Essays on public finance and health economics

Cui, Can, Ph. D.
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This dissertation examines several questions in public finance, including health care, workers' compensation program, and tax rebates. The first chapter, entitled, "Financial Incentives and Physicians’ Behavior: Evidence from Texas Workers’ Compensation Medical Claims", examines whether financial incentives influence the quantity and composition of medical care provided by physicians. I study this question by leveraging an administrative change in the maximum allowed reimbursement rates for surgical services performed in a hospital setting for Texas Workers' Compensation medical claims. I document evidence of strong substitution in the location of care, indicating that many surgical services can be provided in either a hospital or office setting. I find that the 2% increase in surgical services provided in a hospital setting in response to this reform is fully offset by reduced utilization in an office setting. I also find that nonsurgical services performed in a hospital increased in response to the reform, suggesting surgical and nonsurgical services are complements with respect to physician financial incentives. More generally, my results suggest that the location of care is responsive to financial incentives, and an optimal payment policy should account for substitution along this margin. The second chapter, entitled "Cash-on-Hand and Demand for Credit", examines the effect of tax rebates on demand for small dollar credit loans. Subprime consumers often use small dollar credit to meet short-term financial needs over pay cycles. However, relatively little is known about the income sensitivity of demand for credit in this market. This chapter provides a causal estimate of the effect of tax rebates on the demand for small dollar credit, using shocks from the Earned Income Tax Credit (EITC) benefits and a unique proprietary loan-level dataset. The results show that a $100 increase in EITC benefits leads to a 8.3% in the number of loan applications and a 6.6% reduction in the number of borrowers. This could translate into sizable reductions in loan volume and savings in financial charges. The estimates are robust to various specifications checks. The results further indicate that EITC recipients are liquidity constrained. More broadly, the results suggest that public programs with income benefits could help recipients with consumption smoothing in the presence of credit market frictions. The third chapter, entitled "Take-up of Workers' Compensation Insurance in Texas", is coauthored with Marika Cabral and Michael Dworsky. This chapter examines how employers choose to provide benefits for their workers. Workers' compensation program is a large government program which provides monetary and medical benefits to injured workers. Texas is currently the only state that allows voluntary participation. Using difference-in-differences variation in regulated manual premium, this paper empirically analyzes employers' take-up of workers' compensation insurance coverage. We find that 10% increase in regulated premium reduces the number of covered firms by 2%, with similar effect on covered payroll.