“Optimal Fiscal Limits with Overrides” (with Stephen Coate), June 2019, Journal of Public Economics
Abstract: This paper studies optimal fiscal limits in the context of a simple political economy model. A politician chooses the level of taxation for a representative citizen but is biased in favor of higher taxes. A constitutional designer sets a tax limit before the citizen's preferred level of taxation is fully known. The politician is allowed to override the limit with the citizen's approval. The paper solves for the optimal limit and explains how it is impacted by the possibility of overrides. The paper also shows that the citizen's welfare can be enhanced if the designer imposes a limit on the politician's override proposals.
Abstract: While primarily publicly funded government entities, most public school districts receive private donations. I estimate how local school taxes crowd out private, voluntary contributions to public education. To do this, I exploit quasi-experimental variation in tax revenue stemming from local elections. I collect data from a large set of referenda in which local taxes face voter approval in four Midwestern states, combined with administrative records of the sources of school district revenues. Using a regression discontinuity design around voting thresholds that determine passage of local referenda, I show that private contributions to public school systems are not crowded out by local taxes. I can reject that a one dollar increase in taxes causes more than approximately a 1.5 cent decrease in private contributions.