I love historical anecdotes that can be plugged into research papers.* They give contemporary, technical, papers a timeless feel. I came across one that would be great for several different paper topics in reading The Empire of the Steppes: A History of Central Asia by french historian René Grousset.

Grousset shares the account of Genghis Khan’s (1162 – 1227) discovery of taxation. The purpose of the story is actually to highlight Khan’s willingness to listen to advisers of diverse backgrounds, particularly those he gained from conquering more civilized societies. One of his advisers, Ye-lu Ch’u-ts’ai, “succeeded in giving his master some tinge of Chinese culture, and even sometimes in preventing massacre” (p. 251). While many of the accomplishments were rescuing precious texts from town burnings and searching out medical treatments, one of these was convincing Khan the merits of taxation over genocide (p. 251):

At the time of Jenghis Khan’s last campaign in Kansu, a Mongol general pointed out to him that his new Chinese subjects would be useless to him, since they were unsuited to warfare, and that therefore he would do better to exterminate them–there were nearly ten million–so that he might at least make use of the soil as grazing land for the cavalry. Jenghiz Khan appreciated the cogency of this advice, but Ye-lü Ch’u-ts’ai protested. “He explained to the Mongols, to whom any such idea was unknown, the advantage to be gained from fertile soil and hard-working subjects. He made clear that by imposing taxes on land and exacting tribute on merchandise, they might collect 500,000 ounces of silver yearly, 80,000 pieces of silk, and 400,000 sacks of grain.” He won his point, and Jenghiz Khan ordered Ye-lü Ch’u-ts’ai to draw up a system of taxation on these lines.

Here are some potential topics/literatures where this anecdote could work:

1. As an example of Militarist Theory in Fiscal Sociology. This is a bit on the nose to the point of being data, but the tradition of militarist theory posits that military competition and the development of taxation were a joint product. Probably most associated with Joseph Schumpeter, militarist theory attempts to explain the rise of modern bureaucracy. Taxes give rise to the state and provide it the resources to make war on other states. Those states which could most efficiently extract resources from their economy would be more likely to eliminate their competitors and avoid extinction in a kind of Darwinian competition of governance.**
2. As the nature of government in public choice. Public choice scholars love to define what “the state” actually is and specify its nature. Violence is definitely some part of that definition/nature. I’ve actually never liked the way people toss out the “taxes are the price of civilization” mantra, because it seems to me a more civilized society wouldn’t need taxes to accomplish public works. I think the Khan anecdote is a better interpretative context for thinking about how taxes bring us civilization.
3. Policy diffusion: Or more specifically, mimetic isomorphism for our friends in public administration.
4. Revenue Forecasting and/or Cost-Benefit Analysis. This may be a bit harsh, but one can’t help but wonder if Khan would have gone the other way and wiped out 10 million people if the revenue forecast had only been 40,000 pieces of silk.

*My favorite appears in footnote 1 of this NTJ article on American state tax amnesties: “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.”

**The militarist theory bears a striking resemblance to the “burning the cosmic commons” hypothesis that, among other things, provides an explanation for the Fermi paradox.

Here are some recent working papers and publications that have otherwise gone unmentioned at PPF:

“Public Contracting for Private Innovation: Government Expertise, Decision Rights, and Performance Outcomes.” Joshua Bruce, John de Figueiredo, and Brian Silverman. NBER Working Paper.

“Beyond Spending Levels: Revenue Uncertainty and the Performance of Local Governments.” Stephane Lavertu and Travis St. Clair. Journal of Urban Economics.

“The Distance Between Buchanan’s ‘An Economic Theory of Clubs’ and Tiebout’s ‘A Pure Theory of Local Public Expenditures.’ New Insights Based on an Unpublished Manuscript.” Peter J. Boettke & Alain Marciano. The European Journal of the History of Economic Thought.

“Housing Subsidies and Property Prices: Evidence from England.” Nils Braakmann and Stephen McDonald. Regional Science and Urban Economics.

“The effect of revenue diversification and form of government on public spending.” Ji Hyung Park and Sungho Park. Journal of Public Budgeting, Accounting & Financial Management. 

“Public Pensions and Collective Bargaining Rights: Evidence from State and Local Governments.” Trang Hoang and Doug Goodman. Public Administration Review.

“Is Tax Increment Financing a Fiscal Bane or Boon?” Phuong Nguyen-Hoang. Journal of Planning Education & Research.

“Taxed Out: Illegal property tax assessments and the epidemic of tax foreclosures in Detroit” by Bernadette Atuahene and Christopher Berry.

