Three essays in public finance

The first two chapters are on the funding challenges and the value of infrastructure to households and firms. Chapter 1 is titled “Do State Governments Defer Highway Maintenance Expenditures?”. Deferring maintenance expenditures in fiscal downturns can be more costly than accumulating debt or cutting pension contributions. I take advantage of the formulary distribution of Federal highway grants to examine the extent and context of highway maintenance deferral. Since the formula factors used in the apportionment of Federal highway grants are always three years old, I can measure exogenous grant shocks as the difference between this year’s and previous year’s forecast of each state’s future grants. I show that state governments respond to a negative grant shock by cutting highway maintenance expenditures more rapidly than other expenditures. The Impulse Response Functions (IRFs) of maintenance expenditures as a share of total expenditures show that states only partially compensate for the initial cuts in the subsequent periods – deferring maintenance expenditures and accumulating maintenance needs. Furthermore, I find that deferral of maintenance expenditures is more pronounced in election years, which suggests that this inefficient behavior is subject to agency problems. In Chapter 2, titled “Valuing Public Goods More Generally: The Case of Infrastructure”, David Albouy and I examine the relationship between local public goods, prices, wages, and population in an equilibrium inter-city model. Non-traded production, federal taxes, and imperfect mobility all affect how public goods (or “amenities” more broadly) should be valued from data. Reinterpreting the estimated effects of public infrastructure on prices and wages in Haughwout (2002), we find infrastructure over twice as valuable with our more general model. New estimates based on more years, cities, and datasets indicate stronger wage and positive population effects of infrastructure. These imply higher values of infrastructure to firms, and also to households if moving costs are substantial. Finally, chapter 3, titled “Imputing Missing Tax Variables for TAXSIM: Nonlinearity Matters”, is a technical paper on improving income tax rate estimates using NBER TAXSIM. Many researchers estimate household income taxes for using the limited house- hold characteristics of survey participants. I show that as a result of missing tax form fields, which are typically entered as zeros, the estimated income taxes are biased. This bias is not only in the form of shifting the distribution of taxes, but also changes the shape of the distribution depending on which tax field is missing. Experimenting with a naively specified linear regression model, the zero-imputed marginal tax estimates are actually performing almost always better than regression-imputed tax outcomes. However, when four TAXSIM variables are simultaneously missing, regression-imputation is outperforming zero-imputation for total taxes. Finally, imputing multiple TAXSIM variables in a replication example shows that the final empirical findings change dramatically.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2018

Author dc:creator

• Mashhadi Farahani, Arash

Contributors dc:contributor

• Albouy, David
• Brown, Jeffrey R.
• Deryugina, Tatyana
• McMillen, Daniel

• Infrastructure
• Public finance
• Public economics
• Highway maintenance
• Economics
• TAXSIM
• Income tax
• Imputing
• Grants

Statement dc:rights

• Copyright 2017 Arash Mashhadi Farahani

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/99223

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/99223