Aaron YelowitzApplied economist · University of Kentucky
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ECO 751 · Fall 2009

Public Economics

Historical syllabus; policies and dates reflect this term.

Archived syllabus. Policies, dates, assignments, and readings reflect Fall 2009.

Course information

ECO 751 University of Kentucky Public Economics Fall 2009 Lecture: Tuesday/Thursday 11am-12:15 pm, B&E 214 Professor Aaron Yelowitz Office: B&E, 335W, Office hours: Tuesday/Thursday, 1-3 pm Public economics has two primary purposes: to analyze government taxation and government expenditure. Professor Hoyt’s part of the course emphasized the taxation side. My part of the course will focus on the expenditure side. In terms of the expenditure side, we will explore how government intervention changes the opportunities and incentives for firms, families, individuals, service providers and state and local governments. Most of the assigned papers will be empirical. The course will typically discuss econometric techniques within the context of the empirical articles.

Course Requirements

An important objective of this course is to encourage you to think about promising research areas for your dissertation. To accomplish this, you will be required to do conduct a data replication/extension. More details will be forthcoming as the semester goes on. In terms of the requirements, the assignments are laid out as follows: Data replication/extension 50% Final 50% First, you will conduct a “data extension.” We will see what kinds of data sources are out there for doing empirical work in applied micro, and some of the software that you can use to econometrics. Your job will be to take a previous paper (broadly related to public finance, public policy, or even labor economics), and try to replicate and extend the results. For example, you may take a study that uses the Current Population Survey (CPS), a common data set in many studies, and try to replicate the results using more recent years, or using a different data set (such as the Panel Study of Income Dynamics or the Survey of Income and Program Participation). You will need to consult with me and get my approval. You will type up your results (no more than 10 pages, double spaced, and no more than 5 tables), and submit electronically your computer programs and log files along with your write-up. At the beginning of my part of the course, we will see how to create large, useful data sets. Second, we will give an in-class final exam during finals week, on Tuesday, December 15, 2009, from 10:30-12:30.

Note that the required readings (except for the Gruber textbook) are freely available on JSTOR or other web sites. I have already downloaded these, and can help you download them.

Course Topics / Outline / Readings

(Bold will be covered in class, * are readings that would be covered in a full semester course)

  1. Empirical Tools of Public Finance
  • Gruber textbook, Chapter 3
  • Difference-in-difference handout
  • M. Bertrand, E. Duflo, and S. Mullainathan, “How Much Should We Trust Differences-in-Differences Estimates?” Quarterly Journal of Economics, February 2004.
  1. Externalities in Action: Environmental and Health Externalities
  • Gruber textbook, Chapter 6.3 & 6.4
  • Evans,W. N.,M. C. Farelly, and E. Montgomery. “Do Workplace Smoking Bans Reduce Smoking?” American Economic Review 89 (1999): 728–747.
  • Fullerton, Don, and Thomas C. Kinnaman, “Household Responses to Pricing Garbage by the Bag,” American Economic Review, 86(4), September 1996, 971-984. Gruber, Jonathan. “Tobacco at the Crossroads:The Past and Future of Smoking Regulation in the U.S.” Journal of Economic Perspectives 15 (Spring 2001): 193–212. Gruber, Jonathan, and Botond Koszegi. “Is Addiction ‘Rational’? Theory and Evidence.” Quarterly Journal of Economics 116 (November 2001): 1261–1303. Becker, Gary S., and Kevin M. Murphy. “A Theory of Rational Addiction.” Journal of Political Economy 96 (August 1988): 675–700. Viscusi,W. Kip. “Cigarette Taxation and the Social Consequences of Smoking.” In Tax Policy and the Economy, edited by James Poterba. National Bureau of Economic Research,Vol. 9 (1995), pp. 51–101.
  1. Education

  • Gruber textbook, Chapter 11

  • Rouse, Cecilia. “Private School Vouchers and Student Achievement: An Evaluation of the Milwaukee Parental Choice Program.” Quarterly Journal of Economics 113 (May 1998): 553–602.

