Essays in public finance and development.

Abstract

This dissertation consists of three papers on development economics and public finance. The first chapter investigates intra household allocation models using a law change as exogenous variation in rights to income transfers in Chile. Using several cross sections I test for changes in households' allocations of cohabitant couples after the law change. I find a 2 percentage point increase in school attendance of children between 14 and 18 years old and boys between 0 and 5 years old, and a decrease of 1 percentage point in the probability of working for men. These results add evidence to the growing literature against the unitary household model. Furthermore, the labor market results are evidence against a model of Nash bargaining presented, and support a tax model where child support is a tax on male's earnings. The second chapter examines the regressivity of the Value Added Tax (VAT) on food when home production is considered. Food expenditure as a share of total expenditure is higher in households with lower income levels. However, households in the lower deciles can obtain their food consumption from non-taxed sources. Using data from El Salvador I investigate whether differences in home production offsets food VAT regressivity. Households should have higher home production when the market price of goods is higher than the cost of home producing. A tax generates a wedge between these prices, and therefore a tax increase should increase home production. I find that the end of a tax exemption to agricultural goods in El Salvador increased home production in the short run by 19%. The third paper, co-authored with Dean Yang, studies the causal effect of remittances on poverty and inequality. We use cross sectional data that allows distinguishing the country where the migrant from the Philippines is located, and this location determined the size of the exchange rate shock resulting from the 1998 Asian crisis. We use this exogenous variation to identify the causal effect of remittances on poverty and income distribution. In migrant origin households, a 10% improvement in the exchange rate leads to a 0.6 percentage point decline in the poverty rate.