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on Public Economics |
| By: | Findeisen, Sebastian (University of Mannheim); Sachs, Dominik (University of Cologne) |
| Abstract: | We analyze optimal taxation of labor and capital income in a life-cycle framework with idiosyncratic income risk. We provide a novel decomposition of labor income tax formulas into a redistribution and an insurance component. The latter is independent of the social welfare function and determined by the degree of income risk and risk aversion. The optimal linear capital tax is non-zero and trades off redistribution and insurance against savings distortions. Our quantitative results reveal that the insurance component contributes significantly to optimal labor tax rates and provides an informative lower bound on optimal taxes: even for welfare functions that do not value redistribution, marginal tax rates are positive for all income levels. Optimal capital taxes are significant and yield sizable welfare gains; in particular if labor income taxes are suboptimal. |
| Keywords: | optimal taxation, capital taxation, redistribution, insurance |
| JEL: | H21 H23 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9123&r=pbe |
| By: | Sarah Godar; Christoph Paetz; Achim Truger |
| Abstract: | The trend of increasing inequality in the distribution of income and wealth in most developed countries has led to calls for corrective tax increases for the rich and wealthy. Such calls are often confronted with the claim that higher taxes on top personal incomes, corporate income and wealth are detrimental to growth and employment and/or will foster tax avoidance. This paper argues that even the dominating theoretical framework leaves substantial leeway for redistributive taxation. Furthermore, from a Keynesian macroeconomic perspective redistribution may even be systematically conducive to growth and employment. At the same time a change towards such a policy of redistribution may for some economies, particularly the German one, well be the prerequisite for compliance with the European Fiscal Compact if an increase of the macroeconomic imbalances that have come to be seen as a root cause of the global financial and economic crisis 2008/2009 and also the Euro crisis by many observers is to be avoided. Therefore, besides attempts at international tax coordination and harmonisation, national tax policies should actively use their room of manoeuvre for progressive taxation to correct the disparities in the income distribution and at the same time to increase the fiscal space. |
| Keywords: | Macroeconomic effects of taxation, redistribution and macroeconomic performance, macroeconomic imbalances |
| JEL: | E62 H23 E21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:150-2015&r=pbe |
| By: | Michael P. Devereux; Giorgia Maffini; Jing Xing |
| Abstract: | This paper examines how companies’ capital structure is affected by the corporate income tax system. Our analysis employs confidential company-level corporation tax return data in the UK. Our main identification strategy is based on variation in companies⣠marginal tax rates due to the existence of kinks in the corporate tax rate schedule. Using a dynamic adjustment model of capital structure, we find a positive and substantial long-run tax effect on companies' financial leverage. We show that there are considerable discrepancies between estimates of taxable profits reported in tax return data and in financial statements and that the estimated tax effect on capital structure using financial statements is likely to be biased downward. We find that companies adjust their capital structures gradually in response to changes in the marginal tax rate. Moreover, we find that the external leverage of domestic stand-alone companies and of multinational companies responds strongly to corporate tax incentives. |
| Keywords: | Corporate taxation, capital structure, tax returns. |
| URL: | http://d.repec.org/n?u=RePEc:don:donwpa:076&r=pbe |
| By: | Enrique G. Mendoza (University of Pennsylvania and NBER); Linda L. Tesar (University of Michigan and NBER); Jing Zhang (Federal Reserve Bank of Chicago) |
| Abstract: | What are the macroeconomic effects of tax adjustments in response to large public debt shocks in highly integrated economies? The answer from standard closed-economy models is deceptive, because they underestimate the elasticity of capital tax revenues and ignore cross-country spillovers of tax changes. Instead, we examine this issue using a two-country model that matches the observed elasticity of the capital tax base by introducing endogenous capacity utilization and a partial depreciation allowance. Tax hikes have adverse effects on macro aggregates and welfare, and trigger strong crosscountry externalities. Quantitative analysis calibrated to European data shows that unilateral capital tax increases cannot restore fiscal solvency, because the dynamic Laffer curve peaks below the required revenue increase. Unilateral labor tax hikes can do it, but have negative output and welfare effects at home and raise welfare and output abroad. Large spillovers also imply that unilateral capital tax hikes are much less costly under autarky than under free trade. Allowing for one-shot Nash tax competition, the model predicts a "race to the bottom" in capital taxes and higher labor taxes. The cooperative equilibrium is preferable, but capital (labor) taxes are still lower (higher) than initially. Moreover, autarky can produce higher welfare than both Nash and Cooperative equilibria. |
