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Jel Classification:H40 

Optimal Tax Progressivity: An Analytical Framework

What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. At the same time, progressivity reduces incentives to work and to invest in skills, and aggravates the externality associated with valued public expenditures. We develop a tractable equilibrium model that features all of these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how ...
Staff Report , Paper 496

Working Paper
Bond Insurance and Public Sector Employment

This paper uses a unique data set of local governments’ bond issuance, expenditure, and employment to study the impact of the monoline insurance industry’s demise on local governments’ operations. To show causality, I use an instrumental variable approach that exploits persistent insurance relationships and the cross-sectional variation in insurers’ exposure to high-quality residential mortgage-backed securities. Governments associated with ailing insurers issued less debt, cut expenditures, and hired fewer workers. These effects are persistent. Partial equilibrium calculations show ...
Working Papers , Paper 22-03

The long road to recovery: New York Schools in the aftermath of the Great Recession

Schools play a crucial role in human capital development, and were one of the many elements of government adversely affected by the Great Recession. Using a rich panel data set of New York State school districts and a trend-shift analysis, we examine how the funding and expenditure dynamics of districts have changed in the four years since the recession hit. We find that although the stimulus prevented major cuts to expenditures while it was in place, once the stimulus funding was used up districts faced strong budget constraints and made deep cuts to their expenditures. While state and local ...
Staff Reports , Paper 631

Did cuts in state aid during the Great Recession lead to changes in local property taxes?

During the Great Recession and its aftermath, state and local governments? revenue streams dried up due to diminished taxes. Budget cuts affected many aspects of government; in this paper, we investigate whether (and how) local school districts modified their funding and taxing decisions in response to changes in state aid in the post-recession period. Using detailed district-level panel data from New York and a fixed effects as well as an instrumental variables strategy, we find strong evidence that school districts did indeed respond to state aid cuts in the post-recession period by ...
Staff Reports , Paper 643

How Do Voters Respond to Welfare vis-à-vis Public Good Programs? An Empirical Test for Clientelism

This paper examines allocation of benefits under local government programs in West Bengal, India to isolate patterns consistent with political clientelism. Using household survey data, we find that voters respond positively to private welfare benefits but not to local public good programs, while reporting having benefited from both. Consistent with the voting patterns, shocks to electoral competition induced by exogenous redistricting of villages resulted in upper-tier governments manipulating allocations across local governments only for welfare programs. Through the lens of a hierarchical ...
Staff Report , Paper 605

Clientelistic Politics and Pro-Poor Targeting: Rules versus Discretionary Budgets

Past research has provided evidence of clientelistic politics in delivery of program benefits by local governments (gram panchayats (GPs)), and manipulation of GP program budgets by legislators and elected officials at upper tiers in West Bengal, India. Using household panel survey data spanning 1998-2008, we examine the consequences of clientelism for distributive equity. We find that targeting of anti-poverty programs was progressive both within and across GPs, and is explained by greater 'vote responsiveness' of poor households to receipt of welfare benefits. Across-GP allocations were ...
Staff Report , Paper 624

Optimal Progressivity with Age-Dependent Taxation

This paper studies optimal taxation of labor earnings when the degree of tax progressivity is allowed to vary with age. We analyze this question in a tractable equilibrium overlapping-generations model that incorporates a number of salient trade-offs in tax design. Tax progressivity provides insurance against ex-ante heterogeneity and earnings uncertainty that missing markets fail to deliver. However, taxes distort labor supply and human capital investments. Uninsurable risk cumulates over the life cycle, and thus the welfare gains from income compression via progressive taxation increase ...
Staff Report , Paper 551

The impact of the Great Recession on school district finances: evidence from New York

Despite education?s fundamental role in human capital formation and growth, there is no research that examines the effect of the Great Recession (or any other recession) on schools. Our paper begins to fill this gap. Exploiting detailed data on school finance indicators and an analysis of trend shifts, we examine how the Great Recession affected school funding in New York State. While we find no evidence of effects on either total revenue or expenditure, there were important compositional changes to both. There is strong evidence of substitution of funds on the revenue side?the infusion of ...
Staff Reports , Paper 534

Journal Article
Precarious slopes? The Great Recession, federal stimulus, and New Jersey schools

While only a sparse literature investigates the impact of the Great Recession on various sectors of the economy, there is virtually no research on the effect on schools. This article starts to fill the void. The authors make use of rich panel data and a trend-shift analysis to study how New Jersey school finances were affected by the onset of the recession and the federal stimulus that followed. Their results show strong evidence of downward shifts in total school funding and expenditures, relative to trend, following the recession. Support of more than $2 billion in American Recovery and ...
Economic Policy Review , Issue Dec , Pages 41-65

Working Paper
Childhood Exposure to Violence and Nurturing Relationships: The Long-Run Effects on Black Men

Black men who witnessed a shooting before turning 12 have household earnings as adults 31 percent lower than those who did not. We present evidence that this gap is causal and is most likely the result of toxic stress; it is not mediated by incarceration and is constant across neighborhood socioeconomic status. Turning to mechanisms related to toxic stress, we study exposure to violence and nurturing relationships during adolescence. Item-anchored indexes synthesize variables on these treatments better than summing positive responses, Item Response Theory, or Principal Components, which all ...
Working Papers , Paper 23-16



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