ESSAYS IN PUBLIC ECONOMICS Divya Singh Submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy under the Executive Committee of the Graduate School of Arts and Sciences COLUMBIA UNIVERSITY 2020 © 2020 Divya Singh All Rights Reserved Abstract Essays in Public Economics Divya Singh Governments play a key role in modern economies. However, modern-day governments face several challenges that limit their functioning. Some examples include inadequate conduct of elections, tax evasion, and market failures. Each chapter in this thesis explores a key challenge faced by government and policy intervention that helps address it. Chapter 1 explores the poor turnout of women in India and tests whether increasing security at the polling booths increases women’s representation. Chapter 2 explores the role of tax evasion by firms in low revenue collection under a Value Added Tax (VAT) in India. Chapter 3 examines the current housing crisis in major cities across the United States and evaluates the effects of tax incentives designed to encourage new residential investment. To provide robust causal evidence, I use natural experiments combined with novel microdata. Chapter 1 uses a regression discontinuity design arising from the rule used to assign security measures to polling booths during a major state election in India. In particular, polling booths which received more than 75% of votes in favor of one candidate in the previous election received security measures with a higher probability. I use the regression discontinuity design to estimate effects on women’s share in total turnout and political outcomes. Chapter 2 uses the staggered roll-out of VAT across states in India to estimate the effect of VAT adoption on vertical integration in firms. Chapter 3 uses a natural experiment in New York City where a delayed implementation of the property tax increase on new construction led to a short-term boom in residential investment as developers rushed to claim expiring tax benefits. I estimate effects on nearby rents, demographics, and businesses. The end result is a set of robust policy conclusions. Chapter 1 finds that strengthening security at the polling booths increased the women’s turnout, which in turn had consequences for political outcomes. For instance, suggestive evidence indicates that non-incumbent and educated candidates received more votes whereas corrupt candidates received fewer votes. Chapter 2 finds that firms integrated vertically to evade taxes under a Value Added Tax. This suggests that low revenue collection in developing countries is possibly a combination of both evasion and real production response of firms. Chapter 3 finds that new tax-exempt residential investment increased rents in existing buildings within 150 meters. This happened because new building attracted high-income residents who increased demand for local businesses, reflected in the entry of businesses that cater to high-income residents. The result highlights potential negative spillover effects of new construction on incumbent low-income residents and suggests that optimal tax policy must incorporate such spillovers when designing incentives that encourage investment. 2 Table of Contents List of Tables .......................................... v List of Figures .......................................... viii Acknowledgments ........................................ xii Dedication ............................................ xiii Chapter 1: Safer Elections, Women Turnout, and Political Outcomes: Evidence from India . 1 1.1 Background . 4 1.2 Data . 6 1.3 Empirical strategy . 8 1.3.1 The cutoff and the First stage . 11 1.4 Results and Discussion . 12 1.4.1 Summary Statistics . 12 1.4.2 Voting outcomes . 13 1.4.3 Political Outcomes . 14 1.4.4 Permutation Test . 16 1.4.5 Discussion . 17 1.5 Conclusion . 18 i 1.6 Figures and Tables . 19 1.7 Supportive tables and Figures . 24 Chapter 2: Merging to Dodge Taxes? Unexpected Consequences of VAT Adoption in India 35 2.1 The VAT tax Reform, 2004-09 . 41 2.2 Data and measurement of vertical integration . 44 2.2.1 Data . 