Costs and Benefits
Special-interest groups and growth
Dennis Coates, Jac Heckelman & Bonnie Wilson
Public Choice, June 2011, Pages 439-457
Abstract:
This paper explores empirically the relation between special-interest groups and economic growth. Our analysis exploits new data on the number of groups observed across countries and time, in order to mitigate the identification problems associated with earlier studies. Also in contrast to earlier work, we examine the impact of groups on two sources of growth - capital accumulation and technological change - in addition to the impact of groups on output growth. The findings are consistent with Olson's (The rise and decline of nations: the political economy of economic growth, stagflation, and social rigidities. New Haven, Yale, 1982) claim that societies with greater numbers of interest groups grow slower, accumulate less capital, and experience reduced productivity growth relative to others.
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Public Policy, State Business Climates, and Economic Growth
Jed Kolko, David Neumark & Marisol Cuellar Mejia
NBER Working Paper, April 2011
Abstract:
State business climate indexes are a popular means of summarizing the "bundles" of state policies that might affect state economic growth. But the rankings of states' business climates vary wildly, raising questions about what these business climate indexes measure, and hence about which policies they capture are more important determinants of state economic growth. Business climate rankings tend to focus on policies related either to productivity, or to taxes and other costs of doing business. States that rank poorly along one of these dimensions often rank quite highly on the other. Business climate indexes that focus on productivity-related variables have essentially no predictive power for economic growth. In contrast, business climate indexes focusing on taxes and costs predict growth of employment, wages, and Gross State Product. Looking at sub-indexes that disaggregate the policies captured by the taxes-and-cost related indexes, two types of policies are associated with faster economic growth: less spending on welfare and transfer payments; and a more uniform and simpler corporate tax structure. But factors beyond the control of policy, like a state's industry mix, population density, and weather, have a stronger relationship with economic growth than even the tax-and-cost-focused business climate indexes.
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Flooded Communities: Explaining Local Reactions to the Post-Katrina Migrants
Daniel Hopkins
Political Research Quarterly, forthcoming
Abstract:
This article uses the post-Katrina migration as an exogenous shock to test theories of racial threat while minimizing concerns about selection bias. Drawing in part on a new survey of 3,879 respondents, it demonstrates that despite the national concern about issues of race and poverty following Katrina, people in communities that took in evacuees became less supportive of spending to help the poor and African Americans. The results suggest a novel hypothesis that threatened responses to newcomers hinge on both local conditions and the frames that develop around their arrival.
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The Limited Local Impacts of Ethnic and Racial Diversity
Daniel Hopkins
American Politics Research, March 2011, Pages 344-379
Abstract:
The United States has more immigrants than at any time since the 1920s and immigration rates remain high. Past research unequivocally predicts that the resulting increase in ethnic and racial diversity will reduce local investments in public goods. By analyzing a new, comprehensive data set on U.S. cities from 1950 to 2002, this article challenges those predictions. In the 1950s and early 1960s, the percent Black had no strong impacts on local public goods. Since the 1970s, the impact of diversity has been limited chiefly to criminal justice, an issue that has remained racially coded, nationally salient, and relevant to localities. Contrary to past work, diversity's influence on local public goods is neither pervasive nor consistent. These findings challenge static conceptions of local ethnic and racial divisions, and they suggest a connection between diversity's local impacts and trends in national politics.
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The State of the Social Safety Net in the Post-Welfare Reform Era
Marianne Bitler & Hilary Hoynes
Brookings Papers on Economic Activity, Fall 2010, Pages 71-127
Abstract:
The 1996 welfare reform led to sweeping changes to the central cash safety net program for families with children. Along with other changes, the reform imposed lifetime time limits for receipt of cash welfare, effectively ending its entitlement nature for these families. Despite dire predictions, previous research has shown that program caseloads declined and employment increased, with no detectible increase in poverty or worsening of child well-being. We reevaluate these results in light of the severe 2007-09 recession. In particular, we examine how welfare reform has altered the cyclicality of the response of caseloads and family well-being. We find that use of food stamps and noncash safety net program participation have become significantly more responsive to the economic cycle after welfare reform, rising more when unemployment increases. By contrast, we find no evidence that cash welfare for families with children is more responsive, and some evidence that it might be less so. We find some evidence that poverty increases more with increases in the unemployment rate after reform, and none that it increases less. We find no significant effects of reform on the cyclical responsiveness of food consumption, food insecurity, health insurance, household crowding, or health.
