Stagnant
Do State Fiscal Policies Affect State Economic Growth?
James Alm & Janet Rogers
Public Finance Review, July 2011, Pages 483-526
Abstract:
What factors influence state economic growth? This article uses annual state (and local) data for the years 1947 through 1997 for the forty-eight contiguous states to estimate the effects of a large number of factors, including taxation and expenditure policies, on state economic growth. A special feature of the empirical work is the use of orthogonal distance regression (ODR) to deal with the likely presence of measurement error in many of the variables. The results indicate that the correlation between state (and state and local) taxation policies is often statistically significant but also quite sensitive to the specific regressor set and time period; in contrast, the effects of expenditure policies are much more consistent. Of some interest, there is moderately strong evidence that a state's political orientation has consistent and measurable effects on economic growth; perhaps, surprisingly, a more ‘‘conservative'' political orientation is associated with lower rates of economic growth. Finally, correction for measurement error is essential in estimating the growth impacts of policies. Indeed, when measurement error is considered via ODR estimation, the estimation results do not support conditional convergence in state per capita income.
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The Rise of the States: U.S. Fiscal Decentralization in the Postwar Period
Katherine Baicker, Jeffrey Clemens & Monica Singhal
Journal of Public Economics, forthcoming
Abstract:
One of the most dramatic changes in the fiscal federalism landscape during the postwar period has been the rapid growth in state budgets, which almost tripled as a share of GDP and doubled as a share of government spending between 1952 and 2006. We argue that the greater role of states cannot be easily explained by changes in Tiebout forces of fiscal competition, such as mobility and voting patterns, and are not accounted for by demographic or income trends. Rather, we demonstrate that much of the growth in state budgets has been driven by changes in intergovernmental interactions. Restricted federal grants to states have increased, and federal policy and legal constraints have also mandated or heavily incentivized state own-source spending, particularly in the areas of education, health and public welfare. These outside pressures moderate the forces of fiscal competition and must be taken into account when assessing the implications of observed revenue and spending patterns.
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Time to Retire? The Effect of State Fiscal Policies on Retirement Decisions
Tami Gurley-Calvez & Brian Hill
American Economic Review, May 2011, Pages 35-39
Abstract:
Our research addresses the importance of state fiscal policies on the probability of retirement using a panel of individual tax return data. Results indicate that a one percentage point increase in the income or sales tax rate reduces the probability of retirement by about 8.7 percent. The evidence suggests that state spending might also affect retirement decisions but magnitudes are inconclusive. In general, the results suggest that the income effect dominates; that is, higher tax rates at the state-level reduce disposable income and decrease the probability of retiring. Results are similar in models examining single and married filers separately.
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Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide
Christopher Mayer et al.
NBER Working Paper, May 2011
Abstract:
We investigate whether homeowners respond strategically to news of mortgage modification programs. We exploit plausibly exogenous variation in modification policy induced by U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers with subprime mortgages throughout the country. Using a difference-in-difference framework, we find that Countrywide's relative delinquency rate increased thirteen percent per month immediately after the program's announcement. The borrowers whose estimated default rates increased the most in response to the program were those who appear to have been the least likely to default otherwise, including those with substantial liquidity available through credit cards and relatively low combined loan-to-value ratios. These results suggest that strategic behavior should be an important consideration in designing mortgage modification programs.
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The Real Costs of Credit Access: Evidence from the Payday Lending Market
Brian Melzer
Quarterly Journal of Economics, February 2011, Pages 517-555
Abstract:
Using geographic differences in the availability of payday loans, I estimate the real effects of credit access among low-income households. Payday loans are small, high interest rate loans that constitute the marginal source of credit for many high risk borrowers. I find no evidence that payday loans alleviate economic hardship. To the contrary, loan access leads to increased difficulty paying mortgage, rent and utilities bills. The empirical design isolates variation in loan access that is uninfluenced by lenders' location decisions and state regulatory decisions, two factors that might otherwise correlate with economic hardship measures. Further analysis of differences in loan availability - over time and across income groups - rules out a number of alternative explanations for the estimated effects. Counter to the view that improving credit access facilitates important expenditures, the results suggest that for some low-income households the debt service burden imposed by borrowing inhibits their ability to pay important bills.
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Globalization's winners and losers - Evidence from life satisfaction data, 1975-2001
Zohal Hessami
Economics Letters, forthcoming
Abstract:
Using data for the EU-15 countries from 1975 to 2001, we find that globalization has especially increased the subjective well-being of high-skilled workers, right-wing voters, high-income earners, and of respondents that trust the WTO, the World Bank, and the IMF.
