ABFM 2019 Curro Award Winner: Yoon Jung Choi (Syracuse)

Yoon-Jung Choi (Syracuse University – Maxwell School) is this year’s Michael Curro Student Paper Award Winner for her paper “Property Tax Interaction Among Overlapping Local Jurisdictions: Quasi-Experimental Evidence from School Bond Referenda.” She will be presenting on Friday at 4-5:15. John Yinger is her faculty adviser.

Interesting FYI: I worked with Choi in her last year of her MPA here at SPEA on a readings course. As part of that I had her do a meta-literature review of the two most recent years (2015-2016 at the time) of the Journal of Public Economics, National Tax Journal, and Public Budgeting & Finance. The database of articles is here and the her “three journal summary” that explains the themes and differences of the journals is here. It is quite good and I try to remember to share it periodically with the public finance doctoral students.

ABFM Doctoral Student Profiles: Chuanyi Guo

In preparation for ABFM’s upcoming conference, I am doing a series of profiles on the doctoral students on the job market.

Chuanyi Guo (University of Illinois-Chicago, Department of Economics) is presenting “The Impact of State Intervention on School District Fiscal Performance: Evidence from a Regression Discontinuity Design” on Saturday morning at 8am. This is also his job market paper, which has an R&R at the National Tax Journal, and the abstract is as follows:

State monitoring and intervention has been implemented to reveal and address fiscal problems in local governments, yet we know very little about its role in promoting financial performance in a causal sense. This paper estimates the causal effect of state intervention on fiscal performance of monitored school districts by using district-level administrative data from Illinois State Board of Education. Utilizing the system design that only low-performing districts receive intervention from the state, I employ a regression discontinuity design based on financial indicators that are introduced in the system to evaluate fiscal positions and determine intervention. Results indicate that there are precisely zero effects on future financial outcomes of school districts. However, in heterogeneity analysis, I document statistically significant positive impacts on financial indicators reflecting long-run fiscal health in a relatively long term for districts with certain characteristics. For elementary school districts, I show that state intervention improves the long-term debt capacity remaining by 15-20 percentage points more on average for districts just receiving the intervention in three to four years since the intervention, compared to those barely not. This indicates that they are less reliant on issuing long-term debt in order to meet obligations. Similarly, among accrual basis school districts, I find that the intervention decreases the value of Expenditure to Revenue Ratio by 0.035-0.050 unit more for districts barely receiving the intervention, suggesting that their budget is becoming more structurally balanced.

His dissertation committee is chaired by Darren Lubotsky and David Merriman. Check out Guo’s website to find his CV and other working papers.

ABFM Doctoral Student Profile: JoEllen Pope

In preparation for ABFM’s upcoming conference, I am doing a series of profiles on the doctoral students on the job market.

JoEllen Pope (UNC-Charlotte, Public Policy) is presenting “New Public Disaster Management: Does Managerial Discretion Impact Organizational Performance” in the 8:00 session on Friday. She has a Master of Public Administration with a concentration in Emergency Management. She is a practicing Certified Public Accountant with over twenty years’ experience and served as a firefighter for seven years. Her dissertation, supervised by Dr. Suzanne M. Leland, is titled Flooded with Complexity: Do Organizational Structural Complexity, Coordination, and Managerial Discretion Impact Natural Disaster Preparedness?.  JoEllen will defend her dissertation Fall 2019. She has a publication on political influences over county-level election administration expenditures in the American Journal of Political Science, two at Social Science Quarterly, one at Urban Affairs Review, and another three papers under review. JoEllen researches public finance, emergency preparedness and disaster, and local election administration finance. Here is the abstract of her job market paper, which is the paper being presented at ABFM:

Between 1953 and February 2017, United States presidents declared 2288 major natural disaster declarations and 369 emergency declarations (FEMA, 2017). Hurricane Katrina alone affected 31 colleges and universities in the areas along the Gulf Coast (Kapucu & Khosa, 2013). Improved preparedness performance can impact response effectiveness (Kapucu, 2008). Organizational performance is a global issue regarding how management influences the performance of public organizations and how we measure it (Boyne et. al., 2006). Also, allocation of resources and decision-making are key areas of research (Pugh et al., 1968). Previous literature on public management presents a gap regarding institutions of higher education (IHE). This is especially important since public and private nonprofit colleges include over 90% of enrollment (NCES, 2016). Regarding IHEs and performance of the natural disaster preparedness function, this study asks: How do we measure preparedness outputs? How does budgetary discretion affect performance? How does the centralization of decision-making affect performance? and How does organizational red tape affect it? New public management (NPM) reforms to improve effectiveness and efficient have impacted public sector over last 25 years (Christensen & Laegreid, 2011; Pollitt & Bouckaert, 2004). As a part of NPM, public managerialism claims that there is a similar set of management skills and methods that are applicable to public organizations and there is a shift in emphasis from inputs to outputs and outcomes (Pollitt, 1998; Christensen & Laegreid, 2011). This study uses survey data merged with secondary data on IHEs to perform exploratory factor and regression analysis to answer these questions.