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Pensions in the 2000s: the Lost Decade?
Edward Wolff
NBER Working Paper, April 2011
Abstract:
One of the most dramatic changes in the retirement income system over the last three decades has been a decline in traditional defined benefit (DB) pension plans and a corresponding rise in defined contribution (DC) pensions. Have workers benefited from this change? Using data from the Survey of Consumer Finances, I find that after robust gains in the 1980s and 1990s, pension wealth experienced a marked slowdown in growth from 2001 to 2007. Projections to 2009 indicate no increase in pension wealth from 2001 to 2009. Retirement wealth is also found to offset the inequality in standard household net worth. However, I find that pensions had a weaker offsetting effect on wealth inequality in 2007 than in 1989. As a result, whereas standard net worth inequality showed little change from 1989 to 2007, the inequality of private augmented wealth (the sum of pension wealth and net worth) did increase over this period. These results hold up even when Social Security wealth and employer contributions to DC plans are included in the measure of wealth and when adjustments are made for future tax liabilities on retirement wealth.
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State Intervention and Subjective Well-Being in Advanced Industrial Democracies
Patrick Flavin, Alexander Pacek & Benjamin Radcliff
Politics & Policy, April 2011, Pages 251-269
Abstract:
While there is a vast and contentious literature devoted to the debate over "politics versus markets," scholars have devoted little empirical attention to the fundamental question of how the choice between these two approaches to public policy affects the overall quality of human life. Contending arguments make powerful claims for the superiority of each as the best mechanism for generating and distributing well-being. We attempt an empirical appraisal of this issue, using the extent to which individuals find their lives to be satisfying as an evaluative metric. Considering individual levels of life satisfaction in advanced industrial democracies using the most recent wave of survey data from the World Values Survey, we find that citizens are more satisfied with their lives as the level of state intervention into the market economy increases.
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Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark
Henrik Jacobsen Kleven et al.
Econometrica, May 2011, Pages 651-692
Abstract:
This paper analyzes a tax enforcement field experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, threat-of-audit letters were randomly assigned and sent to tax filers in both groups. We present three main empirical findings. First, using baseline audit data, we find that the tax evasion rate is close to zero for income subject to third-party reporting, but substantial for self-reported income. Since most income is subject to third-party reporting, the overall evasion rate is modest. Second, using quasi-experimental variation created by large kinks in the income tax schedule, we find that marginal tax rates have a positive impact on tax evasion for self-reported income, but that this effect is small in comparison to legal avoidance and behavioral responses. Third, using the randomization of enforcement, we find that prior audits and threat-of-audit letters have significant effects on self-reported income, but no effect on third-party reported income. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported income.
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Peter Arno et al.
Journal of Public Health Policy, May 2011, Pages 234-250
Abstract:
Social Security is the most important and effective income support program ever introduced in the United States, alleviating the burden of poverty for millions of elderly Americans. We explored the possible role of Social Security in reducing mortality among the elderly. In support of this hypothesis, we found that declines in mortality among the elderly exceeded those among younger age groups following the initial implementation of Social Security in 1940, and also in the periods following marked improvements in Social Security benefits via legislation and indexing of benefits that occurred between the mid-1960s and the early 1970s. A better understanding of the link between Social Security and health status among the elderly would add a significant and missing dimension to the public discourse over the future of Social Security, and the potential role of income support programs in reducing health-related socioeconomic disparities and improving population health.
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On the Relationship Between Mobility, Population Growth, and Capital Spending in the United States
Marco Bassetto & Leslie McGranahan
NBER Working Paper, April 2011
Abstract:
In this paper, we investigate the relationship between public capital spending and population dynamics at the state level. Empirically, we document two robust facts. First, states with faster population growth do not spend more (per capita) to accommodate the needs of their growing population. Second, states whose population is more likely to leave do tend to spend more per capita than states with low gross emigration rates. To interpret these facts, we introduce an explicit, quantitative political-economy model of government spending determination, where mobility and population growth generate departures from Ricardian equivalence by shifting some of the costs and benefits of public projects to future residents. The magnitude of the empirical response of capital spending to mobility is at the upper end of what can be explained by the theory with a plausible calibration. In the model, more mobile voters favor more spending because the maturity of states' debt is very long term and costs are shifted into the future more than benefits.
