Essays in Public Finance
Essays in Public Finance
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Date
2006-05-16
Authors
Pang, Gaobo
Advisor
Rust, John P
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Abstract
Chapter 1 analyzes effects of tax-favored savings plans on savings and retirement
decisions in a realistically specified life-cycle model. Individuals face mortality risk
and stochastic earnings, allocate assets between conventional savings accounts
(CSAs) and tax-deferred accounts (TDAs), make endogenous choice of labor supply
and retirement, and make a separate decision on claiming Social Security. The
simulations reveal that there is a functional division to some degree between CSAs
and TDAs, with the former serving mainly for liquidity and the latter for retirement
and bequests. There is tremendous heterogeneity. The tax incentives are generally
effective in stimulating new savings for the middle and upper income groups. The
higher rate of return on TDAs facilitates wealth accumulation, which consequently
and perhaps unintentionally encourages early retirement. Impatient and low-income
individuals tend to retire and claim Social Security early. They derive less benefit
from TDAs since they face lower marginal tax rates and they have limited resources
to take advantage of TDAs. For them, the income effect dominates and TDAs fail to
induce new savings.
Chapter 2 attempts quantitatively to measure the efficiency of public spending in
developing countries. The efficiency is defined as the distance between observed
input-output combinations and an efficiency frontier. Both input- and outputefficiencies
are estimated for several health and education output indicators by means
of the Free Disposable Hull (FDH) and Data Envelopment Analysis (DEA)
techniques. This chapter further seeks to verify empirical regularities associated with
cross-country efficiency variation. The panel Tobit regressions reveal that countries
are more likely to register lower efficiency if they are faced with higher government
expenditure levels, larger wage shares in government budget composition, higher
ratios of public to private financing in service provision (health), more prevalence of
HIV/AIDS epidemic (health), stronger external aid dependency, and/or higher income
inequality (education). Though no causality may be inferred from these exercises,
they help point at different factors to understand why some countries spend more
resources than others to achieve similar educational and health outcomes.