UC Berkeley

This dissertation seeks to understand the determinants and effects of public policies and to understand how to use these results to improve policy. The first two parts consider government spending during recessions--the effects of the spending and how to spend most effectively.

In "Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act," my co-authors and I measure the employment effects of spending during recessions. The American Recovery and Reinvestment Act (ARRA) of 2009 included $88 billion of aid to state governments administered through the Medicaid reimbursement process. We examine the effect of these transfers on states' employment. Because state fiscal relief outlays are endogenous to a state's economic environment, OLS results are biased downward. We address this problem by using a state's pre-recession Medicaid spending level to instrument for ARRA state fiscal relief. In our preferred specification, a state's receipt of a marginal $100,000 in Medicaid outlays results in an additional 3.8 job-years, 3.2 of which are outside the government, health, and education sectors.

In "Labor Market Policy for Inefficient Job Rationing During Recessions," my co-author and I consider how to best design government spending during recessions. We consider a simple static model of labor markets during recessions where the allocation of scarce jobs to workers is resolved inefficiently. In our model, some of the unemployed have high surplus from employment (e.g., those with a mortgage, three children, and a non-working spouse), while some of the employed do not. This inefficient rationing increases the welfare costs of recessions. We propose three solutions: (i) subsidizing non-employment, (ii) taxing employees, and (iii) subsidizing employers. These policies make "space" for those who really need jobs.

In "Why Fight Secession? Evidence of Economic Motivations from the American Civil War," I turn to the determinants of government policy. I ask why governments fight secession. This paper is a case study on this question, asking why the North chose to fight the South in the American Civil War. It tests a theoretical prediction that economic motivations were important, using county-level presidential election data. If economic interests like manufacturing wished to keep the Union together, they should have generated votes to do so. That prediction is borne out by the data, and explanations other than Northern economic concerns about Southern secession appear unable to explain the results, suggesting that economic motivations were important to support for fighting the South.