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2022 Working Papers

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1443 - Satisfaction and the potentially misleading power of counter-factual reasoning: a field study set before, during and after the COVID-19 lockdown

Thomas Martin & Daniel Sgroi

Does imagining what life could have been in the absence of a shock change current satisfaction? To answer this we collect field data through a survey that covers the period before, during and after the COVID-19 lockdown, exploiting the features of a natural experiment combined with induced variation stemming from a randomized control trial (RCT). Our data covers first year students studying before the COVID-19 pandemic, during the full COVID-19 lockdown period, and during the partial COVID-19 lockdown period. The RCT directs a subset of students to imagine how satisfied they could have been in the absence of COVID-19. The control group are instead asked about their current satisfaction. We find that imagining life in the absence of a shock (COVID-19) can impact current satisfaction : the higher individuals think their satisfaction would have been in the absence of the shock, the lower their current satisfaction. However, the natural experiment component of our study suggests that counterfactual reasoning may mislead. By comparing the satisfaction of COVID-19 students asked to imagine university life without COVID-19, with the reported satisfaction of equivalent students just before the arrival of COVID-19, we show students typically over-exaggerate how satisfied they would have been if a negative shock had not happened.

1438 - Yardstick Competition in the Digital Age : Unveiling New Networks in Tax Competition

Ben Lockwood, Francesco Porcelli, Michela Redoano & Antonio Schiavone

We exploit a data disclosure project by the Italian government (OpenCivitas) which allowed mayors to view each other’s detailed expenditure data through a dedicated website. We interpret views on the website as generating a directed network. Mayors in the network are on average younger, more educated, they are more likely to come from larger cities which more often are in the northern regions and are more likely to be affliated to traditional parties, although populist parties usually rely more on the web for communication and political activities. Using directed dyadic models we find that mayors tend to form links with mayors of similar age who manage similar-sized cities and most often in their same region. However, links are more likely to be formed when mayors don’t share the same gender, education and party affliation. Mayors in this network do not engage in yardstick competition with neighbouring municipalities while all the other mayors do, and rather compete with each other, despite the physical distance. We show that this network existed before the website opened, but we find that after data disclosure yardstick competition within the network becomes strongly driven by mayors who are up for re-election. This was not the case before data disclosure. For the other municipalities, yardstick competition between neighbours remains uncorrelated with mayors’ term limits.

1411 - Natural Disasters and Local Government Finance : Evidence from Typhoon Haiyan

Joseph Capuno, Jose Corpuz & Samuel Lordemus

This paper examines how natural disasters affect low public nances and their interplay with intergovernmental transfers and external resources. We document the causal effect of a natural disaster on the allocation of local public resources the local government fiscal dynamics by exploiting the random nature of the 2013 Typhoon Haiyan, one of the most devastating natural disasters in recent history. Combining data on local government nance with reports on the level of damages caused by the typhoon, we employ several estimation strategies: we first rely on difference-in-differences and event study designs, and we further address a potential endogeneity concern by instrumenting the intensity exposure to the typhoon with distance to the storm path. We show that local revenue and public expenditures remain largely unaffected, except debt service, which are on average 15% lower in affected cities or municipalities. However, we document important heterogeneity in local revenue responses. We find no support for the moral hazard problem : our results indicate that external aid leads to higher local expenditures, particularly general public services, socioeconomic expenditures, including education and social services, and debt payments. These results highlight the crucial role of central government transfers in supporting local governments and mitigating the geographical economic disparities in the aftermath of exogenous shocks such as natural disasters.

1410 - Awarding gaps in higher education by ethnicity, schooling and family

Gianna Boero, Brian Karanja, Robin Naylor and Tammy Thiele

Previous research has established that undergraduate students in the UK who had attended private schools perform less well at university, on average, than equivalent students who had been educated at a state school prior to university (Smith and Naylor, 2001 and 2005; Crawford, 2014a). This well-known result has provided an evidence base for the use of contextualised offers in admissions across the sector (Schwartz Report, 2004; Hubble and Bolton, 2020) as an instrument for enhancing social mobility. In the current paper, we use a rich dataset for a particular university to examine whether the negative association between private schooling and class of degree awarded holds across all students, independent of ethnicity: we find that it does not. For White students, we obtain the standard result that private schooling is associated negatively with class of degree. However, in stark contrast, among students whose ethnicity is self-reported as either Black, Asian or Mixed Ethnicity, attendance at a private school prior to university is, on average, associated positively with the class of degree awarded. On further exploration, we find this is driven by a strong positive association among Black students and students of Mixed Ethnicity; the overarching category of Black, Asian and Minority Ethnicity conceals substantive differences within the category. Among Asian students, the absence of any association between private schooling and degree class, on average, masks a very strong negative association for those from lower socioeconomic status backgrounds. We discuss and interpret our results in the context of hypotheses within the literatures on schooling effects and on the ethnicity awarding gap in higher education.