“The Role of Royalties in Resource Extraction Contracts.” Robert F. Conrad, Bryce Hool and Denis Nekipelov. Land Economics.

Yesterday the US Supreme Court ruled public employees could not be compelled to pay union dues, which is widely interpreted as a major blow to public unions. I therefore thought it apropos to share a recent working paper from Eric Brunner, Joshua Hyman, and Andrew Ju on “School Finance Reforms, Teachers’ Unions, and the Allocation of School Resources.” In the 1970’s and 80’s, there were a wave of school finance reforms around movements to bring state spending on local schools up to adequacy standards or to make it more geographically equitable. These reforms have been studied in hundreds of papers with a mix of findings, but Brunner et al.’s clever twist is to see if the heterogeneity is explainable by the strength of teacher’s unions. From page 2:

Regardless of the teacher union power measure we use, we find that unions played a critical role in determining both the amount of state aid that translated into education expenditures and the allocation of these funds. Consistent with a basic model of teacher union preferences, school districts in states with the strongest teachers’ unions increased education expenditures nearly one-for-one with increases in state aid in response to school finance reforms, whereas states with the weakest teachers’ unions reduced local tax effort by about 75 cents on the dollar. The additional school spending in strong teacher union states was allocated primarily toward teacher salaries, while districts in weak teacher union states spent the money primarily on teacher hiring. Finally, spending in non-instructional areas such as classroom support, school administration, and capital outlays, also increased more in strong teacher union states than in states with weak teachers’ unions.

My favorite identification strategy in the paper is a border discontinuity approach, where the sample is restricted to school districts along state borders, where local population characteristics and unobservables are likely similar but state policy on collective bargaining powers can differ sharply.

Overall, the finding is rather agnostic on the social value of unions in the sense that you can either interpret this result as unions capturing public budgets as a well-organized interest group, or as unions ensuring that these reforms actually accomplished intended outcomes of generating more investment in school inputs. For work on that distinction, I would recommend starting with Jan Brueckner and David Neumark’s (2014) “Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers” in American Economic Journal: Economic Policy.

There is great need for good research on the effect of transparency on the quality of government. While most people in the public arena seem to presume transparency as an obvious good in the governmental sector, the theoretical work on the impact contains more ambiguous predictions. For example, in a Belsey-style principle-agent model where “good” and “bad” types of politicians run for election and re-election, transparency has the effect of revealing bad types once they become incumbents and reduces their probability of re-election to zero. This reduces the rewards for bad types to run for office in the first place, but if they do manage to get into office they are incentivized to steal as much as possible because there are no prospects of a second term. This causes the effect of transparency to depend on key parameter assumptions about the distribution of types and various detection probabilities that present a selection vs screening trade-off.

Conditions are therefore pretty prime for some really excellent work on the impact of government transparency, and generally the literature is rather anecdotal. Courtesy SSRN working papers is “Financing Dies in Darkness? The Impact of Newspaper Closures on Public Finance” by Pengji Gao (University of Notre Dame) Chang Lee (University of Illinois-Chicago), and Dermot Murphy (University of Illinois-Chicago). Here is the abstract:

Local newspapers hold their governments accountable. We examine the effect of local newspaper closures on public finance for local governments. Following a newspaper closure, we find municipal borrowing costs increase by 5 to 11 basis points in the long run. Identification tests illustrate that these results are not being driven by deteriorating local economic conditions. The loss of monitoring that results from newspaper closures is associated with increased government inefficiencies, including higher likelihoods of costly advance refundings and negotiated issues, and higher government wages, employees, and tax revenues.

American local governments are a really good setting for this work, as the decline of subnational media competition is well documented. The obvious concern here is that one would reasonably expect that negative economic conditions are a big challenge to producing causal research, but Gao et al. have three really persuasive strands of evidence. First, they are able to demonstrate that the negative effects of newspaper closure is pretty consistent across geographies all along the economic growth spectrum. That is, the findings in high growth areas are similar to those in low or negative growth. Secondly, they use Craigslist’s introduction into the area as an instrument for newspaper closure. Craigslist was a significant disrupter of local media because of the competition for ad revenue, so it increased the likelihood of newspaper closure by about 10 percent while being plausibly exogenous to local investors’ expectations of local government quality. Third, they show that closures of newspapers where the pre-existing media market was thin had particularly pronounced effects.

