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Lectures on Public economics pdf

lectures on public economics stiglitz atkinson pdf and public economics lecture notes ppt
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Public Economics Lectures Part 1: Introduction Raj Chetty and Gregory A. Bruich Harvard University Fall 2012 Public Economics Lectures () Part 1: Introduction 1 / 49What is Public Economics? Public economics focuses on answering two types of questions 1 How do government policies a¤ect the economy? 2 How should policies be designed to maximize welfare? Three motivations for studying these questions: 1 Practical Relevance 2 Academic Interest 3 Methodology Public Economics Lectures () Part 1: Introduction 2 / 49Motivation 1: Practical Relevance Interest in improving economic welfare interest in public economics Almost every economic intervention occurs through government policy (i.e. involves public economics) via two channels: Price intervention: taxes, welfare, social insurance, public goods Regulation: min wages, FDA regulations (25% of products consumed), zoning, labor laws, min education laws, environment Government directly employs one sixth of U.S. workforce Public Economics Lectures () Part 1: Introduction 3 / 49Motivation 1: Practical Relevance Stakes are extremely large because of broad scope of policies Ex. Tax reforms immediately a¤ect millions Contentious debate on the appropriate role of government in society Romney: replacing Medicare with decentralized private insurance will improve health outcomes and reduce costs Obama: Romney’s proposal will worsen health outcomes and raise costs Only one of these views can be correct Injecting science into these debates has great practical value Public Economics Lectures () Part 1: Introduction 4 / 49Motivation 2: Academic Interest Public economics is typically the end point for many other sub…elds Macro, development, labor, and corporate …nance questions often ultimately motivated by a public economics question Ex 1: Macro studies on costs of business cycles and intertemporal models of household behavior Ex 2: Labor studies on employment e¤ects of the minimum wage Natural to combine public …nance with another …eld Understanding public …nance can help ensure that you work on relevant topics Public Economics Lectures () Part 1: Introduction 5 / 49Motivation 3: Methodology Public economics is at the frontier of a methodological transformation in applied microeconomics Data-driven approach to answering important policy questions Combines a broad set of skills: applied theory, applied econometrics, simulation methods Useful skill set for many applied …elds in economics Topics in the course re‡ect a broad set of methodological themes Public Economics Lectures () Part 1: Introduction 6 / 49Theme 1: Connecting Theory to Data Modern public economics tightly integrates theory with empirical evidence to derive quantitative predictions about policy What is the optimal income tax rate? What is the optimal unemployment bene…t level? Traditional approach: theoretical models and numerical simulations Theory often makes weak predictions: optimal tax rate between 0 and 100% Numerical simulations rely on strong assumptions Recent work derives robust formulas that can be implemented using well-identi…ed empirical estimates Public Economics Lectures () Part 1: Introduction 7 / 49Theme 2: Quasi-Experimental Empirical Methods Research in public economics exploits a variety of quasi-experimental research designs to identify parameters of interest Event studies, regression discontinuity, synthetic control Good way to learn practical lessons in applied econometrics What is “identi…cation by functional form”and why is it undesirable? Is the LATE or ATE of greater interest in your problem? When is propensity score reweighting credible? When do weak instrument problems arise and how can they be …xed? Emphasis on non-parametric graphical techniques rather than parametric regression models Public Economics Lectures () Part 1: Introduction 8 / 49Anscombe (1973):Dataset 3 β=0.5 (0.12) 0 5 10 15 20 Years of Schooling Public Economics Lectures () Part 1: Introduction 11 / 49 Earnings (1000) 0 5 10 15Anscombe (1973):Dataset 4 β=0.5 (0.12) 0 5 10 15 20 Years of Schooling Public Economics Lectures () Part 1: Introduction 12 / 49 Earnings (1000) 0 5 10 15Theme 3: “Big Data” Compelling implementation of quasi-experimental methods requires a lot of data Recent availability of very large datasets has transformed research in applied microeconomics Scanner data on consumer purchases Tax and social security records School district databases Public Economics Lectures () Part 1: Introduction 13 / 49Use of Pre­Existing Survey Data in Publications in Leading Journals, 1980­2010 100 80 60 40 20 0 1980 1990 2000 2010 Year AER JPE QJE ECMA Note: “ Pre­existing survey”datasets refer to micro surveys such as the CPS or SIPP and do not include surveys designed by researchers for their study. Sample excludes studies whose primary data source is from developing countries. Public Economics Lectures () Part 1: Introduction 14 / 49 Micro­data Based Articles using Survey Data (%)Use ofAdministrative Data in Publications in Leading Journals, 1980­2010 100 80 60 40 20 0 1980 1990 2000 2010 Year AER JPE QJE ECMA Note: “ Administrative”datasets refer to any dataset that was collected without directly surveying individuals (e.g., scanner data, stock prices, school district records, social security records). Sample excludes studies whose primary data source is from developing countries. Public Economics Lectures () Part 1: Introduction 15 / 49 Micro­data Based Articles using Admin. Data (%)United States Tax Data 7 billion tax records covering full pop. from 1996 to today Includes a rich set of information on individuals Earnings from W-2’s (covers non-…lers) Employer ID College attendance Retirement savings, charitable contributions Housing and mortgage interest Geographical location Birth, death, marriage, children, family structure Analogous corporate databank contains information for 5 million …rms per year, linked to workers Public Economics Lectures () Part 1: Introduction 16 / 49What are the Bene…ts of Administrative Data? 1 Higher quality information: virtually no missing data or attrition Current Population Survey non-response rate now 31% for income 2 Longitudinal tracking over long periods Match rates of 95% over 20+ years in studies of long-term impacts of early childhood education Chetty et al. 2011, Chetty, Friedman, Rocko¤ 2012 Public Economics Lectures () Part 1: Introduction 17 / 49Earnings atAge 28 vs. Teacher Value­Added in Elementary School 21,200 21,000 20,800 1 SD TVA = 182 (73) 20,600 20,400 ­0.2 ­0.1 0 0.1 0.2 Teacher Value­Added Source: Chetty, Friedman, Rockoff 2012 Public Economics Lectures () Part 1: Introduction 18 / 49 Earnings at Ag e 28What are the Bene…ts of Administrative Data? 1 Higher quality information: virtually no missing data or attrition Current Population Survey non-response rate now 31% for income 2 Longitudinal tracking over long periods Match rates of 95% over 20+ years in studies of long-term impacts of early childhood education Chetty et al. 2011, Chetty, Friedman, Rocko¤ 2012 3 Very large sample sizes: 2,000 times the size of the CPS Can develop new research designs Public Economics Lectures () Part 1: Introduction 19 / 49Theme 4: Behavioral Models Recent work in public economics draws on insights from psychology and economics literature Strong evidence that individuals fail to optimize Raises new policy questions Suggests new policy instruments E.g. information, social incentives Public Economics Lectures () Part 1: Introduction 27 / 49Correlation Between Response to EITC and EITC Filer Density by ZIP Code 3.5% 3.0% 2.5% 2.0% 1.5% 2 R = 0.6 1.0% ­2 0 2 4 6 log (Number of EITC Filers Per Square Mile) Public Economics Lectures () Part 1: Introduction 28 / 49 Fraction Self­Emp Reporting Income that Maxes RefundBackground Facts: Size and Growth of Government Government expenditures = 1/3 GDP in the U.S. Higher than 50% of GDP in some European countries Decentralization is a key feature of U.S. govt One third of spending (10% of GDP) is done at state-local level (e.g. schools) Two thirds (20% of GDP) is federal Public Economics Lectures () Part 1: Introduction 29 / 49