Essays in Public Economics

The first chapter sheds new light on the desirability of the minimum wage in the presence of optimal income taxation. Using a search-and-matching framework, I derive a novel condition that links the desirability of the minimum wage to three sufficient statistics: (1) the macro labor force participation response to the minimum wage by low skilled individuals; (2) the macro employment response to the minimum wage for low-skilled individuals; and (3) the welfare weight on low-skilled workers. This condition shows that the minimum wage is welfare improving if it pushes the labor market tightness – the ratio of the aggregate number of vacancies to low-skilled job seekers – closer to its efficient level. I estimate the first two sufficient statistics using an event study design, as well as state and federal minimum wage variation between 1979-2014. I estimate a macro participation elasticity of -0.24 and a macro employment elasticity of -0.32. With these estimates in hand, I simulate the welfare gains from introducing a minimum wage. The second chapter studies the effect of raising contribution limits on retirement saving by exploiting the ‘catch-up limit’ provision, a rule which allows those over the age of 50 to make higher IRA and 401(k) contributions than those under 50. Using a regression discontinuity design, I find that eligibility for ‘catch-up limits’ leads to a large increase in total tax-deferred contributions for those without access to a 401(k) plan. This is driven by a 25 percent increase in average IRA contributions and a 21 percent increase in the likelihood of making an IRA contribution, with no significant effects on overall 401(k) contributions. The findings suggest that, contrary to the neoclassical life-cycle model, the response to eligibility for ‘catch-up limits’ was not limited to constrained savers. The final chapter, joint with Michael Smart, studies the savings effect of Canadian Tax-Free Savings Account (TFSAs). Using a new instrumental variables strategy, we whether TFSA balances crowd-out saving in taxable financial assets and traditional tax-deferred plans. We find that TFSA balances crowd-out saving in taxable fixed income assets and have no statistically significant effect on balances in tax-deferred accounts.

Department dc:contributor.department

Economics

Year dc:date.issued

2017

Author dc:creator

• Lavecchia, Adam Michael

Advisor dc:contributor.advisor

• Kroft, Kory

Handle dc:identifier.uri

http://hdl.handle.net/1807/80695

OAI identifier oai:identifier

oai:utoronto.scholaris.ca:1807/80695