Essays In Public Economics

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Doctor of Philosophy (PhD)
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political economics
public economics
urban economics
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This dissertation consists of two chapters on topics in public economics. In the first chapter, I study the conflict over the provision of multiple public goods in U.S. cities. I use a rich dataset of municipal spending and Census micro-data to provide evidence that different demographic groups do indeed have conflicting preferences over the composition of public goods and services provided at the local level. To account for endogeneity due to sorting I use a simulated instrumental variable approach where I simulate the demographic distribution in each city that would have occurred if each city's demographic composition had evolved in the same way as in the national level. I then propose a model that can accommodate multiple groups with conflicting preferences over each public good provided and different income distributions within groups and I estimate it using GMM. Using the estimated model, I use the projected evolution of each demographic group to generate predictions on the supply of different public goods in each city. I find that, if the current demographic trends continue, by 2030 there will an average decrease in the provision of public education in U.S. cities of 2%, an average increase in basic public goods and redistributive spending of 20%, with substantial variability across cities. In the second chapter, I propose a new model of how the level and composition of public services are determined in a city. The model allows for an arbitrary number of groups with different preferences over public goods and within-group income heterogeneity. I embed the political economy model of public good provision in the city into a location choice model between the central city and the suburbs in order to study the interactions between mobility and the political conflict over the composition of the budget. Through a numerical exercise I show that mobility and demographic conflict interact in a surprising way, generating a non-monotonic effect between increasing demographic heterogeneity and the size of the public sector. When heterogeneity is low, increasing it reduces the size of the public sector, but it also alters the demographic composition of the city as richer individuals of the minority group leave for the suburbs and the richer individuals from the majority move from the suburbs to the city. This leads to a more homogeneous city and to an inflection in the support for public spending. Eventually, increases in taste heterogeneity lead to increases in public spending per capita, and to a starker segregation between city and suburbs.

Holger W. Sieg
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