Essays in public economics
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This dissertation empirically investigates three areas of public economics related to tax policy. The first chapter estimates the pass-through of child care tax credits. Child care tax credits are intended to relieve the financial burden of child care expenses for working families, yet the benefit incidence may fall on child care providers if they increase prices in response to credit generosity. Using policy-induced variation in the Child and Dependent Care Credit and multiple datasets in both difference-in- differences and instrumental variable frameworks, I find evidence of substantial pass-through: around $0.75 of every dollar is passed through to providers in the form of higher prices and wages. Robustness checks support the conclusion that the bulk of credits are crowded out by increased prices. Furthermore, the relative inelasticity of child care suppliers implies that increased non-refundable credit generosity may have the unintended effect of making child care less affordable for low-income families, though the magnitude of this effect may be tempered by heterogeneous pass-through rates. The second chapter examines how the availability of tax deductions affects charitable giving behavior. Since 2004, American households have been able to deduct state and local sales taxes on their federal tax returns; previously, only state and local income taxes were deductible. Exploiting variation in state financing and deductibility over time induced by the law change in a difference-in-differences framework, I investigate how an additional deduction category impacts the decisions of whether to give to charity (extensive margin) and of how much to give. Giving at the extensive margin decreased 3 percentage points and the amount donated decreased 11% after the introduction of the sales tax deduction. These findings suggest that charitable giving is not only sensitive to the tax price of giving but also to the presence of alternative deduction categories. The third chapter investigates the sensitivity of lottery sales to a withholding tax on gambling winnings. Legalized gambling is a popular source of tax revenue in the United States; however, the ability to increase tax revenue through higher tax rates is limited by the presence of non-taxable and cross-border substitutes. In July 2009, New Hampshire introduced a 10% withholding tax on gambling winnings. Using a novel dataset in a difference-in-differences framework, I document significant reductions in NH lottery sales and estimate a price elasticity well in excess of -1. The tax was repealed in May 2011, after which I document a large rebound in sales. The response is consistent with informed choice by consumers, and larger changes in border areas provide evidence of cross-border shopping.