross-border spillovers in response to these policies. We find that new firm employment is negatively — and disproportionately — affected by corporate tax rates. We find little evidence of an effect of personal and sales taxes on entrepreneurial outcomes. Our results are robust to changes in the tax base and other state-level policies.
Bond Pricing in the Biggest City Bankruptcy in History: The Effects of State Emergency Management Laws on Default Risk
International Review of Law and Economics, forthcoming
This study investigates the returns to bondholders around important events in the Detroit bankruptcy that impacted market expectations of recoveries on the City’s debt. It illustrates how stricter State interference in the financial affairs of a distressed local government can increase the likely payoff to that entity’s own creditors. However, such interventions are also shown to potentially raise the default risk of economically related municipalities. Further investigations indicated that increases in Michigan’s emergency management powers did not positively impact the returns on a broad sample of distressed municipal bonds in Michigan nor improve the overall credit quality of the State and its political subdivisions.
Bureaucratic Competence and Procurement Outcomes
Francesco Decarolis et al.
NBER Working Paper, January 2018
To what extent does a more competent public workforce contribute to better economic outcomes? We analyze this question in the context of the US federal procurement by combining data on office-level competencies, federal workforce characteristics, and procurement performance. Using an instrumental variable strategy, we find that the effects of competence heterogeneity across bureaus are quantitatively important: if all federal bureaus were to obtain NASA's high level of competence (corresponding to the top 10 percent of competence), delays in contract execution would decline by 7.2 million days and price renegotiations would drop by $13.5 billion over the 2010-2015 period analyzed. Cooperation within the office appears to be a key driver of the findings.
Pay Inequality and Public Sector Performance: Evidence from the SEC's Enforcement Activity
NYU Working Paper, November 2017
I exploit an original, hand-collected data set to study how pay gaps among enforcement staff at the U.S. Securities and Exchange Commission (SEC) affect productivity. Pay gaps seem to generate incentives which induce effort. In particular, large pay gaps generate “tournament” incentives to increase enforcement activity and to exhibit exceptional job performance (as evidenced by the SEC’S bonus program). I identify the effect primarily through a diff-in-diff framework, using departures of regional directors as a treatment. This is the first paper to study how pay gaps among public sector employees affect productivity and regulation.
Measuring Economic Freedom: Better Without Size of Government
Social Indicators Research, January 2018, Pages 479–498
The Heritage Foundation and the Fraser Institute measure economic freedom in nations using indices with ten and five indicators respectively. Eight of the Heritage indicators and four of the Fraser-indicators are about specific types of institutional quality, like rule of law, the protection of property, and the provision of sound money. More of these is considered to denote more economic freedom. Both indices also involve indicators of ‘big government’, or levels of government activities. More of that is seen to denote less economic freedom. Yet, levels of government spending, consumption, and transfers and subsidies appear to correlate positively with the other indicators related to institutional quality, while this correlation is close to zero for the level of taxation as a percentage of GDP. Using government spending, consumption transfers and subsidies as positive indicators is no alternative, because these levels stand for very different government activities, liberal or less liberal. This means that levels of government activities can better be left out as negative or positive indicators. Thus shortened variants of the indices create a better convergent validity in the measurement of economic freedom, and create higher correlations between economic freedom and alternative types of freedom, and between economic freedom and happiness. The higher correlations indicate a better predictive validity, since they are predictable in view of the findings of previous research and theoretical considerations about the relations between types of freedom, and between freedom and happiness.
Private provision of public goods via crowdfunding
Marek Hudik & Robert Chovanculiak
Journal of Institutional Economics, February 2018, Pages 23-44
For various reasons, governments sometimes fail to provide public goods. Private provision of such goods might then be used if it succeeds in overcoming three main problems: high organization costs, the assurance problem, and the free-rider problem. We argue that technologies that enable crowdfunding – the method of funding projects by raising small amounts of money from a large number of people via the internet – have enabled these problems to be overcome more readily. Such technology has lowered organization costs and enabled the employment of more efficient mechanisms to reduce the assurance and free-rider problems. To illustrate these effects, we present two case studies of private provision of public goods via crowdfunding: police services in Rockridge in Oakland, California, and the Ukraine Army.
Competing for Government Procurement Contracts: The Role of Corporate Social Responsibility
Strategic Management Journal, forthcoming
This study examines whether corporate social responsibility (CSR) improves firms’ competitiveness in the market for government procurement contracts. To obtain exogenous variation in firms’ social engagement, I exploit a quasi-natural experiment provided by the enactment of state-level constituency statutes, which allow directors to consider stakeholders’ interests when making business decisions. Using constituency statutes as instrumental variable (IV) for CSR, I find that companies with higher CSR receive more procurement contracts. The effect is stronger for more complex contracts and in the early years of the government-company relationship, suggesting that CSR helps mitigate information asymmetries by signaling trustworthiness. Moreover, the effect is stronger in competitive industries, indicating that CSR can serve as a differentiation strategy to compete against other bidders.
Medium-Term Fiscal Multipliers during Protracted Economic Contractions
Salvatore Dell'Erba, Ksenia Koloskova & Marcos Poplawski-Ribeiro
Journal of Macroeconomics, forthcoming
The paper examines the consequences of fiscal consolidation in times of persistently low growth and high unemployment by estimating medium-term fiscal multipliers during protracted economic contractions in a sample of 17 OECD countries. Based on Jordà’s (2005) local projection methodology, we find that cumulative fiscal multipliers related to output, employment and unemployment at five-year horizons are significantly above one during protracted contractions. These results suggest that medium-term fiscal consolidation plans to reduce public debt burdens may lead to hysteresis effects and should proceed gradually if economic activity remains below trend for a prolonged period.
Do Share-of-Income Limits on Tax-Deductibility of Charitable Contributions Matter for Giving?
University of Southern California Working Paper, December 2017
The Tax Cut and Jobs Act increases the limitation on the share of income that may be taken as a charitable contribution income tax deduction. The effects of changes in this policy parameter on charitable giving are not known. This paper is the first attempt to estimate the importance of the deductibility limit directly, using novel data paired with a natural policy experiment. I describe policy changes over the period 1952–1969 that encompass all previous changes to date to the deductibility limit, and link those changes to time series evidence consistent with important policy effects. I then exploit the two most recent changes in the limitation (1964 and 1969) and three datasets of contributions reported by individual charities to estimate causal microeconomic effects. Though time series evidence suggests the AGI limitation affects aggregate giving, the evidence from microdata suggests that any such effect is small for the average charity.
Knowing What We Are Getting: Evaluating Scientific Research on the International Space Station
William Bianco & Eric Schmidt
Social Science Quarterly, December 2017, Pages 1151–1159
The debate over the value of the International Space Station has overlooked a fundamental question: What is the station's contribution to scientific knowledge? We address this question using a multivariate analysis of publication and patent data from station experiments. We find a relatively high probability that ISS experiments with PIs drawn from outside NASA will yield refereed publications and, furthermore, that these experiments have nonnegligible probabilities of finding publication in high-impact journals or producing government patents. However, technology demonstrations and experiments with all-NASA PIs have much weaker track records. These results highlight the complexities inherent to constructing a compelling case for science onboard the ISS or for crewed spaceflight in general.