  • Tyler, John H., Richard J. Murnane, and John B.Willett. “Estimating the Labor Market Signaling Value of the GED.” Quarterly Journal of Economics 115 (May 2000): 431–68.
  • Jaeger, David A., and Marianne E. Page. “Degrees Matter: New Evidence on Sheepskin Effects in the Returns to Education.” Review of Economics and Statistics 78 (November 1996): 733–40. Peltzman, Sam. “The Effect of Government Subsidies-in-Kind on Private Expenditures:The Case of Higher Education.” Journal of Political Economy 81 ( January–February 1973): 1–27.
  • Angrist, Joshua, et al. “Vouchers for Private Schooling in Colombia: Evidence from a Randomized Natural Experiment.” American Economic Review 92 (December 2002): 1535–58.
  • Duflo, Esther. “The Medium Run Effects of Educational Expansion: Evidence from a Large School Construction Program in Indonesia.” Journal of Development Economics 74 (Special Issue, June 2004): 163–97.
  • Krueger, Alan B., and Diane M.Whitmore. “The Effect of Attending a Small Class in the Early Grades on College-Test Taking and Middle School Test Results: Evidence from Project STAR.”Economic Journal 111 (January 2001): 1–28.
  • Figlio, David N., and Joshua Winicki. “Food for Thought:The Effects of School Accountability Plans on School Nutrition.” National Bureau of Economic Research Working Paper 9319, November 2002.
  • Jacob, Brian A., and Steven D. Levitt. “Catching Cheating Teachers:The Results of an Unusual Experiment in Implementing Theory.” National Bureau of Economic Research Working Paper 9414, January 2003. Hoxby, Caroline M. “Does Competition among Public Schools Benefit Students and Taxpayers?” American Economic Review 90 (December 2000): 1209–38. Hoxby, Caroline M. “All School Finance Equalizations Are Not Created Equal.” Quarterly Journal of Economics 116 (November 2001): 1189–1231.

Hoxby, Caroline M. “School Choice and School Productivity (or Could School Choice be a Tide That Lifts All Boats?).” National Bureau of Economic Research Working Paper 8873, April 2002. Cullen, Julie Berry, Brian A. Jacob, and Steven Levitt. “The Effect of School Choice on Student Outcomes: Evidence from Randomized Lotteries.” National Bureau of Economic Research Working Paper 10113, November 2003. Hanushek, Eric A., John F. Kain, and Steven G. Rivkin. “The Impact of Charter Schools on Academic Achievement.” Stanford University working paper, December 2002. Bifulco, Robert, and Helen F. Ladd. “The Impacts of Charter Schools on Student Achievement: Evidence from North Carolina.” University of Connecticut mimeo, June 2004. Greene, Jay P., Paul E. Peterson, Jiangtao Du, Leesa Boeger, and Curtis L. Frazier. “The Effectiveness of School Choice in Milwaukee:A Secondary Analysis of Data from the Program’s Evaluation.” University of Houston mimeo,August 1996. Witte, John F. “Achievement Effects of the Milwaukee Voucher Program.” University of Wisconsin at Madison mimeo, January 1997. Figlio, David N., and Cecilia Elena Rouse. “Do Accountability and Voucher Threats Improve Low-Performing Schools?” Princeton University mimeo, June 2004. Hsieh, Chang-Tai, and Miguel Urquiola. “When Schools Compete, How Do They Compete? An Assessment of Chile’s Nationwide School Voucher Program.” National Bureau of Economic Research Working Paper 10008, October 2003. Hanushek, Eric A., and Margaret E. Raymond. “The Effect of School Accountability Systems on the Level and Distribution of Student Achievement.” Journal of the European Economic Association 2 (April–May 2004): 406–15. Jacob, Brian A.“ Accountability, Incentives and Behavior: The Impact of High-Stakes Testing in the Chicago Public Schools.” National Bureau of Economic Research Working Paper 8968, May 2002. Figlio, David N., and Lawrence S. Getzler. “Accountability, Ability and