Find more of JoEllen Pope’s research, teaching, and interests see her website here.

RIP, John L. Mikesell

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Last Thursday, John Mikesell passed away after a prolonged bout with cancer, about which I will just say that he was characteristically stubborn to the end.

As a walking encyclopedia of tax policy, John was a giant in public finance, collecting lifetime achievement awards from the National Tax Association and the Association for Budgeting and Financial Management. He was longtime editor of Public Budgeting and Finance, and served in numerous practitioner positions in service to the public. John was a Bloomington-born Indiana native, so he was particularly touched to receive the Sagamore of the Wabash award from the governor in recognition of his years of service in advising the legislature on public revenue forecasts and all manner of tax policy subjects.

If you’d like to walk through a “vintage Mikesell” article, you would do well with this working paper from last year on Retail Sales Taxation in the New Economy. He had a knack for exploring a topic in a way that cut directly to the questions policy makers were asking.  However, John was famous for his footnotes. I still read his papers all footnotes first, and if you follow in suit you’ll be rewarded with interesting anecdotes, historical details, and amusing jabs at legislators. My favorite “Mikesellian Footnote” is the first in a paper summarizing state programs that granted amnesty to self-reporting tax delinquents:

The first tax amnesty on record was reported on the Rosetta stone, an amnesty declared by Ptolemy V Epiphanes in Egypt, circa 200 BC. The stone itself expressed the appreciation of the priesthood for the program. It is not clear whether any state amnesties were based on this experience.

It is difficult to unite his work as he published on virtually every subject in public finance, but I will try to do so briefly. In my estimation, John was a very Schumpeterian scholar. Joseph Schumpeter is best known for his characterizing of capitalism as “creative destruction,” but what brings him and John together was their mode of inquiry in studying both history and how organizations really worked at a practical level. Schumpeter, for instance, required all of his econ PhD students to take accounting, rationalizing that anyone who didn’t understand t-accounts wouldn’t understand business production choices. John likewise approached subjects this way but to greater lengths. For John, to study something like sales taxes in the American states meant he studied how states taxed sales and he would start at the cash register. He would learn how everyone from the cashier, to the tax accountant, to the tax lawyer writing the legislation would have to do their job. Ideally, he would try to figure out how everyone’s jobs evolved over time. How did resource-constrained state tax collector’s enforce the use tax during the Great Depression? Pull over and search moving vans!

This approach began in his earliest work with his Masters thesis under John Due who, in addition to his father (also an IU public finance scholar), was an important professional role model for him. With admiration John said that Due in his sixties would arrive early in the morning so excited to get back to his work that he would run down the hallway when he’d reach his floor. John likewise loved his work and only sped up his research program in his retirement.

Not only did I never hear John once complain of his students or his teaching, he described it as his main reason for continuing his university employment. Research was fun, and service was a tolerable exchange for the gifts of teaching. His only reason for retiring was that he could not trust his health well enough to commit to teaching for a full semester. He liked writing exam questions, preparing notes, pulling examples from the news, etc. He thought serving as a member of the Indiana Revenue Technical Forecast Committee made him a better teacher even after many decades of service, so he stuck with that to the very end as well. He was proud of his students, and had a way of charming them with a gruff demeanor.

Speaking of demeanor, I think everyone who encountered John would come away with a story of him. For some he was an acquired taste and this was not hard to understand. A friendly colleague once remarked that he had the perfect mustache for his personality, an observation John would find amusing because this was not entirely unintentional. While he was outwardly very witty, I hope this anecdote conveys his subtle humor-behind-the-stern style that students would learn to love over a 16 week semester after perhaps fearing it in week 1. It has been my fortune to have had eleven years.

