Intranational Economics Fall 2018

Steve Craig and Bent Sorensen

Reading List (preliminary)

The purpose of the class is to develop ideas for research papers. The work will be at the intersection of public finance and macroeconomics. State and local governments are rich sources of data. In particular, we aim to focus on the dynamics of state/local governments' behavior. One initial idea is to consider public capital.

We will narrow down one or more topics as we go along (students can draft a paper on their own or in groups. In the past a subset of students have written a publishable paper with us (see below), but getting to a publishable paper takes a long time and we do not insist on you doing this. To pass the class, you have to participate in discussions, present preliminary work, and turn in a paper-draft at the end of class. (Ideally, this will turn into a chapter in your thesis, but that is not required.) We will assign a grade based on your overall performance (mainly the effort you put into the paper-draft.) We will list topics/papers on this WEB-page as we go along. (Papers listed at available in JSTOR if nothing else is said.) Please download papers for class and read/skim ahead of time.

We will cover econometric/theory tools as we go along. We will assign tasks/homeworks. In particular, we will ask you to download data and/or do preliminary data work and (later) econometric regressions.

Plan for the first couple of weeks (we may change things around):

August 20th: Start of class.

August 22th: Bent talks about paper coming out of this course in 2015 (just about finished) Biolsi, Craig, Dhar, Sorensen (2018)
This paper estimates the extent of risk sharing between school districts and state governments. The dataset is large and there are possibilities for extending and/or complementing our paper.

August 27-29th: Bent or Steve talks about paper coming out of this course in 2013 : Steven G. Craig, Wided Hemissi, Satadru Mukherjee, and Bent E. Sorensen (Journal of Urban Economics, May 2016). "How do politicians save? Buffer-stock management of unemployment insurance finance."
This paper is an application of dynamic consumer theory to the public budgets. The finding is that state governments in the context of the state-federal unemployment insurance system behaves like rational none-too-impatient agents.We believe that other applications of this approach might be successful.
We also outline the Barro tax-smoothing model

Sep 5th: Bent talks about (size and ) cyclicality of state/local budgets. Sorensen, Wu, Yosha (2001).
This paper gives a background for work on public/local government data.

September 10th: Steve talks about by Andrew F. Haughwout (JPubE 2002). "Public infrastructure investments, productivity and welfare in fixed geographic areas"

September 12th: Steve talks about Gramlich and Rubinfeld ``testing'' the Tiebout 1956 model (JPE1982)

September 17th: Steve talks about Hymel examining if traffic congestion reduce economic growth (J Urban 2009)

September 19th: Bent talks about "Regional Macroeconomic Outcomes under Alternative Arrangements for the Financing of Public Infrastructure," by Giesecke, Dixon, and Rimmer, in Papers in Regional Science 2008

September 24th: Bent talks about Risk Sharing Between Countries and Regions" Teaching slides. There is enough for two classes, although we may decide to not go through all the slides. The basic papers that the notes build on are Channels of Interstate Risk Sharing: US States 1963-1990, QJE 1996 and International Risk Sharing and European Monetary Unification J. of International Economics 1998

October 1st: Steve talks about "Saving for a rainy day: Estimating the needed size of U.S. state budget stabilization funds" by Bo Zhao, Regional Science and Urban Economics 2016.

October 3-10: Bent talks about "How do politicians save? Buffer-stock management of unemployment insurance finance," again! This time the focus will be on the technical details as we seem to converge to implementing a version of this for state government budgets. Bent will also talk about the paper from which we got the main idea: "DIRECT TEST OF THE BUFFER-STOCK MODEL OF SAVING" by Tullio Jappelli, Mario Padula, and Luigi Pistaferri, Journal of the European Economic Association 2010.

October 15th: No class

October 17th: Steve talks about "Public Infrastructure Investment, Output Dynamics, and Balanced Budget Fiscal Rules," by Bom and Ligthart , Journal of Economic Dynamics and Control,, 40, 2014, pp 334-54 . (Update: we will not cover this one).

October 22nd: No class

October 29nd: Steve talks about "Balanced-budget rules and public deficits: evidence from the U.S. states" by Henning Bohn and Robert Inman, Carnegie-Rochester Conference Series on Public Policy, Volume 45, December 1996, Pages 13-76

Note: For the rest of the semester, talking about results and data have first priority, so the dates for the papers below means that this is the earliest we will talk about them if data talk doesn't take the whole slot. Please bring the papers to class.

October 31nd: Bent talks about "Balanced budget rules and fiscal outcomes: Evidence from historical constitutions" by Zareh Asatryan, Cesar Castellon, and Thomas Stratmann, Journal of Public Economics 167, 2018

The costs and benefits of balanced budget rules: Lessons from a politcal economic model of fiscal policy by Marina Azzimonti, Marco Battaglini, and Stephen Coate, Journal of Public Economics 136, 2016. (This is a fairly stylized model of balanced budget rules, so it will not directly help us. However, we should probably take a look at how these things are modeled in the literature. Because we are not doing theory, we will not go into details; however, we need get the gist of how these things have been modeled, so take a look at the setup.)

November 12th: Steve talks about "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics" by James Poterba, Journal of Political Economy, Volume 102, 1994, Pages 799-821.

NOTE: Extra class Friday November 16 at 4PM