Disability: Gaming the System.” National Bureau of Economic Research Working Paper 9307, November 2002. Milligan, Kevin, Enrico Moretti, and Philip Oreopoulos. “Does Education Improve Citizenship? Evidence from the United States and the United Kingdom.” Journal of Public Economics 88 (August 2004): 1667–95. Oreopoulos, Philip,Marianne E. Page, and Ann Huff Stevens. “Does Human Capital Transfer from Parent to Child? The Intergenerational Effects of Compulsory Schooling.” Cambridge, MA: National Bureau of Economic Research Working Paper 10164, December 2003. Moretti, Enrico. “Workers’ Education, Spillovers, and Productivity: Evidence from Plant-Level Production Functions.” American Economic Review 94 ( June 2004): 656–90. Krueger, Alan B. “Experimental Estimates of Education Production Functions.” Quarterly Journal of Economics 114 (May 1999): 497–532. Bound, John, Jeffrey Groen, Gabor Kezdi, and Sarah Turner. “Trade in University Training: Cross-State Variation in the Production and Stock of College-Educated Labor.” Journal of Econometrics 121 ( July–August 2004): 143–73. Lazear, Edward P. “Educational Production.” Quarterly Journal of Economics 116 (August 2001): 777–803.

  1. Social Insurance: The New Function of Government
  • Gruber, Chapter 12
  • Cutler, David M., and Sarah J. Reber. “Paying for Health Insurance:The Trade-off between Competition and Adverse Selection.” Quarterly Journal of Economics 113 (May 1998): 433–66.
  • Buchmueller, Thomas, DiNardo, John, “Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut,” American Economic Review, March 2002, 92(1): 280-94. Akerlof, George A. “The Market for Lemons: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics 84 (August 1970): 488–500.

Woolhandler, S.,T. Campbell, and D. U. Himmelstein. “Costs of Health Care Administration in the United States and Canada.” New England Journal of Medicine 349 (August 21, 2003): 768–75.

  1. Social Security and Saving Behavior
  • Gruber, Chapter 13
  • Finkelstein,Amy, and James Poterba. “Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K.Annuity Market.” Journal of Political Economy 112 (no. 1, Part 1, February 2004): 183–208.
  • Madrian, Brigitte C., and Dennis F. Shea, “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,” Quarterly Journal of Economics, 116(4), November 2001, 1149-1187.
  • Feldstein, Martin S. “Social Security, Induced Retirement, and Aggregate Capital Accumulation.” Journal of Political Economy 82 (no. 5, September/October 1974): 905–26.
  • Feldstein, Martin, “The Missing Piece in Policy Analysis: Social Security Reform,” American Economic Review, 86(2), May 1996, 1-14.
  • Diamond, Peter, “Social Security,” American Economic Review, March 2004, 94(1): 1-24. Attanasio, Orazio P, and Agar Brugiavini. “Social Security and Households’ Saving.” Quarterly Journal of Economics 118 (no. 3, August 2003): 1075–1119. Attanasio, Orazio P, and Susann Rohwedder. “Pension Wealth and Household Saving: Evidence from Pension Reforms in the United Kingdom.” American Economic Review 93 (no. 5, December 2003): 1499–1521. Bernheim, B. Douglas, Jonathan Skinner, and Steven Weinberg. “What Accounts for the Variation in Retirement Wealth among US Households?” American Economic Review 91 (no. 4, September 2001): 832–57. Gruber, Jonathan, and Peter Orszag. “Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?” National Tax Journal 56 (no. 4, December 2003): 755–73.

