A few new papers from the NBER today:
1. This one shows that states that award merit-aid scholarships (surprise) to students tend to be award students who do NOT alter their educational attainment or migration behavior as a result of the merit awards. The authors say that this is contrary to the “intention” of state merit-aid scholarships, which nominally is supposed to “keep talented students in the state.” Of course that’s absurd, those scholarships, which we know go disproportionately to wealthier families (nothing wrong with that by the way) are simply ways to build loyalty and buy more votes (remember Madison in Federalist #10 again …). It’s never been about “improving the workforce.” And even if it was, I am still waiting for the paper that discusses the effectiveness of merit scholarship programs do accomplish this as compared to something else – such as lower estate and income taxes in that state?
Higher Education, Merit-Based Scholarships and
by Maria D. Fitzpatrick, Damon Jones – #18530 (ED PE)
Many merit-based scholarships for college are administered at the state level, targeted to in-state residents and require attendance at
an in-state institution. Though these subsidies have the potential to affect lifetime education and migration decisions, much of the literature to date has focused on just one or two outcomes (e.g. college attendance and completion) and one or two states (e.g. Georgia). Given that one of the stated goals of these programs is to increase the quality of a state’s workforce, understanding the long-term effects of merit-based scholarships on mobility is crucial for evaluating their effectiveness. In this paper, we utilize the
broader expansion and long history of these programs to build a comprehensive picture of how merit aid scholarship availability affects residential migration and educational attainment. To do this, we incorporate data on the introduction of broad-based merit aid programs for fifteen states and Census data on all 24 to 32 year olds in the U.S. from 1990 to 2010. We use variation in merit aid eligibility across cohorts and within states to identify treatment effects. Eligibility for merit aid programs slightly increases the propensity of state natives to live in-state, while also extending enrollment in-state into the late twenties. These patterns notwithstanding, the magnitude of merit aid effects is of an order of magnitude smaller than the population treated, suggesting that nearly all of the spending on these programs is transferred to individuals who do not alter educational or migration behavior.
2. Here are (the now (in)famous) Picketty and Saez talking about “Optimal Tax Policy.” When you see the term optimal tax policy, head for the exits – you are about to see all kinds of justifications for having your pocket picked over completely. I am sure in talking about optimal tax policy they propose a broad range of measures over what “optimal” could apply to. I am sure it’s not just about raising revenues. How does “optimal tax policy” impact family formation, capital formation, fairness, etc.?
Optimal Labor Income Taxation
by Thomas Piketty, Emmanuel Saez – #18521 (PE)
This paper reviews recent developments in the theory of optimal labor income taxation. We emphasize connections between theory and
empirical work that were initially lacking from optimal income tax theory. First, we provide historical and international background on labor income taxation and means-tested transfers. Second, we present the simple model of optimal linear taxation. Third, we consider optimal nonlinear income taxation with particular emphasis on the optimal top tax rate and the optimal profile of means-tested transfers. Fourth, we consider various extensions of the standard model including tax avoidance and income shifting, international
migration, models with rent-seeking, relative income concerns, the treatment of couples and children, and non-cash transfers. Finally, we discuss limitations of the standard utilitarian approach and briefly review alternatives. In all cases, we use the simplest possible models and show how optimal tax formulas can be derived and expressed in terms of sufficient statistics that include social marginal welfare weights capturing society’s value for redistribution, behavioral elasticities capturing the efficiency costs of taxation, as well as parameters of the earnings distribution. We also emphasize connections between actual practice and the predictions from theory, and in particular the limitations of both theory and empirical work in settling the political debate on optimal labor income taxation and transfers.
3. The share of the population that is employed has (surprisingly?) fallen in the previous decade. Robert Moffitt tells us that we still really don’t know why. Your mileage may vary on this one.
The U.S. Employment-Population Reversal in the 2000s: Facts and
by Robert A. Moffitt – #18520 (EFG LS PE)
The decline in the employment-population ratios for men and women over the period 2000-2007 prior to the Great Recession represents an historic turnaround in the evolution of U.S. employment. The decline is disproportionately concentrated among the less educated and younger groups within the male and female populations and, for women, disproportionately concentrated among the unmarried and those without children. About half of men’s decline can be explained by declines in wage rates and by changes in nonlabor income and family
structure influences, but the decline among women is more difficult to explain and requires distinguishing between married and unmarried women and those with and without children, who have each experienced quite different wage and employment trends. Neither taxes nor transfers appear likely to explain the employment declines, with the possible exception of the Supplemental Nutrition Assistance Program. Other influences such as the minimum wage or health factors do not appear to play a role, but increases in incarceration could have
contributed to the decline among men.
4. Banning racial preferences in California’s public college admissions processes seems to have produced “good” outcomes: graduation rates increased for minorities. This is due in part to selection effects (which would seem to be a negative) but also because of better matching of students to schools as well as more focus paid by schools on retention. The Supreme Court is hearing a very important case on this topic soon: this paper is sure to be influential on that decision (OK, I’m not sure …):
Affirmative Action and University Fit: Evidence from
by Peter Arcidiacono, Esteban Aucejo, Patrick Coate, V. Joseph Hotz – #18523 (ED)
Proposition 209 banned using racial preferences in admissions at California’s public colleges. We analyze unique data for all applicants and enrollees within the University of California (UC) system before and after Prop 209. After Prop 209, graduation rates of minorities increased by 4.4%. We characterize conditions required for better matching of students to campuses to account for this increase. We find that Prop 209 did improve matching and this improvement was important for the graduation gains experienced by less-prepared students. At the same time, better matching only explains about 20% of the overall graduation rate increase. Changes after Prop 209 in the selectivity of enrolled students explains 34-50% of the increase. Finally, it appears UC campuses responded to Prop 209 by doing more to help retain and graduate its students, which explains between 30-46% of the post-Prop 209 improvement in the graduation rate of minorities.
5. First, assume a can-opener. In this paper, as is all-too-common in the health care literature, the authors dismiss out of hand, without evidence, a deregulatory approach to insurance reform. And then compare the current mess to one with further government intervention. Guess what they find? Shocking, I know.
Health Insurance Reform: The Impact of a Medicare Buy-In
by Gary D. Hansen, Minchung Hsu, Junsang Lee – #18529 (EFG HE PE)
The steady state general equilibrium and welfare consequences of health insurance reform are evaluated in a calibrated life-cycle economy with incomplete markets and endogenous labor supply. Individuals face uncertainty each period about their future health status, medical expenditures, labor productivity, access to employer provided group health insurance, and the length of their life. In this environment, incomplete markets and adverse selection, which restricts the type of insurance contracts available in equilibrium,
creates a potential role for health insurance reform. In particular, we consider a policy reform that would allow older workers (aged 55-64) to purchase insurance similar to Medicare coverage. We find that adverse selection eliminates any market for a Medicare buy-in if it is offered as an unsubsidized option to individual private health insurance. Hence, we compare the equilibrium properties of the current insurance system with those that obtain with an optional buy-in subsidized by the government, as well as with several types of
health insurance mandates.