Gao et al.’s study might be the best empirical evidence in favor of transparency’s positive influence on governmental quality. The best evidence against I’ve seen is in a fascinating Vietnamese field experiment published in American Political Science Review, where Malesky, Schuler, and Tran (2012) commissioned a series of online news columns that produced specific coverage of the activities of 144 randomly selected government delegates. While this coverage did reduce the reelection chances of the treated delegates, they also found this caused these delegates to curtail their visible activities downstream while otherwise not having much effect on other indicators of delegate performance. Obviously, a Vietnamese local electorate within an authoritarian central government is a very different institutional context from American democracy, but the contrast suggests we are in for a lot of interesting future work on optimal transparency conditions.

The seminar will be December 13-14th in Berlin and the theme is “Rethinking Market Discipline.” Authors for accepted papers receive travel and hospitality support from the ministry, and there is a cash prize for the best paper with the option to be published in International Tax & Pubic Finance. Here is the description:

The Fiscal Policy Seminar (FPS) will be held on an annual basis and aims to bridge the gap between academic research in public economics and policy-making.

The theme of the 2018 seminar is “Rethinking Market Discipline”with a specific eye on the challenges of institutional design, for example within the European Monetary Union. Our objective is to bring together leading academics and policy makers to showcase frontier academic work that enhances our understanding of the interaction of market discipline, fiscal sustainability and financial resilience, identifying new questions in research, policy making, and institutional design along the way.

We are especially interested in submissions covering topics that include, but are not necessarily limited to the following fields:

• Market discipline, insurance mechanisms and stabilization
• Fiscal challenges of exiting the Zero-Lower Bound with heterogeneous fiscal conditions
• Doom loops: The interaction of fiscal policy and financial markets
• Regulatory forbearance, consequences and reform options
• Insolvency procedures for jurisdictions, also on sub-national levels

Real-World Economics Review has released a special issue (84-June 2018) on “The Public Economy and a New Public Economics.”  Peter Boettke (George Mason University) has written a nice short overview of “the conversation” to which this contributes, and I would also recommend his recent SEA presidential address on the same topic. Here is the table of contents from the issue:

Reconstructing a public economics: markets, states and societies
Michael A. Bernstein

There is more than one economy
Neva Goodwin

The public economy: understanding government as a producer. A reformation of public economics
June Sekera

Economic benefits of public services
David Hall and Tue Anh Nguyen

Bureaucracy shouldn’t be a dirty word: the role of people-responsive bureaucracy in a robust public economy
Janine R. Wedel

The need for a new public administration
James K. Galbraith

Industrial policy, then and now
Victoria Chick

Putting the nation-state back in: public economics and the global economy
Michael Lind

The entrepreneurial state: socializing both risks and rewards
Mariana Mazzucato

The U.S. Supreme Court ruled yesterday that states can, with limitations, force online retailers to collect sales taxes. Here is a round-up of writings by academics on the subject:

• Sarah Larson (University of Central Florida) has provided to the House of Representatives Judicial Committee an analysis of the two most recent congressional proposals (as of April 2018). These are the “Remote Transactions Parity and Simplification Act” and the “Remote Transactions Parity Act of 2017.” If congress moves next, then this might be how.
• See also, Sarah Larson on what we learn about political ideology from state “Amazon Laws” in Policy Studies Journal with “Simply a Case of Expressive Interests? Evidence from State E-Commerce Sales and Use Tax Reforms“.
• 2012 estimates of state sales tax revenue losses to e-commerce from the UTK trio of Donald Bruce, William Fox, and LeAnn Luna. Here is a March 2017 update of their work by Lorie Jo Brown.
• Bruce, Fox, and Luna also find (National Tax Journal) state tax policy efforts to reclaim the sales tax base from e-commerce has reduced the likelihood of firm nexus establishment within the state.
• Whitney Afonso (University of North Carolina) takes a look at the distribution of revenues across types of local governments (urban, rural, tourism-rich, etc.) in North Carolina after passing an “Amazon Law.”
• John Mikesell’s “Public Finance in the 21st Century” conference paper on “The American Retail Sales Tax: Depression’s Child in the New Economy of the 21st Century.” Mikesell (Indiana University) highlights a number of technological and new economy challenges to administering the sales tax and how their Depression-era legacy remains influential to these problems.
• See also Mikesell’s “Remote Vendors and American Sales and Use Taxation: The Balance between Fixing the Problem and Fixing the Tax” in the National Tax Journal (2000). Rather than being dated, parts of this look like it might be due for a resurgence of interest and relevance. In addition to being a good primer on the original problem of physical nexus, it also highlights structural features of the sales tax that exacerbated the problems. In particular, he makes the case that local, not state, use tax is a significant source of administrative cost that provides really no revenue, so suspending it might go a long way towards improved efficiency.
• A clever 2014 American Economic Review paper by Einav et al. shows that the e-Bay practice of revealing the tax after the consumer selects “buy” induces substitution to out-of-state sellers. This older paper by Austan Goolsbee had found similar effects in the Quarterly Journal of Economics.
• Presumably, the difference between sales and use taxes in their compliance rates have implications for the overall equilibrium patterns of private and public economies. David Agrawal and David Wildasin (UKY) have a theoretical model in “Sales Taxation, Spatial Agglomeration, and the Internet” raising the profile of this question. See also Agrawal’s “Internet as a Tax Haven? The Effect of the Internet on Tax Competition” which shows that internet penetration in large municipalities have lowered local sales taxes by comparing high-tax versus low-tax sides of state borders.

