Aaron YelowitzApplied economist · University of Kentucky
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ECO 751 · Fall 2013

Public Economics

Historical syllabus; policies and dates reflect this term.

Archived syllabus. Policies, dates, assignments, and readings reflect Fall 2013.

Course information

ECO 751 University of Kentucky Public Economics Fall 2013

Lecture: TR 3:30-4:45, B&E 324 (conference room) Dr. Aaron Yelowitz Office: B&E, 335W, Office hours: Thursdays, 2:00-3:30; by appointment

Public economics has two primary purposes: to analyze government taxation and government expenditure. Professor Hoyt’s part of the course in the Spring Semester will emphasize 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. One of the explicit objectives is to prepare you for doing research in your dissertation.

Course Requirements

In terms of the grading requirements, there are three main tasks:

Data extension paper 50% Final exam 35% In-class presentation 15%

Perhaps the most important objective of this course is to encourage you to think about promising empirical research areas for your dissertation, whether you choose to specialize in public economics or not. To accomplish this, you will be required to do conduct a data replication/extension. More details will be forthcoming as the semester goes on, but there will be certain “milestones” that you’ll have to reach by certain deadlines, like coming up with a suitable idea (subject to my approval), successfully extracting data, writing the paper, and providing clearly documented programs and log files.

Early on in the course, 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 do econometrics. We will see how to create large, useful data sets; this should be helpful for the data exercise. Your job will be to take a previous paper (broadly related to public finance or public policy), 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). Or, to the extent you can come up with an original idea that meets my approval, you can work on that instead. You will write up your results as you would for submission to a peer-reviewed journal (no more than 15 pages, double spaced, and no more than 5 tables), and submit electronically your computer programs and log files along with your write-up. One journal in public finance – Public Finance Review – actively encourages high quality replications.1 Second, there will be an in-class final exam during finals week, on Thursday, December 19, 2013, from 3:30-5:30 pm. This will count for 35% of your grade, and the questions will reflect the sorts of questions that appear on the field exam in June. Finally, you will do a 15-minute in-class presentation. This serves two purposes. The first is that economists, by their nature, must be comfortable speaking in front of others and answering questions. This provides some training. The second purpose is that there are many areas of public finance – or readings on the syllabus – that we simply won’t have time to cover. To the extent you can successfully convey the main points of a paper in this amount of time, your fellow classmates will have greater exposure to public finance. Given the size of the class, we will schedule the final four lectures of the semester for these presentations. You will be asked questions by me (and your fellow students). You may not go over your time limit. Your presentation must be approved by me.

1 See Burman, Reed and Alm, 2010, “A Call for Replication Studies,” http://www.sagepub.com/upm-data/36845_Replication_Studies11PFR10_787_7 (historical link unavailable)

  1. pdf . This is contained in your reading packet.

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

Course Topics / Outline / Readings

  1. Empirical Tools of Public Finance
  • Gruber textbook, Chapter 1
  • Gruber textbook, Chapter 2
  • Gruber textbook, Chapter 3
  • Difference-in-difference handout
  • Bertrand, Duflo, and Mullainathan, “How Much Should We Trust Differences-in-Differences Estimates?” QJE, 119(1), February 2004, 249-75.
  • Cameron, Gelbach, Miller, “Bootstrap-Based Improvements for Inference with Clustered Errors,” Review of Economics and Statistics, 90(3), August 2008, 414-427.
  • Cameron, Gelbach, Miller, “Robust Inference with Multiway Clustering,” Journal of Business & Economic Statistics, 29(2), 2011, 238-249.
  1. Externalities in Action: Environmental and Health Externalities
  • Gruber textbook, Chapter 5 & 6
  • Gruber textbook, Chapter 6.3 & 6.4
  • Evans, Farelly, and Montgomery, “Do Workplace Smoking Bans Reduce Smoking?” AER, 89(4), September 1999, 728–47.
  • Fullerton and Kinnaman, “Household Responses to Pricing Garbage by the Bag,” AER, 86(4), September 1996, 971-84.
  • Ayres and Levitt, “Measuring Positive Externalities From Unobservable Victim Precaution: An Empirical Analysis of LoJack,” QJE, 113(1), February 1998, 43-77.
  • Homonoff, “Can Small Incentives Have Large Effects? The Impact of Taxes versus Bonuses on Disposable Bag Use,” Working Paper, March 2013.
  1. Education
  • Gruber textbook, Chapter 11
  • Rouse, “Private School Vouchers and Student Achievement: An Evaluation of the Milwaukee Parental Choice Program.” QJE 113 (May 1998): 553–602.