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Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access
Brian McCaig
Journal of International Economics, forthcoming
Abstract:
Can a developing country reduce poverty by gaining increased market access to a large, rich country? The 2001 U.S.-Vietnam Bilateral Trade Agreement (BTA) provides an excellent opportunity to examine this question as, unlike other bilateral trade agreements, the U.S. tariff cuts were not influenced by Vietnamese industries. Using variation in the structure of the labour force across provinces prior to the trade agreement, I construct provincial measures of U.S. tariffs. To address concerns over confounding trends between changes in provincial poverty and changes in provincial tariffs I follow two approaches: controlling for trends based on observable initial conditions and differencing away time invariant trends using pre-BTA data. I find that provinces that were more exposed to the U.S. tariff cuts experienced faster decreases in poverty between 2002 and 2004. Additionally, I document that the movement of workers across provinces is limited in scale, particularly for those with low levels of education. Finally, I show that the most exposed provinces experienced faster wage growth for workers with low levels of education, but not for highly educated workers.
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The Impact of Modern Economic Growth on Urban-Rural Differences in Subjective Well-Being
Richard Easterlin, Laura Angelescu & Jacqueline Zweig
World Development, forthcoming
Abstract:
At low levels of economic development there are substantial gaps favoring urban over rural areas in income, education, and occupational structure, and consequently a large excess of urban over rural life satisfaction, despite important urban problems of pollution, congestion, and the like. At more advanced development levels, these economic differentials tend to disappear, and rural areas approach or exceed urban in life satisfaction. Both across-country and within-country regression analyses of 2005-08 data from the Gallup World Poll support these conclusions.
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The Paradox of John Stuart Mill
Alan Charles Kors
Social Philosophy and Policy, July 2011, Pages 1-18
Abstract:
John Stuart Mill is the critical transitional figure between the classical liberalism of the 19th century, with its emphasis upon the creative power of free individuals unfettered by government or social interventions, and the welfare-state liberalism of the 20th century, with its combination of individual choice in matters of belief and lifestyle and the political redistribution of wealth. In On Liberty and The Subjection of Women, Mill offered a defense of self-sovereignty and voluntary association that appeared to extend explicitly to the economic spheres. Both works are celebrations of the productive and moral enhancements of individual liberty. In The Principles of Political Economy, however, Mill's categorical distinction between "production" and "distribution" assigned the latter to the "expedient" discretion of the state, inviting, in theory, a democratic redistributionist state. Mill's posthumous Essays on Socialism reveal that he was no friend of socialism or Marxism, but that he welcomed a more active and interventionist state. One of individual liberty's most notable defenders, paradoxically, provided the theoretical underpinning of its current diminution.
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‘Spite Effects' in Tax Evasion Experiments
John Cullis, Philip Jones & Amal Soliman
Journal of Socio-Economics, forthcoming
Abstract:
This paper sets out to consider individuals' motivations to evade taxation. Experimental results indicate that individuals do not simply maximise pecuniary welfare. Their behaviour is consistent with the presence of a ‘spite effect' when their perceptions are that enforcement variables are ‘excessive'.
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Inequality, Human Capital Formation and the Process of Development
Oded Galor
NBER Working Paper, May 2011
Abstract:
Conventional wisdom about the relationship between income distribution and economic development has been subjected to dramatic transformations in the past century. While classical economists advanced the hypothesis that inequality is beneficial for growth, the neoclassical paradigm dismissed the classical hypothesis and suggested that income distribution has limited role in the growth process. A metamorphosis in these perspectives has taken place in the past two decades. Theory and subsequent empirical evidence have demonstrated that income distribution has a significant impact on human capital formation and the development process. In early stages of industrialization, as physical capital accumulation was a prime engine of growth, inequality enhanced the process of development by channeling resources towards individuals whose marginal propensity to save is higher. In later stages of development, however, as human capital has become a main engine of growth, equality, in the presence of credit constraints, has stimulated human capital formation and growth. Moreover, unequal distribution of land has been a hurdle for economic development. While industrialists have had an incentive to support education policies that foster human capital formation, landowners, whose interests lay in the reduction of the mobility of their labor force, have favored policies that deprived the masses of education.