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*The Lifecycle of the 47 Percent*

My previous post covered David Splinter’s “Who Pays No Tax” and so I’d like to point to another June publication, this one in the National Tax Journal, by Don Fullerton (University of Illinois at Urbana-Champaign) and Nirupama Rao (University of Michigan) on “The Lifecycle of the 47 Percent“, which of course refers to the Americans with no federal income tax liability. The highlights are in the abstract:

News that 47 percent of Americans in 2009 paid no federal income tax drew considerable attention. For a longer view of not paying tax and of receiving transfers, we use the Panel Survey of Income Dynamics. Over all individuals, we find that 68 percent owe no income tax at least one year, of which 21 percent pay the following year and 45 percent pay within five years. Also, overall, 60 percent receive transfers other than Social Security at least one year, of which nearly 47 percent stop the next year and more than 94 percent stop within 10 years.

The paper is gated at the link but seems to be ungated here.

*Who Pays No Tax?*

In the July Contemporary Economic Policy is “Who Pays No Tax? The Declining Fraction Paying income Taxes and Increasing Tax Progressivity” by David Splinter (Joint Committee on Taxation). Here is the abstract:

Using federal individual income tax data, this paper presents the first long‐run estimates of the fraction paying no income tax. Between 1985 and 2015, the fraction of working age adults paying no tax increased from 20% to 36%. A decomposition shows that almost all of this increase resulted from changes in tax policy, especially from more generous tax credits. Increasing tax progressivity over the last three decades also resulted from more generous tax credits. The substantial federal tax changes enacted in 2017 are forecasted to temporarily increase both the fraction paying no tax and individual income tax progressivity.

One interesting takeaway from the paper is the historical context of these figures. Of course, the income tax started out vary narrow, but after it broadened it has hovered in that 30-35% range much of the time. Here is the fraction paying no tax from Splinter’s Figure 1:

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Splinter uses a shift-share decomposition  to attribute the fluctuations in the share of non-payers to tax policy changes, demographic changes, and income distribution. The big driver, as noted in the abstract, turns out to be the tax policy changes (converting 2015 tax burdens into 1985 counterfactual tax burdens with changes to the EITC, new tax credits, and indexing of personal exemptions and standard deductions. These policy changes seem to account for much, about 13 of the 16 points, of the increase from 1985 to 2015. Working age distributions and household formation don’t do much work.

For all the attention put on top marginal income tax rates, it is also quite interesting to observe the correlation between the fraction paying no tax and individual income tax progressivity (as measured by the Kakwani Index), as in Splinter’s Figure 6:

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And yes, you are reading correctly that the TCJA increased individual income tax progressivity, as the big-ticket potentially regressive elements were in revisions to corporate income and estate taxes.

David Splinter has several interesting pieces along these lines for subjects related to income inequality and income mobility, so his website is worth checking out. Here is Vox coverage last year of his back-and-forth with Saez and Piketty.

July (2019) issue of Public Finance Review released

Here is the link to the issue. I found particularly interesting the replication study by Calabrese and Gupta, as well as the fact that almost 60 percent of Germans oppose taxing inherited wealth (Bischoff and Kusa). Titles, authors, and abstracts below:

Articles

Should Wealth Transfers Be Taxed? Evidence from a Representative German Survey
Ivo Bischoff and Nataliya Kusa
In a representative survey, German citizens are asked whether inherited wealth beyond a certain amount should be taxed. Almost 60 percent state that it should not be taxed. Building on this survey, we identify factors that predict this opposition to the taxation of inherited wealth. We find monetary self-interest, redistributive preferences, and the adherence to traditional values to matter. Women are more likely to oppose wealth transfer taxes. We account for interdependencies to other intrafamilial transfers. Subjects’ attitude toward wealth transfer taxes does not depend on their personal experience in giving long-term care. Yet subjects who expect the typical German family to reward intrafamilial caregiving through higher wealth transfers are less likely to oppose the taxation of inherited wealth. The opposite holds for subjects who expect these taxes to incentivize earlier inter vivos transfers.

 

Evading the Catastrophic Costs of Nursing Home Care: A Theoretical Inquiry
Gideon Yaniv
While many countries operate publicly funded programs to help care-needing elderly people finance the catastrophic costs of nursing home care, eligibility to public assistance may be means tested. To qualify for a means-tested program, applicants must first exhaust (spend down) their financial assets on privately paying for nursing home care, thereby wiping out their lifetime savings and children’s inheritance. They may naturally consider the possibility of hiding assets from the health agency, consequently shifting the financial burden to taxpayers. The present article adjusts two classical tax evasion models to capture the decision to evade the costs of nursing home care, focusing on the implications on the evaded costs and the program’s deficit of attempting to cope with the escalating costs of nursing home care by imposing a cost-sharing premium on the applicants’ adult children. Some insights on the socially optimal level of the cost-sharing premium are finally discussed.

