Essays in public economics and political economy

Abstract

This thesis studies topics in public economics in developed and developing countries, including health insurance regulation, public goods provision and inequality and welfare measurement. The first chapter analyzes the impacts of the managed care backlash in the United States on health care costs in the late 1990s and early 2000s. During the late 1990s, most U.S. states passed a variety of laws in this period that restricted the cost-cutting measures that managed care organizations (HMOs, PPOs and others) could use. I exploit panel variation in the passage of these regulations across states and over time to investigate the effects of the managed care backlash, as proxied by this legislation, on health care cost growth. I find that the backlash had a strong effect on health care costs, and can statistically explain much of the rise in health spending as a share of U.S. GDP between 1993 and 2005 (amounting to 1% - 1.5% of GDP). I also investigate the effects of the managed care backlash on intensity of care, hospital salaries and technology adoption. I conclude that managed care was largely successful in keeping health care costs on a sustainable path relative to the size of the economy. The second chapter attempts to quantify the impact of differences in political factors on economic growth and development, and specifically, assess to what extent variation in public goods provision may be responsible for cross-country differences in income and growth rates. Using a new methodology for the computation of standard errors in a regression discontinuity design with infill asymptotics, I document the existence of discontinuities in the levels and growth of the amount of satellite-recorded light per capita across national borders. Both the amount of lights per capita and its growth rate are shown to increase discontinuously upon crossing a border from a poorer (or lower-growing) into a richer (or higher-growing) country. I argue that these discontinuities form lower bounds for discontinuities in economic activity across borders, which suggest the importance of national-level variables such as institutions and culture relative to local-level variables such as geography for the determination of income and growth. I find that institutions of private property are helpful in explaining differences in growth between two countries at the border, while contracting institutions, local and national levels of public goods, as well as education and cultural variables, are not. The last chapter of my thesis, which I have published in the Journal of Public Economics, investigates the dynamics of the world distribution of income using more robust methods than those in the previous literature. I derive sharp bounds on the Atkinson inequality index for a country's income distribution that are valid for any underlying distribution of income conditional on given fractile shares and Gini coefficient. I apply these bounds to calculate the envelope of possible time paths for global inequality and welfare in the last 40 years. While the bounds are too wide to reject the hypothesis that world inequality may have risen, I show that world welfare rose unambiguously between 1970 and 2006. This conclusion is valid for alternative methods of dealing with countries and years with missing surveys, alternative survey harmonization procedures, alternative GDP series, or if the inequality surveys used systematically underreport the income of the very rich, or suffer from nonresponse bias.