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Caught in the Trap? Welfare's disincentive and the labor supply of single men
Olivier Bargain & Karina Doorley
Journal of Public Economics, forthcoming
Abstract:
Youth unemployment is particularly large in many industrialized countries and has dramatic consequences in both the short and long-term. While there is abundant evidence about the labor supply of married women and single mothers, little is known about how young (childless) singles react to financial incentives. The French minimum income (Revenu Minimum d'Insertion, RMI), often accused of generating strong disincentives to work, offers a natural setting to study this question since childless single individuals, primarily males, constitute the core group of recipients. Exploiting the fact that childless adults under age 25 are not eligible for this program, we conduct a regression discontinuity analysis using French Census data. We find that the RMI reduces the participation of uneducated single men by 7 - 10% at age 25. We conduct an extensive robustness check and discuss the implications of our results for youth unemployment and current policy developments.
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Joshua Frank
Journal of Public Policy & Marketing, Spring 2011, Pages 133-139
Abstract:
This study examines credit card penalty pricing using data from the Survey of Consumer Finances. In particular, the author uses a flag in the data set for the first time to analyze bias in reported credit card interest rate. He also uses this flag to estimate how frequently people mistakenly believe they are not at a penalty interest rate. The results imply that, on average, consumers underestimate their credit card interest rate by 30%-33%. Penalty rates seem to compound this bias. There is also some evidence that consumers who are more optimistic using other measures derived from the survey tend to underestimate their rate by a larger amount.
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Rent Control Rationing and Community Composition: Evidence from Massachusetts
David Sims
B.E. Journal of Economic Analysis & Policy, May 2011
Abstract:
This paper investigates whether rent control affects community socioeconomic composition. In particular, do rent controls increase the presence of poor and minority residents in a locale? Theoretically, the effect of rent control on community composition is ambiguous, as it depends upon several factors including willingness to occupy controlled apartments, landlord imposed rationing mechanisms, and spillover effects of rent controlled housing on uncontrolled units. Using census data on how Cambridge, Massachusetts and nearby communities responded to the state imposed end of rent control, I find evidence that rent control increased the presence of minority residents but also decreased the proportion of poor residents. This evidence is robust to alternate control areas and several specification checks. I also find that despite its positive impact on minority membership, rent control is associated with an increase in traditional measures of residential segregation.
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State Antipredatory Lending Laws and Neighborhood Foreclosure Rates
Lei Ding et al.
Journal of Urban Affairs, forthcoming
Abstract:
In this study, we examine the impact of state antipredatory lending laws (APLs) on neighborhood foreclosure and delinquency rates using a set of panel data regression models. We find strong evidence that neighborhoods have lower default rates in states with laws that extended federal coverage and/or restricted more mortgage contract terms, in states with broader coverage of subprime loans with high points and fees, and in states with more restrictive regulations on prepayment penalties. A typical APL lowers neighborhood default rates by between 3.8% and 18%, depending on the default risk measure considered. The findings remain consistent when we restrict the analysis to cross-border neighborhoods, suggesting that they are not due solely to unobservable market variation.
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Paul Calem, Christopher Henderson & Jonathan Liles
Journal of Housing Economics, forthcoming
Abstract:
Depository institutions may utilize securitization to "cherry pick," meaning to transfer risk to investors along dimensions that the investors tend to disregard or misperceive. Using Home Mortgage Disclosure Act data merged with data on subprime loan delinquency by ZIP code, this paper examines sale of "high cost" mortgages by depository institutions during the subprime lending boom of 2005 and 2006. We find that the likelihood of sale increases with risk along dimensions viewed as indicative of cherry picking; for instance, it is positively associated with future, subprime delinquency rates across neighborhoods. In contrast, along the dimension of mutually observed and priced risk as represented by APR spread, likelihood of sale decreases with risk. Thus, the paper reinforces the view, increasingly prevalent in the literature, that inattention to or misperception of risk by the securitization market played a significant role in the subprime lending boom and subsequent market collapse.
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Douglas Noonan & Douglas Krupka
Real Estate Economics, Summer 2011, Pages 379-407
Abstract:
This article measures the impacts of historic preservation regulations on property values inside and outside of officially designated historic districts. The analysis relies on a model of historic designation to control for the tendency to designate higher-quality properties. An instrumental variables model using rich data on historic significance corrects for this bias. The results for Chicago during the 1990s indicate that price impacts from designation inside a landmark district vary considerably across homes inside the districts. Controlling for extant historic quality, which the market values positively, restrictions apparently have negative price effects on average both within and outside districts.