| Keywords: | fiscal austerity, tax, public debt |
| JEL: | E6 E62 F34 F42 H6 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:644&r=pbe |
| By: | Richard Fabling; Richard Kneller; Lynda Sanderson (The Treasury) |
| Abstract: | This paper examines firm-level investment responses to exogenous changes in the forward looking user cost of capital associated with reforms to the corporate and personal tax system over the last decade. Adjustments to personal tax rates and fiscal depreciation allowances provide a direct lever through which government policy can affect the cost of capital faced by firms. The effect of these tax adjustments differs across firms according to their asset structure, providing both inter-temporal and inter-firm variation in UCCs and enabling an assessment of the short-run impact of UCC changes on investment behaviour. This analysis shows that while tax-induced changes in the UCC have significantly affected investment behaviour among some firms, the aggregate impacts are likely to have been negligible as the industries in which investment impacts are observed make a very small contribution to aggregate investment. |
| JEL: | D22 H20 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:15/05&r=pbe |
| By: | Stéphane Gauthier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Fanny Henriet (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics) |
| Abstract: | We provide a necessary condition for optimal commodity taxes when agents differ according to labor skill and consumption tastes and when the government can also use a general nonlinear tax on labor income. The discouragement index of commodities in shown to be the sum of (1) the distributive factors over the different income classes and (2) the excess demand of mimickers. The first component arises whenever there is taste heterogeneity within income classes. The second one arises whenever there is taste heterogeneity between income classes. In an empirical application from Canadian microdata we delineate groups of households with homogeneous tastes based on nonviolation of revealed preferences. Assuming that indirect taxes are set optimally, we identify the relevant incentive constraints and provide estimates for social values of the different groups. Redistribution from indirect taxes favors households living in rural Quebec. |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01164011&r=pbe |
| By: | Pablo Hernández de Cos (Banco de España); Enrique Moral-Benito (Banco de España) |
| Abstract: | In an influential paper, Devries et al. (2011) construct narrative series of tax- and spending-based fiscal adjustments for a panel of OECD countries. In this paper, we find that the adjustments based on spending cuts can be predicted on the basis of past output growth and other macroeconomic variables. Moreover, we illustrate that this source of endogeneity may generate significant differences in the estimated multipliers. |
| Keywords: | fiscal adjustment, fiscal multiplier |
| JEL: | H60 E62 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1516&r=pbe |
| By: | Kumar, Sudhanshu (National Institute of Public Finance and Policy); Rao, R. Kavita (National Institute of Public Finance and Policy) |
| Abstract: | This paper presents an empirical model for minimising selection failure by tax departments in selecting cases for scrutiny assessment. This model also provides a new methodology for estimating tax gap from limited information that the department collects on a regular basis through scrutiny assessments. Using a maximum-likelihood procedure that corrects for sample selection bias, and the data on the scrutiny assessment exercise carried out by the income tax department, we estimate the model which relates the probability and extent of under-reporting to various inputs provided by the tax filer. The estimated model provides a mechanism to analyse the trade-off between two types of cases of failure - wrong selection of a case and failure to take up the potential underreporter. |
| Keywords: | Selection Failure ; Tax Gap |
| JEL: | C52 H26 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:15/150&r=pbe |
| By: | Dagsvik, John K; Montobbio, Fabio; Locatelli, Marilena; Soldani, Emilia; Strøm, Steinar (University of Turin) |
