Three Essays in Public Finance

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Much of public economics research examines the public sector's use of policy to influence the behavior of individuals to achieve societal goals. Because there may be many different policies to achieve the same societal goal, public economists are generally concerned with policy efficiency: Which policy among many will yield the desired result with the least amount of distortion or welfare loss? The aim of these three essays is to contribute to this discussion by examining the intended and unintended consequences of contemporary social policy.

The first essay estimates the elasticity of taxable earnings to taxation. Taxation may improve social welfare by redistributing income and to support public infrastructure. However, taxation may also generate disincentives to work; so as tax rates rise, the amount of income subject to taxation plausibly declines. Because the net effect of proposed tax reform on government revenue depends on how elastic taxable earnings are to taxation, the response of earnings to taxation is fundamental in assessing the efficiency of the US tax code.

The second essay examines the impact of increasing the Social Security normal retirement age from 65 to 67 on the Social Security Disability Insurance (DI) rolls. Although increasing the full retirement age was intended to decrease program expenditures by providing incentives to delay the transition to retirement, the policy simultaneously increased the incentive to receive DI benefits. DI benefits are are generally more generous and received over a longer period of time relative to retirement benefits; so the effect of increasing the normal retirement age on program expenditures may be overstated if the rise in the DI rolls is not taken into account.

The third and final essay examines a recent policy change to Title 38 which granted disability benefits to Vietnam veterans for diabetes considered {\em presumptively} related to herbicide exposure during military service. In this essay, we explore the impact of this policy on the rolls and expenditures of the VA disability compensation program.