 

Fiscal Decentralization, Budget Discipline, and Local Finance Reform in Russia’s Regions
Michael Alexeev, Nikolay Avxentyev, Arseny Mamedov, and Sergey G. Sinelnikov-Murylev
Using a panel of Russian regions, we estimate the link between intraregional fiscal decentralization and regional budget deficits. Although Russia’s regions are not as autonomous (either politically or fiscally) as regions in some other federal states, we obtain robust and statistically and economically significant results. Specifically, expenditure decentralization has a positive effect on consolidated regional budget balances, while transfer dependence of municipalities is associated with higher deficits. The impact of revenue decentralization depends on whether a regional government can use its tax revenue assignments with the same high degree of discretion that generally characterizes explicit fiscal transfers. We show that a 2009 local finance reform that limited the discretion of regional governments to assign regional tax revenue to municipalities has changed the effect of tax decentralization on budget discipline.

 

Preferences over Public Good, Political Delegation, and Leadership in Tax Competition
Rupayan Pal and Ajay Sharma
Leadership (sequential choice) and political delegation are two mechanisms suggested to restrict “race-to-the-bottom” in tax competition. In this article, we analyze whether these two mechanisms when combined together would lead to unilaterally higher taxation or not. We show that political delegation with leadership in tax competition not only restricts race-to-the-bottom but also mitigates the possibility of overprovision of public good. In sequential choice game, only the follower region delegates taxation power to the policy maker but not the leader region. This puts a check on intensity of tax competition and restricts the under provision of public good.

Replication Studies

A Replication of “Agency Problems of Excess Endowment Holdings in Not-for-profit Firms” (Journal of Accounting and Economics, 2006)
Thad D. Calabrese and Anubhav Gupta
Core, Guay, and Verdi explore whether excessive levels of cash (“endowments”) are associated with nonprofits’ growth in program spending and fixed assets, agency problems, or donors’ monitoring efforts. We replicate their finding that excess endowments are unrelated to growth in program spending. However, unlike the original article, we find that persistent excess endowments are associated with growth in fixed assets. Further, when we alter the model specification to better align with theory, we find excess endowments increase program expense ratios and lead to higher growth in program service spending as well as capital investment. We are also able to replicate the original article’s finding that excess endowments are related to higher CEO and management compensation. However, when we again alter the model specification, we find excess endowments are associated with compensation declines. Overall, we find weaker evidence of a relationship between excess endowments and agency problems than the original article.

 

A Replication Study of “Openness, Country Size, and Government Size” (Journal of Public Economics 2009)
Andrew Musau
Ram (Journal of Public Economics, 93, 213-218, 2009) questions the body of influential research suggesting that there is a negative association between country size and government size, and country size and openness, which may account for the positive association between openness and government size. Using data from the Penn World Table (PWT), he shows that while openness is positively related to government size, fixed-effects estimates show little evidence of the aforementioned negative associations. We replicate Ram’s results using his data set and a newer revised version of the same data set and find that the ensuing government size–openness association is dependent on the version of the PWT data and the composition of the sample. In addition, we find some evidence of a negative association between country size and government size in the larger sample, but there remains no clear association between openness and country size.

 

Reply to “A Replication Study of ‘Openness, Country Size, and Government Size’ (Journal of Public Economics 2009)”
Rati Ram
Andrew Musau is able to replicate almost exactly Ram’s estimates from Penn World Table 6.1. Like Ram, Musau is also unable to show a significant negative association between country size and openness and between country size and government size of the kind postulated by Alesina and Wacziarg. To shed further light on the issue, fixed-effects estimates of the three core regressions are obtained from the widely used World Bank data for 174 countries covering the period 1990–2015. The estimates show a highly significant positive association between openness and government size, further reinforcing Ram’s estimates and those from Musau’s 189-country Penn World Table 7.1 sample. While the new country size estimates in openness and government size regressions are negative, the latter lacks significance at any meaningful level. Therefore, the substantive conclusion remains the same as indicated by Ram; while the predominance of evidence supports Rodrik’s thesis of a positive association between openness and government size, statistically significant evidence is lacking to support the Alesina–Wacziarg proposition that the aforesaid positive association is due to a combination of the negative association between country size and openness and between country size and government size.