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Making the 1996 Welfare Reform Work: The Promise of a Job
Anthony Mallon & Guy Stevens
Journal of Poverty, Spring 2011, Pages 113-140
Abstract:
Policy makers often tout the finding that Temporary Assistance for Needy Families caseloads have shrunk by 50% or more since the passage of the 1996 welfare reform act (Personal Responsibility and Work Opportunities Reconciliation Act). Less well publicized is the economic fate of these "welfare leavers." Extensive evidence shows that, despite the fact that as many as 60% exit with a full-time job, within a year or two approximately one half of all welfare leavers-and their children-fall into poverty. These findings predate the current severe recession; the economic status of current and past welfare leavers is undoubtedly much worse today. The proximate cause of this high rate of poverty is that welfare leavers end up working, on average, too few hours over the course of a year. Behind these low hours are the more fundamental causes of the measurable "barriers to work" limiting many leavers, and the limited supply of appropriate private-sector jobs, even during the so-called full-employment years of the late 1990s. In a search for solutions to this problem, this article examines the design, costs, and effects of a large number of job creation/welfare-to-work programs. Using these results, we propose a program of jobs of last resort called Promise of a Job (POJ). The authors outline the structure of POJ, provide costs estimates per participant and for its national implementation, and simulate its impact on poverty rates. Depending on assumptions such as the eligibility requirements and the rate at which participants are placed in full-time jobs, some simulations show dramatic reductions in the rates of adult and, especially, children's poverty.
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Racial/Ethnic Income Inequality Responses to a Government Maintenance Program in the United States
Gary Hoover & Mehmet Yaya
Public Finance Review, May 2011, Pages 462-478
Abstract:
In this study, the authors investigate the income inequality responses of Blacks, Whites, and Hispanics in the United States to the income maintenance program Temporary Assistance for Needy Families (TANF) using cross sections of state-level data. The results show that this program indeed reduces income inequality but the impacts are not uniform across racial/ethnic groups. Specifically, the authors find that Blacks have results that differ from those of the other two groups or those of the United States as a whole. These results are robust when using either the Gini or Theil measure of inequality.
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Second-Order Devolution and the Implementation of TANF in the U.S. States
Byungkyu Kim & Richard Fording
State Politics & Policy Quarterly, December 2010, Pages 341-367
Abstract:
Welfare reform gave the U.S. states the opportunity to engage in second-order devolution (SOD), which allows local governments to exercise more discretion in the implementation of the Temporary Assistance for Needy Families (TANF) program. Proponents of welfare decentralization insist that local governments better understand the needs of the poor and are therefore able to implement TANF more effectively. Nevertheless, opponents argue that decentralization could lead to a "race to the bottom" and, thus, SOD might lead to more restrictive TANF implementation. We investigate these competing claims by examining how differences in decentralization affect (1) TANF caseload decline, (2) the use of sanctions, and (3) several work-related outcomes among recipients. Based on a series of state-level analyses, we find that SOD states experienced a greater degree of caseload decline than non-SOD states. In addition, SOD states were more likely to use punitive policy tools, such as TANF sanctions. However, we also find that SOD states display marginally better TANF performance, as reflected in higher rates of employment exits and earnings gains among TANF recipients. Thus, we find support for both sides of the decentralization debate.
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Michelle Livermore et al.
Journal of Family and Economic Issues, March 2011, Pages 73-83
Abstract:
To many, declining caseloads and increased labor market entry substantiate welfare reform's success. This study examines how Louisiana welfare to work program participants who succeeded by leaving assistance and obtaining employment are making ends meet, if their needs are met and which characteristics are associated with having their needs met. Telephone survey data reveal low wages, informal labor market activity, government, community, and social support use, and notable levels of unmet needs. A multivariate analysis shows workers with higher earnings and regular nonmonetary help from family and friends are likely to have more needs met. Those likely to have fewer needs met report lower wages, more young children, use of government support programs and informal labor market activity.