| Abstract: | We show how a neoclassical labor supply model with optimal decisions for labor force participation and hours of work, derived from first order conditions, can be taken to data even in the presence of a step-wise linear progressive tax system which may imply non-convex budget sets. The estimated model is used to simulate the optimal behavior when the tax system of 2001 is replaced by the less progressive tax system of 2006. The latter tax system implies a lower labor market participation among married women in Norway, a higher working load, given participation, and a more uneven distribution of household income. |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:201523&r=pbe |
| By: | Griffith, Rachel; Nesheim, Lars; O'Connell, Martin |
| Abstract: | Random utility models are widely used to study consumer choice. The vast majority of applications make strong assumptions about the marginal utility of income, which restricts income effects, demand curvature and pass-through. We show that flexibly modeling income effects can be important, particularly if one is interested in the distributional effects of a policy change, even in a market in which, a priori, the expectation is that income effects will play a limited role. We allow for much more flexible forms of income effects than is common and we illustrate the implications by simulating the introduction of an excise tax. |
| Keywords: | compensation variation; demand estimation; income effects; oligopoly; pass-through |
| JEL: | H20 L13 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10670&r=pbe |
| By: | Jorge Martinez-Vazquez; Santiago Lago-Peñas; Agnese Sacchi |
| Abstract: | In this paper we offer a comprehensive and updated review of the impact of fiscal decentralization on the economy, society and politics. We start with the examination of two crucial and yet unsolved issues in the literature on decentralization: its proper measurement and the potential endogeneity of fiscal decentralization with many of the variables of interest we are trying to investigate. Then we discuss the main findings in the existing literature on the effects of decentralization on a relevant list of socio-economic variables. The impact of fiscal decentralization reforms on political institutions is also considered. Complete answers to the many questions on the impact of fiscal decentralization are not likely to be certain but overall there are reasons to be optimistic about the overall positive impact of the decentralized systems that have been introduced all over the world in the past several decades. The survey offered in this paper by necessity has to be selective but it presents a balanced view of what is known and what is not yet known opening room for further research and practice on fiscal decentralization. |
| Keywords: | Fiscal federalism, governance, political decentralization, sub-national governments, macroeconomic stability, economic growth, public policies, politics, corruption, regional disparities, inequality. |
| JEL: | H70 H72 H77 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:gov:wpaper:1505&r=pbe |
| By: | Gimpelson, Vladimir (CLMS, Higher School of Economics, Moscow); Treisman, Daniel (University of California, Los Angeles) |
| Abstract: | Since Aristotle, a vast literature has suggested that economic inequality has important political consequences. Higher inequality is thought to increase demand for government income redistribution in democracies and to discourage democratization and promote class conflict and revolution in dictatorships. Most such arguments crucially assume that ordinary people know how high inequality is, how it has been changing, and where they fit in the income distribution. Using a variety of large, cross-national surveys, we show that, in recent years, ordinary people have had little idea about such things. What they think they know is often wrong. Widespread ignorance and misperceptions of inequality emerge robustly, regardless of the data source, operationalization, and method of measurement. Moreover, we show that the perceived level of inequality – and not the actual level – correlates strongly with demand for redistribution and reported conflict between rich and poor. We suggest that most theories about political effects of inequality need to be either abandoned or reframed as theories about the effects of perceived inequality. |
| Keywords: | inequality, income distribution, biased perceptions, preferences for redistribution |
| JEL: | D31 D63 D83 H24 H54 I30 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9100&r=pbe |
| By: | Tan, Yong; An, Liwei; Hu, Cui |