Poterba, James M., Steven F.Venti, and David A.Wise. “Implications of Rising Personal Retirement Saving.” In Frontiers in the Economics of Aging, edited by David A.Wise. Chicago: University of Chicago Press, 1998a. Engelhardt, Gary V., and Jonathan Gruber. “Social Security and the Evolution of Elderly Poverty.” National Bureau of Economic Research Working Paper 10466, May 2004.

  1. Unemployment Insurance, Disability Insurance, and Workers’ Compensation
  • Gruber, Chapter 14
  • Topel, Robert H. “On Layoffs and Unemployment Insurance.” American Economic Review 73 (September 1983): 541–559.
  • J. Bound, “The Health and Earnings of Rejected Disability Insurance Applicants,” American Economic Review, 79(3), Jun 1989, 482-503.
  • D. Parsons “The Health and Earnings of Rejected Disability Insurance Applicants: Comment” American Economic Review, 81(5), Dec 1991, 1419-1426.
  • J. Bound “The Health and Earnings of Rejected Disability Insurance Applicants: Reply” American Economic Review, 81(5), Dec 1991, 1427-1434.
  • Parsons, Donald. O. “Disability Insurance and Male Labor Force Participation:A Response.” Journal of Political Economy 92 ( June 1984): 542–9.
  • Gruber, Jonathan. “The Consumption Smoothing Benefits of Unemployment Insurance.” American Economic Review 87 (March 1997): 192–205.
  • Gruber, Jonathan. “Disability Insurance Benefits and Labor Supply.” Journal of Political Economy 108 (December 2000): 1162–83.
  • Meyer, Bruce D. “Unemployment Insurance and Unemployment Spells.” Econometrica 58 ( July 1990): 757–82.
  • Meyer, Bruce D. “A Quasi-Experimental Approach to the Effects of Unemployment Insurance.” National Bureau of Economic Research

Working Paper 3159, November 1989.

  • Woodbury, Stephen A., and Robert G. Spiegelman. “Bonuses to Workers and Employers to Reduce Unemployment: Randomized Trials in Illinois.” American Economic Review 77 (September 1987): 513–30.
  • Anderson, Patricia M., and Bruce D. Meyer. “The Effects of the Unemployment Insurance Payroll Tax on Wages, Employment. Claims and Denials.” Journal of Public Economics 78 (October 2000): 81–106. Parsons, Donald O. “Measuring and Deciding Disability.” In Disability and Work: Incentives, Rights and Opportunities, edited by Caroline L.Weaver.Washington, DC:American Enterprise Institute Press, 1991. Engen, Eric M., and Jonathan Gruber. “Unemployment Insurance and Precautionary Saving.” Journal of Monetary Economics 47 ( June 2001): 545–79. Cullen, Julie Berry, and Jonathan Gruber. “Does Unemployment Insurance Crowd Out Spousal Labor Supply?” Journal of Labor Economics 18 ( July 2000): 546–72. Krueger, Alan B. “Incentive Effects of Workers’ Compensation Insurance.” Journal of Public Economics 41 (February 1990): 73–99. Krueger, Alan B. “Workers’ Compensation Insurance and the Duration of Workplace Injuries.” Mimeo, Princeton University, July 1991.
  1. Health Insurance I: Health Economics and Private Health Insurance
  • Gruber, Chapter 15
  • Madrian, Brigitte C. “Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?” Quarterly Journal of Economics 109 (February 1994): 27–54.
  • Feldstein, Martin S. “The Welfare Loss of Excess Health Insurance.” Journal of Political Economy 81 (March–April 1973): 251–80. Cutler, David M. Your Money or Your Life: Strong Medicine for America’s Health Care System.New York: Oxford University Press, 2004. Chernew, Michael E., Richard A. Hirth, and David M. Cutler. “Increased Spending on Health Care: How Much Can the United States Afford?”