  • Tyler, Murnane, and Willett. “Estimating the Labor Market Signaling Value of the GED.” QJE 115 (May 2000): 431–68.

  • Jaeger and Page. “Degrees Matter: New Evidence on Sheepskin Effects in the Returns to Education.” ReStat 78 (November 1996): 733–40.

  • Chetty, Friedman, Hilger, Saez, Schanzenbach and Yagan, “How Does Your Kindergarten Classroom Affect Your Earnings? Evidence From Project STAR,” QJE, 126(4), November 2011, 1593-1660.
  • Kruger, “Experimental Estimates of Education Production Functions,” QJE, May 1999, 497-532.
  • Jacob and Levitt, “Rotten Apples: An Investigation of the Prevalence and Predictors of Teacher Cheating,” QJE, 118(3), August 2003, 843-877.
  • Jacob and Levitt, “Catching Cheating Teachers: The Results of an Unusual Experiment in Implementing Theory,” Brookings-Wharton Papers on Urban Affairs, 2003, 185-220. Also, comments by Philip J. Cook and Bruce Sacerdote.
  1. Social Insurance: The New Function of Government
  • Gruber, Chapter 12
  • Finkelstien and McGarry, “Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market,” AER, 96(4), 2006, 938-958.
  • Cutler and Reber. “Paying for Health Insurance:The Trade-off between Competition and Adverse Selection.” QJE 113 (May 1998): 433–66.
  • Buchmueller and DiNardo, “Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut,” AER, March 2002, 92(1): 280-94.
  • Akerlof, “The Market for Lemons: Quality Uncertainty and the Market Mechanism.” QJE 84(), August 1970, 488–500.
  • Rothschild and Stiglitz, “Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information,” QJE, 1976.
  • Cawley and Philipson, “An Empirical Examination of Information Barriers to Trade in Insurance,” AER, 89(4), September 1999, 827-846.
  1. Social Security and Saving Behavior
  • Gruber, Chapter 13

  • Gruber, Chapter 22

  • Finkelstein and Poterba. “Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market.” JPE 112(1, Part 1), February 2004, 183–208.

  • Madrian and Shea, “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,” QJE, 116(4), November 2001, 1149-1187.
  • Chetty, Friedman, Leth-Petersen, Nielsen, and Olsen, “Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark,” NBER Working Paper 18565, November 2012.
  • Feldstein “Social Security, Induced Retirement, and Aggregate Capital Accumulation.” JPE 82(5), September/October 1974, 905–26.
  • Thaler and Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving.” JPE 112(S1): S164-S187.
  • Hubbard and Skinner “Assessing The Effectiveness of Saving Incentives” Journal of Economic Perspectives. 10(4) (Fall 1996): 73-90.
  • Poterba, Venti, and Wise. 1996. “How Retirement Saving Programs Increase Saving." Journal of Economic Perspectives, 10 (4): 91-112.
  • Engen, Gale, and Scholz. 1996. The Illusory Effects of Saving Incentives on Saving.” Journal of Economic Perspectives, 10(4): 113-138.
  • Skinner, J., "Are You Sure You’re Saving Enough for Retirement?" Journal of Economic Perspectives, Summer 2007; 59-80.
  1. Unemployment Insurance, Disability Insurance, and Workers’ Compensation
  • Gruber, Chapter 14
  • Topel, “On Layoffs and Unemployment Insurance.” AER, 73(), September 1983, 541–59.
  • Bound, “The Health and Earnings of Rejected Disability Insurance Applicants,” AER, 79(3), June 1989, 482-503.
  • Parsons “The Health and Earnings of Rejected Disability Insurance Applicants: Comment” AER, 81(5), December 1991, 1419-26.
  • Bound “The Health and Earnings of Rejected Disability Insurance Applicants: Reply” AER, 81(5), December 1991, 1427-34.
  • Maestas, Mullen and Strand, “Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI

Receipt,” AER, 103(5), August 2013, 1797-1829.

