GPP 501 Microeconomic Analysis for Public Policy Fall 2017 Given by Kevin Milligan Vancouver School of Economics University of British Columbia Lecture October 4th: Redistribution empirical evidence GPP501: Lecture Oct 4 1 of 34
Agenda for today: 1. Incentives: Social Assistance in Quebec. 2. Incentives: Child benefits in Canada 3. Incentives: Disability Insurance in US 4. Incentives: High income taxation in US 5. Benefits: Child benefits in Canada 6. Benefits: Public Pensions in Canada. GPP501: Lecture Oct 4 2 of 34
Example 1: Social Assistance in Quebec "Incentive effects of social assistance: A regression discontinuity approach," Thomas Lemieux and Kevin Milligan Journal of Econometrics, Vol. 142, No. 2 (February 2008), pp. 807-828. [Link] Research question: Do social assistance payments affect decision to work? What does theory say? Think of the static labour supply model from last time. GPP501: Lecture Oct 4 3 of 34
Example 1: Social Assistance in Quebec Payments for those under 30 without kids were substantially smaller until August 1989 GPP501: Lecture Oct 4 4 of 34
Example 1: Social Assistance in Quebec Compare employment rates ages 25-29 vs 30-34, Que vs RoC GPP501: Lecture Oct 4 5 of 34
Example 1: Social Assistance in Quebec Compare employment rates In Quebec 1986 by age. GPP501: Lecture Oct 4 6 of 34
Example 2: Child Benefits in Canada "The integration of child tax credits and welfare: Evidence from the Canadian National Child Benefit program" Kevin Milligan and Mark Stabile, Journal of Public Economics, Vol. 91, No. 1-2 (February, 2007), pp. 305-326. [link] Research question: Do in-work benefits encourage employment? What does theory say? Think of the static labour supply model from last time. GPP501: Lecture Oct 4 7 of 34
Example 2: Child Benefits in Canada The new NCB was deducted $ for $ from provincial social assistance. Effectively allowed you to carry part of your social assistance cheque into the labour market. Moved from Xo to X 1 GPP501: Lecture Oct 4 8 of 34
Example 2: Child Benefits in Canada Analyze intro / expansion of National Child Benefit system in 1990s. Amounts varied by family size; introduced in 1998. Some provinces deducted this from Social Assistance payments. Some didn t. GPP501: Lecture Oct 4 9 of 34
Example 2: Child Benefits in Canada Single males and females: Employment rates Source: Labour Force Survey GPP501: Lecture Oct 4 10 of 34
Example 2: Child Benefits in Canada What impact on Social Assistance receipt? (Binary 1/0 indicator) GPP501: Lecture Oct 4 11 of 34
Example 2: Child Benefits in Canada What impact on Social Assistance receipt? (Earnings 1/0 indicator) GPP501: Lecture Oct 4 12 of 34
Example 2: Child Benefits in Canada What impact on Social Assistance receipt? (Transfers major source 1/0 indicator) GPP501: Lecture Oct 4 13 of 34
Example 2: Child Benefits in Canada What impact on Earnings receipt? (Earnings major source 1/0 indicator) GPP501: Lecture Oct 4 14 of 34
Example 3: Disability Insurance in US "Push and Pull: Disability Insurance, Regional Labor Markets, and Benefit Generosity in Canada and the United States" Kevin Milligan and Tammy Schirle. NBER Working Paper No. 23405, May 2017. [Link] Research Question: Do more generous transfers change labour supply decisions? What does theory say? Think of the static labour supply model from last time. GPP501: Lecture Oct 4 15 of 34
Example 3: Disability Insurance in US DI pays you a monthly amount if you qualify as disabled. The amount is geared to average earnings. GPP501: Lecture Oct 4 16 of 34
Example 3: Disability Insurance in US Biggish increase between 1996 and 2006; increase slows 2006 to 2016. GPP501: Lecture Oct 4 17 of 34
Example 3: Disability Insurance in US Biggish increase between 1996 and 2006; increase slows 2006 to 2016. GPP501: Lecture Oct 4 18 of 34
Example 4: Taxing Top Incomes in Canada "Taxation and Top Incomes in Canada," Kevin Milligan and Michael Smart Canadian Journal of Economics, Vol. 48, No. 2 (2015), pp. 655-681. [link] Research question: Do high earners report lower income when tax rates go up? Theory: We expect reported income to go down: real responses avoidance responses GPP501: Lecture Oct 4 19 of 34
Example 4: Taxing Top Incomes in Canada Try to get estimates of taxable income elasticity for Canada. Q: Why might Canadian elasticity be different? Exploit differences in tax rates across provinces and years Q: Is there a difference between provincial and federal elasticity? Focus on period from 1988 to 2011. Discard 1982-1987 because of 1988 tax reform. Q: why might tax reform matter? GPP501: Lecture Oct 4 20 of 34
Example 4: Taxing Top Incomes in Canada Top tax rates across provinces GPP501: Lecture Oct 4 21 of 34
Example 4: Taxing Top Incomes in Canada Scatterplot: top 1% share vs. top tax rates GPP501: Lecture Oct 4 22 of 34
Example 4: Taxing Top Incomes in Canada Results for different income groups (1) (2) (3) (4) P90 P95 P99 P99.9 Observations 240 240 240 190 R-squared 0.962 0.969 0.97 0.952 Log (1-MTR) 0.0246 0.221 0.689*** 1.451*** [0.219] [0.218] [0.238] [0.541] Log Total 0.424*** 0.511*** 0.729*** 0.893*** Income [0.0533] [0.0636] [0.0767] [0.162] GPP501: Lecture Oct 4 23 of 34
Example 5: Child Benefits in Canada "How do families who receive the CCTB and NCB spend the money?" Kevin Milligan, Lauren Jones, and Mark Stabile. Martin Prosperity Institute Research Paper April 20, 2015. [link] Research Question: Do increased child tax benefits change consumption patterns? Theoretical prediction: Expect more spending; not sure on what. GPP501: Lecture Oct 4 24 of 34
Example 5: Child Benefits in Canada Big expansions at lower incomes over last 20 years. GPP501: Lecture Oct 4 25 of 34
Example 5: Child Benefits in Canada Big expansions at lower incomes over last 20 years. GPP501: Lecture Oct 4 26 of 34
Example 5: Child Benefits in Canada Spending change for an extra $ of benefits GPP501: Lecture Oct 4 27 of 34
Example 5: Child Benefits in Canada Spending change for an extra $ of benefits GPP501: Lecture Oct 4 28 of 34
Example 6: Expanded Pension Benefits "The evolution of elderly poverty in Canada," Kevin Milligan Canadian Public Policy, Vol. 34, No. 4 (November 2008). [link] Research Question: Do higher public pensions lower poverty rates? Theoretical prediction: People might adjust other income sources to smooth consumption. GPP501: Lecture Oct 4 29 of 34
Example 6: Expanded Pension Benefits Increase in elderly incomes since 1973. GPP501: Lecture Oct 4 30 of 34
Example 6: Expanded Pension Benefits Increase in elderly incomes since 1973. GPP501: Lecture Oct 4 31 of 34
Example 6: Expanded Pension Benefits Poverty rates decline. GPP501: Lecture Oct 4 32 of 34
Example 6: Expanded Pension Benefits Poverty rates decline. GPP501: Lecture Oct 4 33 of 34
Next Time: Deep dive into child benefits Please read. "A reset for the child tax benefit system," Kevin Milligan Inroads Journal, Issue 34, Fall 2013. [link] GPP501: Lecture Oct 4 34 of 34