Health Affairs 22 ( July/August 2003): 15–25. Hadley, Jack, and John Holahan. “How Much Medical Care Do the Uninsured Use, and Who Pays for It?” Health Affairs (WebExclusive, February 12, 2003) at www.healthaffairs.org/WebExclusives/Hadley_Web_Excl_021203.htm. Grumbach, K., D. Keane, and Andrew Bindman. “Primary Care and Public Emergency Department Overcrowding.” American Journal of Public Health 83 (March 1993): 372–8. Gruber, Jonathan, and Brigitte C. Madrian. “Health Insurance, Labor Supply, and Job Mobility:A Critical Review of the Literature.” In Health Policy and the Uninsured, edited by Catherine McLaughlin.Washington, DC: Urban Institute Press, 2004, pp. 97–178.

Winslow, C. M., D. H. Solomon, M. R. Chassin, J. Kosecoff, N. J. Merrick, and R. H. Brook. “The Appropriateness of Carotid Endarterectomy.” New England Journal of Medicine 318 (March 24, 1988): 721–7. Feldman, Roger, and Bryan E. Dowd. “A New Estimate of the Welfare Loss of Excess Health Insurance.” American Economic Review 81 (March 1991): 297–301. Newhouse, Joseph P., and the Insurance Experiment Group. Free For All? Lessons from the RAND Health Insurance Experiment. Cambridge, MA: Harvard University Press, 1993. Gruber, Jonathan, and Michael Lettau. “How Elastic Is the Firm’s Demand for Health Insurance?” Journal of Public Econom ics 88 ( July 2004): 1273–93. Nyman, John A. “The Value of Health Insurance:The Access Motive.” Journal of Health Economics 18 (April 1999): 141–52. Manning,W. G.;A. Leibowitz, G. A. Goldberg,W. H. Rogers, and J. P. Rogers. “A Controlled Trial of the Effects of a Prepaid Group Practice on Use of Services.” New England Journal of Medicine 310 ( Jun e 7, 1984): 1505–10.

  1. Health Insurance II: Medicare, Medicaid, and Health Care Reform

  • Gruber, Chapter 16

  • Cutler, David M., and Jonathan Gruber. “Does Public Insurance Crowd Out Private Insurance?” Quarterly Journal of Economics 111 (May 1996): 391–430.

  • Gruber, Jonathan. “The Incidence of Mandated Maternity Benefits.” American Economic Review 84 ( June 1994): 86–102.
  • Summers, Lawrence H. “Some Simple Economics of Mandated Benefits.” American Economic Review 79 (May 1989): 177–83.
  • Currie, Janet, and Jonathan Gruber. “Saving Babies:The Efficacy and Cost of Recent Changes in the Medicaid Eligibility of Pregnant Women.” Journal of Political Economy 104 (December 1996a): 1263–96.
  • Gruber, Jonathan, and Aaron Yelowitz. “Public Health Insurance and Private Savings.” Journal of Political Economy 107 (December 1999): 1249–74. Cutler, David M., Mark McClellan, Joseph P. Newhouse, and Dahlia Remler. “Are Medical Prices Declining? Evidence from Heart Attack Treatments.” Quarterly Journal of Economics 113 (November 1998): 991–1024. Currie, Janet, and Jonathan Gruber. “Health Insurance Eligibility, Utilization of Medical Care, and Child Health.” Quarterly Journal of Economics, 111 (no. 2,May 1996b): 431– 66. Currie, Janet, and Jonathan Gruber. “Public Health Insurance and Medical Treatment:The Equalizing Impact of the Medicaid Expansions.” Journal of Public Economics 82 (October 2001): 63–89.

Hanratty,Maria J. “Canadian National Health Insurance and Infant Health.” American Economic Review 86 (March 1996): 276–84. Lurie, N., N. B.Ward,M. F. Shapiro, and R. H. Brook. “Termination from Medi-Cal—Does It Affect Health?” New England Journal of Medicine 311 (August 16, 1984): 480–4. Fitzgerald, J. F., L. F. Fagan,W. M.Tierney, and R. S. Dittus. “Changing Patterns of Hip Fracture Care Before and After Implementation of the Prospective Payment System.” Journal of the American Medical Association (1987): 218–21. Leibson, C. L., J. M. Naessens, M. E. Campion, I. Krishan, and D. J.

