Empirics of policy reforms in public economics

1. The state decision to seek welfare waivers: Did social distance play a role? State welfare waivers during the early 1990's and the federal Personal Responsibility and Work Opportunity Reconciliation Act in 1996 (PRWORA) are the most dramatic reforms in the history of the AFDC program. However, our understanding of why this major shift in welfare policy occurred is limited. Robert Moffitt and Erzo Luttmer both conclude that as social distance between donors and recipients increases, the public will withdraw support for AFDC. Using event history analysis of annual state-level panel data, this paper measures the role of social distance in recent welfare reform efforts. Specifically, I test whether social distance was a motivating factor in state welfare waiver reforms prior to the PRWORA. I find racial distance was an unlikely contributor, while the incidence of never-married parenthood strongly increased the probability of reform. The size of the AFDC caseload is also tied to welfare reform, suggesting that prior estimates of the impact of welfare waivers on the AFDC caseload may be biased as a result of the endogeneity of waiver policies.;2. The impact of welfare waivers on the AFDC caseload: Can waivers be treated as exogenous? State welfare waivers during the early 1990's and the federal Personal Responsibility and Work Opportunity Reconciliation Act in 1996 (PRWORA) are the most dramatic changes in the history of the AFDC program. Given that these reforms may represent the future direction of welfare policy in the US, the crucial question for researchers and policymakers is, "What has welfare reform accomplished?" The early literature measured the impact of waivers on the AFDC caseload while controlling for a strong macro-economy. It has been suggested that ordinary least squares (OLS) estimates of this waiver effect could be biased as a result of the endogeneity of waiver policies. This paper employs political variables as instruments to re-estimate the waiver effect using two-stage least squares (TSLS). I find that controlling for the endogeneity of waivers yields substantially larger estimates of the impact of welfare reform on the AFDC caseload. This suggests that estimated waiver effects that fail to account for the endogeneity of the state decision to adopt waivers should be interpreted cautiously. However, because of the extreme magnitude of the TSLS estimates, estimated waiver effects that correct for policy endogeneity using instrumental variables (IV) should also be interpreted cautiously. These results illustrate the many problems associated with trying to correct for policy endogeneity in empirical research. In particular, this analysis provides only mixed support for using IV techniques as a universal remedy in such situations.;3. The efficiency gains from agricultural land tax reform: England 1836--1855. The theoretical efficiency advantages of land site value taxation have been known since at least the time of Adam Smith. However, the practical gains from switching land taxation to this basis have never, to my knowledge, been measured. The Tithe Commutation Act of 1836 in England switched taxation of large areas of farmland from a tax on gross output to an equivalent lump sum tax on the site value of land. I estimate the rent gains from the reform between 1836 and 1855 using data from 5,422 English parishes. I show that converting the tax to a lump sum basis raised rents by £0.65 for every £1 of tax collected. While some of these rent gains may have stemmed from increased investment by landlords in fixed capital such as buildings rented with the land, we argue that the majority of this increase must have represented efficiency gains. Thus the excess burden of the tithe was substantial.