2015 Theses Doctoral

Essays on Public Economics

Elias Moreno, Ferran

This dissertation contains three essays on Public Economics, Labor Economics and Political Economy. The common theme across all the chapters is Public Economics: either understanding the effects of government policies in order to improve their design, or how the design of electoral rules affects government spending and tax collection.
The first chapter estimates the employment and wage effects of payroll tax credits at different moments of the life cycle. In 1997, Spain reduced payroll taxes for new hires younger than 30 and older than 45. Time variation and age discontinuities allow me to perform both a difference-in-difference analysis and a regression discontinuity design. Using administrative data, I find that employment at age 30 increased by 2.42%. Moreover, I show that the gains do not come at the expense of non-subsidized workers, indicating that the policy led to net job creation. Wages of new hires are not affected by the reform. In contrast, the tax cut at 45 had no effect on employment or wages. For prime-age workers, the lower payroll taxes can be interpreted as a transfer from taxpayers to firms. Combining the above estimates and standard tax incidence formulas, I obtain a lower bound labor demand elasticity of -0.63 at age 30 and zero for workers who are 45 years old. An analysis of wage densities and other observable characteristics supports the conjecture that the elasticity decreases with age because the quality of available workers decreases with age. I consider several alternative explanations for the results, but none of them are consistent with the evidence. A cost-benefit analysis shows that payroll tax receipts would increase if the tax rate for workers under 30 was reduced. The results at age 45 suggest low efficiency costs of payroll taxes for prime-age workers. Finally, I discuss implications for payroll tax reforms, welfare-to-work schemes, and job-search assistance.
The second chapter studies how changes in electoral rules affect spending on local public goods, taxation, and redistribution. The Voting Right Act guaranteed the right to vote for minorities, including the prohibition of any electoral discriminatory practices on the basis of race. This triggered a series of court decisions outlawing discriminatory electoral rules between 1970 and 1990. I study the effects of several court orders that guarantee minority representation on city public budgets, and find that both local public good expenditures (5-7.5%) and city tax collection (5-10%) increased, after the changes towards non-discriminatory electoral rules. I also explore the distributional consequences of non-discriminatory elections and find that the fraction of black public workers and citizens increased after changes in the election system, while those of whites decreased. The growth rates of black house values and rents also increase more. The findings are inconsistent with a negative effect of ethnic heterogeneity in the city council on public goods, and with common-pool theories. I show evidence that the most plausible channel that explains the results is the new legislative bargaining power that black communities gained.
The third chapter investigates the effects of partial employment protection reform in Spain. Most employment protection reforms in Europe have been partial. They aim to introduce flexibility at the margin by targeting new hires and placing restrictions on which firms can hire with lower levels of EP. However, it is not clear what the right way to target jobs at the margin is. We exploit a unique quasi-experiment in Spain that decreased employment protection of new permanent hires who were younger than 31 between 2001 and 2006. Only firms with very low employment volatility could hire with lower levels of EP. Using an administrative dataset, we show that the reform had no effect on hirings, lay-offs, quits, contract length, starting wages and post-entry wages. We compare the results for the policy in 2001-2006 with a similar policy in 1999-2000, but that instead of restricting which firms could benefit from it, it targeted only workers who had not been in a permanent contract for a certain time. The 1999-2000 policy had significant effects on hiring. Overall, the evidence suggests that restrictions on which workers can benefit from the policy are better at targeting marginal jobs than constraints that exclude firms with high levels of employment volatility.