Ballard. “Trends in Elderly Hospitalization and Readmission Rates for a Geographically Defined Population: Preand Post-Prospective Payment.” Journal of the American Geriatrics Society 39 (1991): 895–904. Newhouse, Joseph P., and Daniel J Byrne. “Did Medicare’s Prospective Payment System Cause Length of Stay to Fall?” Journal of Health Economics 7 (December 1988): 413–6. Finkelstein,Amy. “Health Policy and Technological Change: Evidence from the Vaccine Industry.” National Bureau of Economic Research Working Paper 9460, January 2003.

  1. Income Distribution and Welfare Programs
  • Gruber, Chapter 17
  • Yelowitz, Aaron, “The Medicaid Notch, Labor Supply, and Welfare Participation: Evidence from Eligibility Expansions,” Quarterly Journal of Economics, 110(4), November 1995, 909-939.
  • Moffitt, Robert. “Incentive Effects of the U.S.Welfare System:A Review.” Journal of Economic Literature 30 (March 1992): 1–61.
  • Nichols, Albert L., and Richard J. Zeckhauser. “Targeting Transfers through Restrictions on Recipients.” American Economic Review 72 (May 1982): 372–7. Blank, Rebecca. “Evaluating Welfare Reform in the United States.” Journal of Economic Literature 40 (December 2002): 1105–66. Bitler, Marianne, Jonah Gelbach, and Hilary Hoynes. “What Mean Impacts Miss: Distributional Effects of Welfare Reform Experiments.” Cambridge, MA: National Bureau of Economic Research,Working Paper 10121, November 2003. Luttmer, Erso F. P. “Do People Care How Much Their Neighbors Earn? How Relative Earnings Affect Well-Being.” National Bureau of Economic Research paper ( July 22, 2004).Accessed at http://www.nber.org/~luttmer/relative.pdf. Deaton, Angus. “Health, Inequality, and Economic Development.” Journal of Economic Literature 41 (March 2003): 113–58. Garrett, Bowen, and Sherry Glied. “Does State AFDC Generosity Affect

Child SSI Participation?” Journal of Policy Analysis and Management 19 (Spring 2000): 275–95. Okun, Arthur. Equality and Efficiency:The Big Tradeoff.Washington, DC: Brookings Institution, 1975. Moffitt, Robert A. Means-Tested Transfer Programs in the United States. Chicago: University of Chicago Press, 2003. Hoynes, Hilary. “Work,Welfare and Family Structure:What Have We Learned?” In Fiscal Policy: Lessons From Economic Research, edited by Alan Auerbach. Cambridge: Cambridge University Press, 1997, pp. 101–46. Gueron, Judith M. “Work and Welfare: Lessons on Employment Programs.” Journal of Economic Perspectives 4 (Winter 1990): 79–98. Blank, Rebecca M., David Card, and Philip K. Robins. “Financial Incentives for Increasing Work and Income among Low-Income Families.” In Finding Jobs:Work and Welfare Reform, edited by David Card and Rebecca M. Blank. New York: Russell Sage Foundation, 2000, pp. 373–419. Ford, Reuben, David Gyarmati, Kelly Foley, and Doug Tattrie. Can Work Incentives Pay for Themselves? Ottawa: Social Research and Demonstration Corporation, 2003. Meyer, Bruce D., and James X. Sullivan. “The Effects of Welfare and Tax Reform:The Material Well-Being of Single Mothers in the 1980s and 1990s.” Journal of Public Economics 88 ( July 2004): 1387–1420. Kearney, Melissa Schettini. “Is There an Effect of Incremental Welfare Benefits on Fertility Behavior? A Look at the Family Cap.” Journal of Human Resources 39 (Spring 2004): 295–325.