This coming weekend (Friday June 22 to Saturday June 23), the Ross School of Business at the University of Michigan is hosting a conference in celebration of the 30th anniversary of the Office of Tax Policy Research. The conference website has links to view via streaming and the agenda. Below is an abridged version of the agenda:

June 22, 2018

10:30 a.m. — 12:15 p.m. — Roundtable on Global Tax Policy Issues

Moderator: Thomas Neubig, Tax Sage Network
Panelists
Alan Auerbach, University of California, Berkeley
Richard Bird, University of Toronto, Canada
Michael Devereux, Oxford University
James Poterba, Massachusetts Institute of Technology
Harvey Rosen, Princeton University

1:30 p.m. — 3:00 p.m. — Roundtable on Promising New Directions in Tax Research

Moderator: Roger Gordon, University of California, San Diego (TBC)
Panelists
Raj Chetty, Stanford University
Henrik Kleven, Princeton University
Wojciech Kopczuk, Columbia University
Emmanuel Saez, University of California, Berkeley

3:30 p.m. — 5:00 p.m. — Roundtable on What It Would Be Good to Know By 2048

Moderator: Dan Silverman, Arizona State University
Panelists
Johannes Spinnewijn, London School of Economics
Stefanie Stantcheva, Harvard University
Gabriel Zucman, University of California, Berkeley
Eric Zwick, University of Chicago

June 23, 2018 

9:00 – 10:00 a.m. Workshop on New Directions in Tax Theory

Chair:  Nathaniel Hendren, Harvard University

“Sales Taxation, Spatial Agglomeration and the Internet”
David R. Agrawal and David E. Wildasin, University of Kentucky

“Generalized Compensation Principle”
Aleh Tsyvinski, Yale University; and  Nicolas Werquin, University of Toulouse

10:30 – 12:30 p.m. Workshop on New Empirical Findings in Taxation

Chair: John Friedman, Brown University

“Intertemporal Income Shifting: Evidence from Small Business Owners”
Helen Miller, Institute for Fiscal Studies; Thomas Pope and Kate Smith, Institute for Fiscal Studies and University College London

“Tax Simplicity and Heterogeneous Learning”
Philippe Aghion, College de France, Ufuk Akeigit, University of Chicago, Matthieu Lequien, Banque de France, and Stefanie Stantcheva, Harvard University

“Strategic Subsidiary Disclosure”
Scott Dyreng, Duke University, Jeffrey L. Hoopes, University of North Carolina, Chapel Hill, Patrick Langetieg, Internal Revenue Service, and Jaron Wilde, University of Iowa

“Taxpayer Responsiveness and Statutory Incidence: Evidence from Irish Social Security Notches”
Enda Hargaden, University of Tennessee, and Barra Roantree, Institute for Fiscal Studies and University College London

12:30 – 1:30 p.m. Lunch; Speaker: Douglas Shackelford, Dean, Kenan-Flagler Business School, University of North Carolina, Chapel Hill

1:30 – 3:00 p.m. Workshop on New Research in Tax Compliance and Enforcement

Chair: Julie Cullen, University of California, San Diego

“Tax Evasion and Inequality”
Annette Alstadsæter, Norwegian University of Life Sciences; Niels Johannesen, University of Copenhagen; and Gabriel Zucman, University of California, Berkeley

“Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts”
Niels Johannesen, University of Copenhagen; Patrick Langetieg, Internal Revenue Service; Daniel Reck, London School of Economics; Max Risch, University of Michigan; and Joel Slemrod, University of Michigan

