Aaron YelowitzApplied economist · University of Kentucky
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ECO 751 · Fall 2017

Public Economics

Historical syllabus; policies and dates reflect this term.

Archived syllabus. Policies, dates, assignments, and readings reflect Fall 2017.

Course information

ECO 751-001: PUBLIC ECONOMICS Syllabus and Reading List, Fall 2017 University of Kentucky MW, 3:00-4:15 PM, B&E 271

Aaron Yelowitz 323B* B&E Building (Economics Dept) 334A B&E Building (Schnatter Suite) Email: aaron@uky.edu

Fall 2017 Office Hours: Mon/Wed., 10am-1 pm (or by appt.) in B&E 323B

Course Goals

Public economics has two primary purposes: to analyze government taxation and government expenditure. This 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.

Readings

Some articles come from the Handbook of Public Economics (HPE), as well as the AER, QJE, JPE, and J. Public Economics. In addition, we will rely on an undergraduate textbook (Public Finance and Public Policy, Jonathan Gruber).

Cancelled classes: 9/4 (Labor day), 11/22 (Thanksgiving break)

Major milestones: 10/2 (research paper proposal due), 11/6 (presentation proposal due), 11/27 (research paper due), 12/4, 12/6 (presentations), 12/11, 1-3 PM (final exam).

Grading

In order to encourage students to conduct original research in public economics and move along on their dissertations, the grading will consist of the following:

Research Paper 50% Final Exam 35% In-class presentation 15%

  1. In-class presentation (15%) – The field of public economics is vast and the goal of the in-class presentation is to teach the entire class about an unexplored aspect of public economics. Several recent winners of the John Bates Clark medal – including Roland Fryer, Raj Chetter, Amy Finkelstein and Emmanuel Saez – have made recent, important contributions to the field. The presentations will be around 20 minutes each (with 5 minutes for questions), and will take the final two class sessions (12/4, 12/6). You must have the topic approved by me. The topics should focus on timely issues in public economics. Presentation proposals will be due in class by

11/6/2017.

  1. Research Paper (50%) – All students will use publicly available data of their choosing (i.e., HCUP, BRFSS, NHIS, NIS, CPS, ACS, SIPP, PSID, NLSY, GSS, NSAF, HRS, AHEAD, Vital Statistics, Census PUMS, Google Trends, etc.) to ask and answer a research question related to public economics. Students will provide data, programs, log files and write-up in electronic form. All programming must be done in Stata and write-up must be in Word. Although we will expand on this later, the write-up must not exceed 2000 words (approximately 12 manuscript pages), including diagrams, figures, tables and references. The word count will be strictly enforced, and the overall goal is to have a paper that exactly conforms to the guidelines from Economics Letters. See http://www.elsevier.com/journals/economics-letters/0165-1765/guide-for-authors. Your proposal will be due by 10/2/2017. I will give you feedback by 10/9/2017. The paper (and programs, log files, data) will be due on 11/27/2017.
  2. Final exam (35%) – There will be an in-class final exam during final exam week, on Monday, 12/11/2017 from 1-3 PM. The exam will be closed book and cumulative.

Excused Absences Students need to notify the professor of absences prior to class when possible. Senate Rules 5.2.4.2 defines the following as acceptable reasons for excused absences: (a) serious illness, (b) illness or death of family member, (c) University-related trips, (d) major religious holidays, and (e) other circumstances found to fit “reasonable cause for nonattendance” by the professor. Students anticipating an absence for a major religious holiday are responsible for notifying the

Instructor

in writing of anticipated absences due to their observance of such holidays no later than the last day in the semester to add a class. Two weeks prior to the absence is reasonable, but should not be given any later. Information regarding major religious holidays may be obtained through the Ombud (, <http://www.uky.edu/Ombud/ForStudents_ExcusedAbsences.php> ). Students are expected to withdraw from the class if more than 20% of the classes scheduled for the semester are missed (excused) per University policy. Per Senate Rule 5.2.4.2, students missing any graded work due to an excused absence are responsible: for informing the Instructor of Record about their excused absence within one week following the period of the excused absence (except where prior notification is required); and for making up the missed work. The professor must give the student an opportunity to make up the work and/or the exams missed due to an excused absence, and shall do so, if feasible, during the semester in which the absence occurred. Verification of Absences Students may be asked to verify their absences in order for them to be considered excused. Senate Rule 5.2.4.2 states that faculty have the right to request “appropriate verification” when students claim an excused absence because of illness, or death in the family. Appropriate notification of

Absences

due to University-related trips is required prior to the absence when feasible and in no case more than one week after the absence.