| Abstract: | In this paper, we extend the model of Melitz (2003) to separate the direct and indirect impact of an export tax rebate on the intensive margin of firm-level export sales at the sub-national level. The direct impact of the rebate is associated with a reduction of an exporting firm’s variable costs, while the indirect impact manifests itself through higher regional wages as a result of increased demand for local labor. First, the empirical results imply that a 1% rise in the export tax rebate rate increases the export sales among continuing exporters by 0.4% through the direct channel. Second, the same rebate increase reduces export sales among continuing exporters by 0.02% through indirect channel. Both effects are statistically significant, and are consistent with the model's predictions. |
| Keywords: | Export Tax Rebate, Regional Labor Market, Direct Impact, Indirect Impact |
| JEL: | D22 F10 F14 L10 |
| Date: | 2015–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65188&r=pbe |
| By: | Thierry Betti; Thomas Coudert |
| Abstract: | We develop a new-Keynesian model with a two-sector search and matching labor market framework. We investigate the first and second order effects of fiscal policy on labor market and on output. The model includes four fiscal instruments: a labor income tax, a social protection tax paid by firms, public wage and public vacancies. First-order simulations of the model indicate that whatever instrument is used, fiscal expansion significantly increases total employment and reduce unemployment. We explicit the different transmission channels at work. The main contribution is to use a second-order approximation of the model to investigate the effects of fiscal shocks for two states of the economy: a low unemployment state (6%) and a high unemployment state (12%). For the four fiscal instruments, response of employment is greater when the steady-state unemployment rate is high. We also emphasize a new channel for explaining a larger output fiscal multiplier in periods of economic downturn: the wage channel that plays a crucial role for explaining the non-linear effects of fiscal policy. |
| Keywords: | Labor Market Search, Wage Bargaining, PublicWage, Business Cycle, Fiscal Policy, Second Order. |
| JEL: | E62 J38 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2015-16&r=pbe |
| By: | Miles Workman (The Treasury) |
| Abstract: | Indicators of the structural fiscal balance help inform assessments of the sustainability of fiscal settings and identify shifts in discretionary fiscal policy. The Treasury’s headline structural fiscal balance indicator – the cyclically-adjusted balance (CAB) – is estimated by removing the cyclical component of the budget balance from the government’s operating balance. The cyclical component is estimated by adjusting for fluctuations of actual GDP around potential GDP via the output gap. However, this approach does not take account of the composition of GDP. A boom in domestic demand – an absorption boom – will have a more pronounced impact on fiscal revenues than a boom driven by external demand (ie, net exports). This is because some components of demand are more “tax rich” than others. In particular, indirect tax revenues are closely linked to domestic demand rather than output. This paper documents the nature of the absorption cycle in New Zealand and then quantifies its effect on fiscal revenues by estimating a new structural fiscal balance indicator – the cyclically- and absorption-adjusted balance (CAAB) – over the period 1997- 2019. This indicator extends the existing CAB by adjusting for deviations in the level of domestic absorption from its long-run equilibrium level, which is in turn derived with reference to estimates of the long-run equilibrium current account balance. The estimated absorption adjustment on New Zealand’s structural fiscal balance is up to 0.4 percent of GDP. This adjustment is reasonably material given conventional cyclical adjustments average 0.5 percent of GDP for New Zealand. |
| JEL: | E62 H62 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:15/09&r=pbe |
| By: | Jappelli, Tullio; Padula, Mario |
| Abstract: | In 2000 Italy replaced its traditional system of severance pay for public employees with a new system. Under the old regime, severance pay was proportional to the final salary before retirement; under the new regime it is proportional to lifetime earnings. This reform entails substantial losses for future generations of public employees, in the range of €20,000-30,000, depending on seniority. Using a difference-in-difference framework, we estimate the impact of this unanticipated change in lifetime resources, on the current consumption and wealth accumulation of employees affected by the reform. In line with theoretical simulations, we find that each euro reduction in severance pay reduces the average propensity to consume by 3 cents and increases the wealth-income ratio by 0.32. The response is stronger for younger workers and for households where both spouses are public sector employees. |
| Keywords: | Severance Pay,Consumption,Wealth Accumulation |
| JEL: | D12 D91 E21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:507&r=pbe |
| By: | Piotr Ciżkowicz; Andrzej Rzońca; Rafał Trzeciakowski |