“Reducing Evasion Through Self-Reporting: Evidence from Charitable Contributions”
Alisa Tazhitdinova, McMaster University

3:30 – 5:00 p.m. Workshop on New Tax Research in Developing Countries

Chair: Monica Singhal, University of California, Davis

“Firms Response to Tax Enforcement through Audits”
Claudio A. Agostini, Universidad Adolfo Ibañez; Juan Pablo Atal, University of Pennsylvania; and Andrea Repetto, Universidad Adolfo Ibañez

“Information Frictions and Learning Dynamics: Evidence from Tax Avoidance in Ecuador”
Albrecht Bohne, University of Mannheim and Jan Sebastian Nimczik, Humboldt University
“Casting a Wider Tax Net: Experimental Evidence from Costa Rica”

Anne Brockmeyer and Marco Hernandez, The World Bank; Stewart Kettle, Behavioral Insights Team; and Spencer Smith, University of Oxford

The Early View release of Review of Policy Research includes the article “Do Disasters Lead to Learning? Financial Policy Change in Local Government” by Deserai Crow (UC-Denver), Elizabeth Albright (Duke), Todd Ely (UC-Denver), Elizabeth Koebele (UN-Reno), and Lydia Lawhon (UC-Bolder). The paper is a good example of comparative case study research, with a mix of qualitative and quantitative evidence from Colorado communities after a catastrophic flood episode in 2013. The better access you have to adequate and flexible funds, the more likely you are able to prioritize important recovery projects in an efficient way, so this matters a lot in both the short and long-run recovery phase of the disaster effort.

One of the main findings is that local governments learned how unwieldy FEMA reimbursements are [page 15]:

Indeed, for communities with significant flood damage, the Town of Estes Park’s description of its post-flood financial challenges typifies the breadth of the flood’s effects in areas such as […] dealing with the uncertainty in reimbursements.

[…] The Town continues to face challenges managing its fund balances and cash flow because agency reimbursements for flood repair are unpredictable in both amount and timeliness.

[…] As an illustration, FEMA data indicate that at least 18 different federal agencies or programs were involved in Colorado flood recovery funding after the 2013 floods. The complexities and delays associated with navigating these various agencies and programs can be substantial for local governments…

So what types of policy changes were made as a result of this experience? Page 21:

Reserve policies were changed in some of the local governments following the flood. This may potentially indicate that the community learned about the importance of having large, flexible reserves during a disaster, or at least recognized the barriers associated with limited reserves described above. The City of Boulder, most prominently, increased the targeted reserve level following the floods from 10% to 16% of general fund expenditures and created temporary reserve requirements to address the uncertainty of reimbursements.

Of course, because it is a qualitative case study investigation, the authors do not make any specific claims on things like what and how much changes occurred in response to the uncertainties of reimbursement, specifically as opposed to maybe revised flood expectations.

Generally, I would like to see more research on the question of how much government inefficiency is caused by regulations imposed by other governments (intergovernmental regulation or government-to-government regulation). Recall the criticism by state and local officials of the federal bureaucracy in the BP oil spill that allegedly distorted or delayed their responses. (You do get papers, however, on market value consequences for the private sector.) You can imagine a counterfactual business-school version of the Crow et al. paper where the findings are interpreted as a kind of deadweight loss due to federal regulatory inefficiency. Of course, being local governments, there aren’t profit signals that easily lend in that direction. Nevertheless, the changes documented by Crow et al. (e.g., change in reserves, the new departments, hiring staff, etc.) is a step in that direction.

If you find intergovernmental regulation interesting, I recommend David Konisky and Manuel Teodoro’s “When Governments Regulate Governments” in the American Journal of Political Science (2016).

Contemporary Economic Policy‘s has a special issue on aging for July 2018, which as one might expect has several articles on public finance. The introduction is written by guest editor Maureen Pirog, and the full issue TOC is here. Some selected articles of interest:

“Longevity, Working Lives, and Public Finances.” By Jukka Lassila and Tarmo Valkonen.

“Lifetime Taxpayer Contributions and Benefits of Medicare and Social Security.” By Jing Guo and Marilyn Moon.

“The 80% Pension Funding Target, High Assumed Returns, and Generational Inequity.” By Robert Costrell.

“Sweat the Small Stuff: Strategic Selection of Pension Policies Used to Defer Required Contributions.” By Jeffrey Diebold, Vincent Reitano, and Bruce McDonald.

“Some Notes on the Redistribution Inherent in the U.S. Public Pension System.” By Sergio Nistico and Mirko Bevilacqua.