44 2.2.2 Measurement of vertical integration . 47 2.3 Empirical strategy and results . 51 2.3.1 Main specification: VAT and Non-VAT-good Producers . 51 2.3.2 Alternative specifications . 55 2.3.3 Effect on mergers and acquisitions . 57 2.3.4 Robustness checks . 58 2.4 Exploring mechanisms . 59 2.4.1 Tax evasion at the retail stage . 59 2.4.2 Liquidity constraints under VAT . 60 2.4.3 Higher Compliance Costs under VAT . 61 2.4.4 Lower tax rates in the VAT regime . 62 2.4.5 Higher tax rate on upstream firms . 63 2.5 Discussion . 63 2.5.1 Welfare effects of the tax reform . 68 2.6 Conclusions . 69 2.7 Tables and Figures . 70 ii Chapter 3: Do Property Tax Incentives for New Construction Spur Gentrification? Evi- dence from New York City ............................ 103 3.1 Background and data . 109 3.1.1 Property tax reform in New York City . 109 3.1.2 Data . 113 3.2 The time notch and residential investment . 115 3.2.1 Anticipated tax increase and short term outcomes . 118 3.2.2 Estimating excess housing starts in the time notch . 119 3.2.3 Bunching results . 120 3.3 Effect of new residential investment on rents . 124 3.3.1 Summary statistics . 127 3.3.2 Results: Effect of tax-exempt investment on rents . 129 3.3.3 Robustness checks . 134 3.3.4 Heterogeneity in rent effects . 136 3.3.5 Differences-in-differences estimate of the rent Effect . 137 3.3.6 Differences in regression discontinuity . 139 3.4 A mechanism: Gentrification . 140 3.4.1 Evidence 1: Demographic changes . 142 3.4.2 Evidence 2: Changes in amenities . 143 3.5 Discussion . 144 3.5.1 Incidence of tax-exempt investment in the time-notch . 145 3.5.2 Efficiency effect of the time-notch . 148 3.6 Conclusion . 149 iii 3.7 Figures and tables . 150 3.8 Marginal response as a function of distance calculation . 185 3.9 Data construction: Demographic outcomes . 185 3.10 Supportive tables and figures . 187 References ............................................ 213 Appendix A: Safer Elections, Women Turnout, and Political Outcomes: Evidence from India218 A.1 Data Construction . 218 A.1.1 Booth-level turnout by gender . 218 Appendix B: Do Property Tax Incentives for New Construction Spur Gentrification? Evi- dence from New York City ........................... 221 B.1 Data . 222 B.2 Property taxes in New York City . 226 B.3 Effect of the tax reform on property tax across regions . 228 B.4 Short Term Outcomes in the Time Notch . 232 iv List of Tables 1.1 Voting Outcomes . 22 1.2 Political Outcomes . 23 1.3 Summary Statistics: Voting outcomes . 24 1.4 Summary statistics: Political Outcomes . 32 1.5 Voting Outcomes: Unconstrained Regression Discontinuity . 33 1.6 Regression Discontinuity using previous turnout share as running variable . 34 2.1 Summary Statistics . 92 2.2 Results for Specification 2.1, Firm Inputs . 93 2.3 Results for Specification 2.1, Firm Outputs . 94 2.4 Results for Specification 2.3 . 94 2.5 Differential effects by tax rate change . 95 2.6 Effect on other outcomes . 95 2.7 IV estimates . 96 2.8 Correlation between state-level delay in VAT adoption and outcomes . 97 2.9 Product upstreamness . 98 2.10 Results for Specification 1 . 98 2.11 Results for Specification 2, Output Second moments . 99 v 2.12 Winsorized Regressions . 99 2.13 DD estimates for the average input upstreamness: 2004-2010 (Winsorized) . 99 2.14 Estimation with upstream measure calculated using Pseudo-inverse. 100 2.15 Robustness check: dropping non-positive upstream values . 100 2.16 Lowest and highest upstream products . 101 2.17 Correlation among measures . 101 2.18 Kolmogorov-Smirnov test . 102 2.19 Tax rates pre and post VAT . 102 3.1 Changes brough by 2006-08 property tax reform . 179 3.2 Summary statistics for non-tax-exempt and tax-exempt parcels in 2015 . 180 3.3 Descriptives: Rental parcels in New York City in 2007 . 181 3.4 Descriptives: Rental parcels in Brooklyn in 2007 . 182 3.5 Excess housing starts in the time-notch . 182 3.6 Effect of new tax-exempt residential investment on rents: IV estimates . 183 3.7 Effect of new tax-exempt residential investment on rents: Exclusion vs non-exclusion regions . ..