| Abstract: | We estimate various panel fiscal reaction functions, including those of the main categories of general government revenue and expenditure for the 12 Euro area member states over the 1970-2013 period. We find that in the peripheral countries where sovereign bond yields decreased sharply in the years 1996-2007, fiscal stance ceased to respond to sovereign debt accumulation. This was due to the lack of sufficient adjustment in the government non-investment expenditure and direct taxes. In contrast, in the core member states, which did not benefit from the yields’ convergence related to the Euro area establishment, responsiveness of fiscal stance to sovereign debt increased between 1996 and 2007. This was achieved mainly through pronounced adjustments in the government non-investment expenditure. Our findings are in accordance with the predictions of the theoretical model by Aguiar et al. (2014) and are robust to various changes in the modelling approach. |
| Keywords: | fiscal reaction function, sovereign bond yields’ convergence, fiscal adjustment composition |
| JEL: | C23 E62 F34 H63 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:203&r=pbe |
| By: | Corneo, Giacomo; Schröder, Carsten; König, Johannes |
| Abstract: | We empirically investigate the distributional consequences of the Riester scheme, the main private pension subsidization program in Germany. We find that 38% of the aggregate subsidy accrues to the top two deciles of the population, but only 7.3% to the bottom two. Nonetheless the Riester scheme is almost distributionally neutral when looking at standard inequality measures. This is due to two offsetting effects: a progressive one stemming from the subsidy schedule and a regressive one from voluntary participation. Regressions of the participation decision suggest that a high level of household wealth significantly increases the probability of benefiting from the Riester scheme. |
| Keywords: | saving subsidies,retirement plans,income distribution |
| JEL: | D31 H55 J32 D14 I38 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201518&r=pbe |
| By: | Vítor Castro (Faculty of Economics, University of Coimbra, and NIPE, Portugal); Rodrigo Martins |
| Abstract: | This paper examines the presence of political cycles in Portuguese governments’ expenditures. The empirical analysis is done using monthly data for the main categories of government expenditures. The results indicate that Portuguese governments act opportunistically regarding the budget surplus and that they also favour capital instead of current spending near elections. Furthermore, right-wing governments tend to be more prone to expenditures’ reduction and deficits after the elections. A disaggregated analysis for the main components of government expenditures corroborates the previous findings and shows other relevant patterns of political manipulations. |
| Keywords: | Political budget cycles; Expenditure composition; Portugal; Elections; Fiscal policy. |
| JEL: | H72 D72 D78 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2015-13.&r=pbe |
| By: | Francesco Decarolis; Maria Polyakova; Stephen P. Ryan |
| Abstract: | The efficiency of publicly-subsidized, privately-provisioned social insurance programs depends on the interaction between insurer behavior and public subsidies. We study this interaction within Medicare Part D Prescription Drug Plan (PDP) markets. Using a structural model of supply and demand, we find: consumers purchase too few and too socially-costly PDP plans; insurers price near marginal cost; the primary driver of welfare is the opportunity cost of government spending on other Medicare programs; and the current subsidization policy achieves a level of total welfare close to that obtained under an optimal in-kind subsidy, but is far from the social planner's first-best solution. |
| JEL: | H2 H4 I11 I18 L1 L2 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21298&r=pbe |
| By: | Naci H. Mocan; Luiza Pogorelova |
| Abstract: | We use micro data from the European Social Survey to investigate the impact of “culture of leisure” and taxes on labor force participation and hours worked of second-generation immigrants who reside in 26 European countries. These individuals are born in Europe, and they have been exposed to institutional, legal and labor market structures of their countries, including the tax rates. Fathers of these individuals are first-generation immigrants who migrated from 81 different countries. We construct measures of “taste for leisure” in the country of origin of each immigrant father. We employ average and marginal taxes for each country of residence, and control for a large set of individual characteristics, in addition to attributes of the country of residence and country of ancestry. The results show that for women, both taxes and culture of leisure impact participation and hours worked. For men, taxes influence labor supply both at the intensive and the extensive margins, but culture of leisure has no impact. |
