Public Expenditure

Paper Session

Sunday, Jan. 8, 2017 1:00 PM – 3:00 PM

Hyatt Regency Chicago, Atlanta
Hosted By: American Economic Association
  • Chair: Andrew Hanson, Marquette University

Illuminating the World Cup Effect: Night Lights Evidence From South Africa

Fabian Wahl
,
University of Hohenheim
Gregor Pfeifer
,
University of Hohenheim
Martyna Marczak
,
University of Hohenheim

Abstract

This paper evaluates the economic impact of the 2010 FIFA World Cup in South Africa. More precisely, we examine how the large-scale public investments in preparation for the event have affected the country’s economic development. We do so by exploiting municipality and electoral district variation in night lights intensity data, which serve as a proxy for economic activity. Applying synthetic control methods to this data, we find distinct effect heterogeneity along several dimensions. While, for the average hosting municipality, we find large and positive economic effects before the tournament, such effects become insignificant in the longer run. Zooming in on respective World Cup venues, we uncover effects masked in the overall picture. We identify specific investments in transportation infrastructure, and not so much in stadiums, to have longer-lasting, positive impacts. These gains are particularly evident for smaller locations.

The Value of Revolving Doors in Brazilian Public Procurement

Stephane Straub
,
Toulouse School of Economics
Klenio Barbosa
,
Getulio Vargas Foundation

Abstract

This paper investigates the link between public officials’ experience and career path and public procurement contracts. We use a data set covering more than 2 millions procurement contracts of procurement contracts of medical supplies, hospital equipments and pharmaceuticals organized by Brazilian public bodies over 10 years, together with a comprehensive data set tracing individual job experience and characteristics of all public and private formal employees in the country since 1998, to identify how career paths of individuals involved as purchase administrators or working for private providers determine procurement outcomes: total amount and number of contacts, transacted volume and acquisition prices. We are particularly looking at so called “revolving door” issues. We analyze career changes in two directions. Officials may work first for a public body and then join a private supplier. Alternatively, officials may work first for a private supplier before joining a public body. We uncover positive and negative effects of revolving door on the efficiency of procurement, which are consistent with both possible collusion, and reward for high-skill workers stories, and conclude that stronger monitoring effort by public officials seeking to signal competence on the job leads to better outcomes for the society, while lenient or collusive behavior in the form of decreased monitoring effort leads to the opposite. In practice, we find that effects of administration-to-supplier connections are beneficial to public bodies, while effects of supplier-to-administration ones are detrimental. These results point to specific policy implications related to the tolerance of revolving door practices.

Risky Schooling? K-12 Funding Over the Business Cycles

Christopher Biolsi
,
Office of Management and Budget
Steven G. Craig
,
University of Houston
Amrita Dhar
,
University of Mary Washington
Bent E. Sorensen
,
University of Houston

Abstract

Is school funding insured against business cycle shocks or are students attending school in booms advantaged over their peers that attend school in downturns? We study the sensitivity of funding to the economic conditions of the county and the state and we examine if states insure school districts against county-level income shocks.<br /><br />
We find that there is perfect risk sharing between school districts within a given state, as state governments increase transfers to local school districts when a shock to local personal income generates a fall in locally raised revenue. However, local school districts are exposed to state income shocks. The sensitivity of school spending is heterogeneous according to the specific funding formula employed by the state. We formulate a model to interpret these empirical results, in which the behavior of local school districts and state governments is governed by relative levels of risk aversion over spending on education and all other private and public spending. We take the model to the data to directly estimate these risk aversion parameters and we examine whether states' education funding formulae systematically impact on expenditure smoothing over time to the degree that it can be captured by model's risk aversion parameters.

Resource Transfers to Local Governments: Political Manipulation and Voting Patterns

Anusha Nath
,
University of Minnesota
Dilip Mookherjee
,
Boston University
Pranab Bardhan
,
University of California-Berkeley
Sandip Mitra
,
Indian Statistical Institute

Abstract

This paper examines how electoral competition in parliamentary constituencies affects allocation of resources to local governments and its subsequent impacts on voter behavior. Using data from India, we examine the consequences of treating the 2007 redistricting of electoral boundaries in rural West Bengal as a shock to political competition between the Left Front (LF) and Trinamool Congress (TMC) in the parliamentary constituency. In our sample of 89 villages, 21 were redistricted by a non-partisan Election Commission to a different constituency. Using electoral victory margins in the previous 2004 election as a measure of political competition, we find that resources transferred by LF-controlled district governments to LF-dominated village governments for citizen benefit programs increased significantly if moved to an electoral constituency where the LF was in a weaker competitive position. These changes in benefit flows help predict corresponding changes in vote shares, consistent with the view that resource transfers to GPs were motivated by electoral considerations. Stronger changes were exhibited for recurring private benefits (mainly employment program (NREGA) funds) compared to one-time private benefits and local public goods (water, housing, roads, BPL cards). The evidence is consistent with models of electoral opportunism based on pork-barrel politics and/or clientelistic relational contracts between parties and voters, particularly the latter.

Schools and Stimulus

M. Saif Mehkari
,
University of Richmond
Bill Dupor
,
Federal Reserve Bank of St. Louis

Abstract

This paper analyzes the impact of the education funding component of the 2009 American Recovery and Reinvestment Act (the Recovery Act) on public school districts. We use cross-sectional differences in district-level Recovery Act funding to investigate the program's impact on staffing, expenditures and debt accumulation. To achieve identification, we use exogenous variation across districts in the allocations of Recovery Act funds for special needs students. We estimate that $1 million of grants to a district had the following effects: expenditures increased by $570 thousand, district employment saw little or no change, and an additional $370 thousand in debt was accumulated. Moreover, 70% of the increase in expenditures came in the form of capital outlays. Next, we build a dynamic, decision theoretic model of a school district's budgeting problem, which we calibrate to district level expenditure and staffing data. The model can qualitatively match the employment and capital expenditure responses from our regressions. We also use the model to conduct policy experiments.
JEL Classifications
  • H5 - National Government Expenditures and Related Policies