Essays on Public Economics

Abstract

Modern states feature an extensive government bureaucracy, whose role is present in virtually all functions of the economy. The unifying theme of the three distinct papers in this dissertation is the role of government in a modern economy. In the first chapter, I look at taxes on bequests, the transfers of wealth from parents to their children when they pass away, and how they affect the labor supply of the parents, exploiting a policy change that reduced taxes. A tax cut implies a higher net-of-tax estate value, creating a wealth effect, which reduces labor supply, and a price effect, which raises it. Results indicate a clear reduction in participation, with the wealth effect dominating. I find an approximate reduction in participation of around 10% over the baseline. The second chapter looks at the effect of unemployment insurance (UI) on crime. Crime fell sharply in the United States during the Great Recession, at a time of rising joblessness. This was a puzzle: crime is expected to rise, not fall, when unemployment rises. I show that UI extensions can account for part of the puzzle, explaining why crime did not rise. The higher propensity to commit crimes associated with higher unemployment was mitigated by the fact that UI was more generous. State-level variation in extension rules provide exogenous identifying variation in benefit length. I estimate that in places with an additional $1,000 rise in UI per-unemployed-person (annually), crime would have been 1.5% higher were it not for the extensions. The final chapter studies how government policies may have hindered recovery in Greece during the recent crisis. Despite a large reduction in labor costs, Greece failed to engineer an export-led growth. I examine how taxes and trade costs can explain this. Energy tax hikes raised the cost of wholesale energy. VAT also rose, disproportionately affecting tradables, while there was no reduction of the substantial trade costs burdening Greek exports. Using a small-scale New-Keynesian small-open-economy model, I find that a 20% reduction in trade costs would mean 8% more exports within 10 quarters. VAT and energy costs can partially explain why exports fell.