1404 - The Distribution of the Gender Wage Gap : An Equilibrium Model

Sonia R. Bhalotra, Manuel Fernandez and Fan Wang

We develop an equilibrium model of the labor market to investigate the joint evolution of gender gaps in labor force participation and wages. We do this overall and by task-based occupation and skill, which allows us to study distributional effects. We structurally estimate the model using data from Mexico over a period during which women's participation increased by fty percent. We provide new evidence that male and female labor are closer substitutes in high-paying analytical task-intensive occupations than in lower-paying manual and routine task-intensive occupations. We find that demand trends favored women, especially college-educated women. Consistent with these results, we see a widening of the gender wage gap at the lower end of the distribution, alongside a narrowing at the top. On the supply side, we find that increased appliance availability was the key driver of increases in the participation of unskilled women, and fertility decline a key driver for skilled women. The growth of appliances acted to widen the gender wage gap and the decline of fertility to narrow it. We also trace equilibrium impacts of growth in college attainment, which was more rapid among women, and of emigration, which was dominated by unskilled men. Our counterfactual estimates demonstrate that ignoring the countervailing effects of equilibrium wage adjustments on labor supplies, as is commonly done in the literature, can be misleading.

1396 - Gifted Children Programs’ Short and Long-Term Impact : Higher Education, Earnings, and the Knowledge-Economy

Victor Lavy & Yoav Goldstein

We estimate the short-run and longer-term effects of gifted children programs (GCP) in high schools in Israel. The program tracks the most talented students into gifted children classes, starting 10th grade. They receive more resources in smaller classes, a unique curriculum, access to high-quality teachers, and courses in universities. We use test scores in exams that measure cognitive achievements or intelligence and ability, measured in different ages, to select a comparison group of equally gifted students from other cities where GCP was not offered at the time. Based on administrative data, we follow 22 cohorts of GCP participants who graduated high school in 1992-2013. We measure treatment effects on outcomes, ranging from high school to the labor market in their 30s and 40s. Remarkably, the results we obtain do not vary when using alternative measures of ability or in the age, they are assessed. The evidence on the impact of GCP on academic achievements in high school is mixed, some compulsory subjects are affected negatively, and fewer are affected positively. However, these estimates are very small, implying a tiny effect size. These results stand in contrast to the abundance of educational resources enjoyed by GCP participants, in addition to better peers in terms of SES background and outcomes. We discuss in this context the objective of the program to widen the scope and area of interest of its participants beyond the regular curriculum. We also highlight the potential adverse effect of the Big-Fish-Little Pond Effect. In the longer run, we find meaningful positive effects of GCP on higher education attainment. All gifted children achieve a BA degree, but a much higher share of GCP participants graduate with a double major. The effect of getting a Ph.D. is also positive, driven by more Ph.D. degrees in Elite Universities. GCP participants study more math, computer, and physical sciences but engage less in engineering programs. The net effect on STEM degrees is, therefore, zero. However, a much higher share of GCP participants graduated with two STEM majors. This evidence, along with the significant effect on a double major, suggests that GCP enhances the impact of “multipotentiality,” which characterizes many gifted adolescents. We find no effect of GCP on employment and earnings. Nor do we find that they work more than other equally talented children in the various sectors of the knowledge economy: hi-tech manufacturing, hi-tech services, and academic institutions. Finally, we examine marriage and family formation patterns as mediating effects and find no discerned GCP effects. In the short-term, medium-run, and into adulthood, these comprehensive sets of results are not qualitatively different for females and males gifted children who participated in GCP. Treatment heterogeneity by giftedness level allows us to compare our results to earlier studies that used regression discontinuity designs to identify GCP effects on only marginally eligible students for such programs. We find meaningful differences in treatment effect between marginal and inframarginal gifted children, suggesting that it is essential to examine GCP’s impact over the whole spectrum of Giftedness. Importantly, we find that GCP similarly affects low and high-SES students. Half of the students among the six youngest cohorts in our sample started the program in middle school, while the others did that in high school. We find no differences in GCP effect on high school and university outcomes by the length of the program