Three essays on heterogeneity in public finance
This dissertation explores how heterogeneity in demand-side characteristics influences the findings of established models in public economics. The first chapter examines the distributional pattern of commute length responses to fuel price shifts. The existing literature assumes mobility adjustments are constant across all households: practical violations of that assumption may affect reported findings. This research explains sources of response differences and tests for their presence across measures of income, homeownership status, and commuting type. The results suggest that increased motor vehicle taxes reduce commuting distances, but with a more pronounced decline among households with high-incomes. Homeownership status is a key driver of the distributional pattern, as owner responses are similar across income levels, while the shift in commuting increases with income among renters. These findings indicate that accounting for household mobility may change existing distributional estimates. The second chapter studies how heterogeneity in agglomeration and tax differentials affects residential mobility patterns across industries. Interstate mobility can limit states’ ability to choose their desired tax policies. The forces of agglomeration, however, may allow states more leeway in setting tax rates. This research examines the residential location decisions of professional racecar drivers and golfers, which have similar industry characteristics but different levels of agglomeration. The findings show that tax preferences are a powerful determinant of golfer residential patterns, while agglomeration mitigates much of this effect among racecar drivers. These results highlight the need to better understand how competition and agglomeration interact when formulating tax policy. The final chapter examines how heterogeneity in accrual and disbursement mechanisms – methods of spending and saving – affect the performance of rainy day funds, contingency funds intended to aid governments during a financing shortfall. There is significant variation in the way rainy day funds are structured across states. The analysis provides definitive evidence that volatility-based mechanisms improve the alignment of fund changes and economic performance, and mixed evidence of an effect on the magnitude of fund changes. Volatility-based mechanisms have a greater effect in states with more relaxed budget-balancing requirements, suggesting that a substitution effect exists with such restrictions. This demonstrates the potential efficiency gains available from structural reform.