Academic Integrity

Per University policy, students shall not plagiarize, cheat, or falsify or misuse academic records. Students are expected to adhere to University policy on cheating and plagiarism in all courses. The minimum penalty for a first offense is a zero on the assignment on which the offense occurred. If the offense is considered severe or the student has other academic offenses on their record, more serious penalties, up to suspension from the University may be imposed. Plagiarism and cheating are serious breaches of academic conduct. Each student is advised to become familiar with the various forms of academic dishonesty as explained in the Code of Student Rights and Responsibilities. Complete information can be found at the following website: http://www.uky.edu/Ombud. A plea of ignorance is not acceptable as a defense against the charge

of academic dishonesty. It is important that you review this information as all ideas borrowed from others need to be properly credited. Senate Rules 6.3.1 (see http://www.uky.edu/Faculty/Senate/ for the current set of Senate Rules) states that all academic work, written or otherwise, submitted by students to their instructors or other academic supervisors, is expected to be the result of their own thought, research, or selfexpression. In cases where students feel unsure about a question of plagiarism involving their work, they are obliged to consult their instructors on the matter before submission. When students submit work purporting to be their own, but which in any way borrows ideas, organization, wording, or content from another source without appropriate acknowledgment of the fact, the students are guilty of plagiarism. Plagiarism includes reproducing someone else's work (including, but not limited to a published article, a book, a website, computer code, or a paper from a friend) without clear attribution. Plagiarism also includes the practice of employing or allowing another person to alter or revise the work, which a student submits as his/her own, whoever that other person may be. Students may discuss assignments among themselves or with an instructor or tutor, but when the actual work is done, it must be done by the student, and the student alone. When a student's assignment involves research in outside sources or information, the student must carefully acknowledge exactly what, where and how he/she has employed them. If the words of someone else are used, the student must put quotation marks around the passage in question and add an appropriate indication of its origin. Making simple changes while leaving the organization, content, and phraseology intact is plagiaristic. However, nothing in these Rules shall apply to those ideas, which are so generally and freely circulated as to be a part of the public domain. Please note: Any assignment you turn in may be submitted to an electronic database to check for plagiarism. Accommodations due to disability If you have a documented disability that requires academic accommodations, please see me as soon as possible during scheduled office hours. In order to receive accommodations in this course, you must provide me with a Letter of Accommodation from the Disability Resource Center (DRC). The DRC coordinates campus disability services available to students with disabilities. It is located on the corner of Rose Street and Huguelet Drive in the Multidisciplinary Science Building, Suite 407. You can

http://www.uky.edu/DisabilityResourceCenter.

Course Topics / Outline / Readings

  1. Empirical Tools of Public Finance
  • 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.
  1. Externalities in Action: Environmental and Health Externalities
  • 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, June 2015.
  • Carpenter and Dobkin. 2011. “The Minimum Legal Drinking Age and Public Health.” JEP, 25(2): 133-56.
  1. Education
  • Gruber textbook, Chapter 11
  1. 1 Vouchers
  • Rouse, “Private School Vouchers and Student Achievement: An Evaluation of the Milwaukee Parental Choice Program.” QJE 113 (May 1998): 553–602.
  • Angrist, Bettinger, Bloom, King, and Kremer. 2002. “Vouchers for Private Schooling in Colombia: Evidence from a Randomized Natural Experiment.” AER, 92(5): 1535-1558.
  1. 2 Returns to education
  • 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.
  • Duflo, 2004. “The medium run effects of educational expansion: evidence from a large school construction program in Indonesia,” Journal of Development Economics, 74(1): 163-197
  • Jepsen, Mueser, and Troske, 2016. “Labor Market Returns to the GED Using Regression Discontinuity Analysis,” JPE, 124(3): 621-649
  1. 3 School quality

  • 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.

  1. 4 High Stakes Testing
  • 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. 5 Charter Schools
  • Dobbie and Fryer Jr., “The Medium-Term Impacts of High-Achieving Charter Schools,” JPE 123 (5), October 2015, 985-1037.
  • Fryer, Jr., “Injecting Charter School Best Practices into Traditional Public Schools: Evidence from Field Experiments,” QJE 129(3), August 2014, 1355–1407.
  • Dobbie and Fryer Jr. 2013. “Getting beneath the Veil of Effective Schools: Evidence from New York City.” AEJ: Applied Economics, 5(4): 28-60.
  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.
  1. Social Security and Saving Behavior
  • Gruber, Chapter 13
  • 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.
  • Raj Chetty, John N. Friedman, Søren Leth-Petersen, Torben Heien Nielsen, Tore Olsen. “Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark,” QJE 129(3) August 2014, Pages 1141–1219.
  • Feldstein “Social Security, Induced Retirement, and Aggregate Capital Accumulation.” JPE 82(5), September/October 1974, 905–26.
  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.
  • French and Song. “The Effect of Disability Insurance Receipt on Labor Supply.” AEJ: Economic Policy, vol. 6, no. 2, 2014, pp. 291–337.
  • Low and Pistaferri. 2015. “Disability Insurance and the Dynamics of the Incentive Insurance Trade-Off.” AER, 105(10): 2986-3029.
  • von Wachter, Song, and Manchester. 2011. “Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program.” AER, 101(7): 3308-29.
  • Kostøl and Mogstad. “How financial incentives induce disability insurance recipients to return to work.” AER 104.2 (2014): 624-655.
  • Meyer, “Unemployment Insurance and Unemployment Spells,” Econometrica 58(4), July 1990, 757–82.
  • Schmieder, von Wachter, and Bender. 2016. “The Effect of Unemployment Benefits and Nonemployment Durations on Wages.” AER, 106(3): 739-77.
  • Schmieder, von Wachter, and Bender, 2012. “The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years,” QJE, 127(2): 701–752
  • 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.

  • Finkelstein, et al, “The Oregon Health Insurance Experiment: Evidence from the First Year,” QJE, 127(3), August 2012, 1057-1106.
  1. Health Insurance II: Medicare, Medicaid, and Health Care Reform
  • Gruber, Chapter 16
  • 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.
  • 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.