  • Autor and Duggan, “The Rise in the Disability Rolls and the Decline in Unemployment,” QJE, February 2003.
  • Gruber, “The Consumption Smoothing Benefits of Unemployment Insurance,” AER, March 1997, 192-205.
  • Gruber, “Disability Insurance Benefits and Labor Supply,” JPE, 108 (), December 2000, 1162–83.
  • Meyer, “Unemployment Insurance and Unemployment Spells,” Econometrica 58(4), July 1990, 757–82.
  • Krueger, “Incentive Effects of Workers’ Compensation Insurance,” JPubE 41 (1), February 1990, 73–99.
  1. Health Insurance I: Health Economics and Private Health Insurance
  • Gruber, Chapter 15
  • Madrian, “Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?” QJE 109 (February 1994): 27–54.
  • Feldstein, Martin S. “The Welfare Loss of Excess Health Insurance.” JPE 81 (March–April 1973): 251–80.
  • Manning, Newhouse, Duan, Keeler, and Liebowitz, “Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment,” AER, 77(3), June 1987, 251-77.
  • Aron-Dine, Einav and Finkelstein, “The RAND Health Insurance Experiment, Three Decades Later,” Journal of Economic Perspectives, 27(1), Winter 2013, 197-222.
  • Einav and Finkelstein, “Selection in Insurance Markets: Theory and Empirics in Pictures,” Journal of Economic Perspectives, 25(1), Winter 2011, 115-138.
  • Einav, Finkelstein and Cullen, “Estimating Welfare in Insurance Markets Using Variation in Prices,” QJE, 125(3), August 2010, 877-921.
  1. Health Insurance II: Medicare, Medicaid, and Health Care Reform
  • Gruber, Chapter 16
  • Finkelstein, et al, “The Oregon Health Insurance Experiment: Evidence from the First Year,” QJE, 127(3), August 2012, 1057-1106.
  • Cutler and Gruber. “Does Public Insurance Crowd Out Private Insurance?”

QJE 111 (May 1996): 391–430.

  • Gruber, “The Incidence of Mandated Maternity Benefits.” AER 84 (June 1994): 86–102.
  • Summers, “Some Simple Economics of Mandated Benefits.” AER 79 (May 1989): 177–83.
  • Kolstad and Kowalski, “Mandate-Based Health Reform and the Labor Market: Evidence from the Massachusetts Reform,” Working Paper, Yale University, 2014. See also http://youtu.be/qXqNh1MtR_o.
  • Currie and Gruber, “Saving Babies: The Efficacy and Cost of Recent Changes in the Medicaid Eligibility of Pregnant Women.” JPE 104 (December 1996a): 1263–96.
  • Gruber and Yelowitz, “Public Health Insurance and Private Savings.” JPE 107 (December 1999): 1249–74.
  • Finkelstein, “The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare,” QJE, 122(1), Februuary 2007, 1-37.
  • Card, Dobkin and Maestas, “The Impact of Nearly Universal Insurance Coverage on Health Care Utilization: Evidence from Medicare,” AER, 98(5), December 2008, 2242-58.
  1. Income Distribution and Welfare Programs
  • Gruber, Chapter 17
  • Yelowitz, “The Medicaid Notch, Labor Supply, and Welfare Participation: Evidence from Eligibility Expansions,” QJE, 110(4), November 1995, 909-939.
  • Moffitt, “Incentive Effects of the U.S.Welfare System: A Review.” JEL 30 (March 1992): 1–61.
  • Nichols and Zeckhauser, “Targeting Transfers through Restrictions on Recipients.” AER 72 (May 1982): 372–7.
  • Bitler, Gelbach and Hoynes, “What Mean Impacts Miss: Distributional Effects of Welfare Reform Experiments,” AER, 96(4), September 2006, 988-1012.
  1. The Link Between Public Finance and Behavioral Economics

  • Chetty, Looney, and Kroft, “Salience and Taxation: Theory and Evidence,” AER, 99(4), September 2009, 1145-77.

  • Finkelstein, “E-ZTAX: Tax Salience and Tax Rates,” QJE, 124(3), August 2009, 969-1010.

  • Cabral and Hoxby, “The Hated Property Tax: Salience, Tax Rates, and Tax Revolts,” NBER Working Paper 18514, November 2012.
  1. Tax Expenditures
  • Gruber, Chapters 18, 21, 22 (redundant with above), 23
  • Feldstein, Martin, “The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act,” JPE, 1995, 103, 551-572.
  • Goolsbee, Austan, “What Happens When You Tax the Rich? Evidence from Executive Compensation,” JPE, 108(2), 352-378.
  • Piketty and Saez, “Income Inequality in the United States, 1913-1998” QJE 118(1), February 2003, 1-39.
  • Young and Varner, “Millionaire Migration and State Taxation of Top Incomes: Evidence From a Natural Experiment,” NTJ, 64(2), June 2011, 255-284.