| JEL: | H2 J22 J61 Z1 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21297&r=pbe |
| By: | Bernecker, Andreas (University of Mannheim); Boyer, Pierre C. (University of Mannheim); Gathmann, Christina (Heidelberg University) |
| Abstract: | We study the political economy of policy innovations during the U.S. welfare reform in 1996. Specifically, we investigate how reputation concerns among governors influence the decision to experiment with welfare policies. In line with a political agency model, our empirical results suggest that governors with high reputation among the electorate are less likely to experiment with welfare policies than governors with low reputation. Yet, governors with high reputation who are less concerned about reelection actually experiment more than governors striving for reelection. Overall, our findings imply that reelection concerns may inhibit innovation in the public sector. |
| Keywords: | policy innovation, reputation concerns, U.S. welfare reform, experimentation, reelection concerns |
| JEL: | I38 H11 H77 D78 D83 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9113&r=pbe |
| By: | Shin, Inyong |
| Abstract: | We have analyzed the effect of a pension system on life expectancy and happiness level using a cross country data and an optimal dynamic problem of individuals who live in continuous and finite time. From the data and the optimization problem, we have found the following; 1) happiness can be almost explained by income per capita, 2) depending on the level of income per capita, the pension system can make lifespan longer or shorter and can raise or reduce the level of happiness, 3) the extension of lifespan without the income support may not always make our happiness higher, 4) under government budget constraint, even though pension system can make the lifespan longer, pension system cannot make the happiness level higher and can rather raise problems for aging population. The public pension system, which is a compulsory saving, can crowd out the private savings and can prevent individual's utility maximization. This paper suggests that it is not always true that the pension system improves happiness level and that it may be necessary for us to reconsider about the reason for existence of the compulsory pension. |
| Keywords: | pension system, optimized life expectancy, lifetime utility level, health investments |
| JEL: | C61 H55 I31 |
| Date: | 2015–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65116&r=pbe |
| By: | Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Marcin Waniek (University of Warsaw) |
| Abstract: | We propose a politically feasible instrument for a nearly optimal transition from a pay-as-you-go to a funded scheme in a defined contribution pension system. It consists of compensating the transition generations in the form of pension benefits indexation more generous than would have prevailed in a clean DC system. Thus, this instrument allows to smoothen the welfare costs of transition over future generations via some small implicit debt. Our instrument proves robust to a number of parametric and modeling choices. |
| Keywords: | defined contribution, pay-as-you-go, pre-funded, pension system |
| JEL: | H55 E17 C60 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2015-22&r=pbe |
| By: | Justine Hastings; Christopher A. Neilson; Seth D. Zimmerman |
| Abstract: | We test the impact of information about institution- and major-specific labor market outcomes on college enrollment decisions using a randomized controlled trial administered within the online Chilean federal student loan application process. Using linked secondary and post-secondary education records and tax returns for fourteen cohorts of Chilean high school graduates, we created measures of past-cohort earnings for nearly all institution and major combinations in the Chilean higher education system. Applicants were asked a series of survey questions about their enrollment plans and their beliefs about earnings and cost outcomes. Following the survey questions, randomly selected applicants were given information on earnings and costs for past students at their planned enrollment choices, as well as access to a searchable database that allowed them to compare earnings and costs across degrees. Students have unbiased but highly variable beliefs about costs, and upward-biased beliefs about earnings outcomes. Poorer students have less accurate information and choose lower-earning degrees conditional on baseline ability and demographics. While treatment has no effect on whether students enroll in postsecondary education, it does cause low-SES students to enroll in degrees where earnings net of costs were higher for past enrollees. Though effect sizes are small, they substantially exceed the cost of implementing the disclosure policy. |
| JEL: | H0 H52 I22 I23 I24 J3 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21300&r=pbe |