Essays in Public Finance and Education

Abstract

This dissertation studies the role of private agents in increasing tax compliance and documents the effects of fiscal and behavioral inefficiencies that distort human capital formation. Chapter 1, joint with Keshav Choudhary, analyzes firms’ response to changes in size- based exemptions from third-party audits and shows that third-party auditors help the government in raising tax compliance and government revenue. Using administrative panel data from India, we develop a novel empirical framework that considers dynamic responses of a firm to such exemptions and conduct a difference-in-differences analysis. Our estimates suggest that firms remit 20 percent higher taxes and report 16 percent higher taxable income, once they are subject to third-party audits. Using these estimates, we conclude that the policy is cost-effective and raises net social benefit. Chapter 2, joint with Hoyt Bleakley, analyzes the fiscal costs and benefits related to schooling decisions. We use a Mincer-like model to characterize the fiscal externality associated with an additional year of schooling. Then we estimate the gap between fiscal benefits and costs by combining recently available data on school subsidies with the Nepalese household consumption survey. We find that within primary school, at a discount rate of 3 %, the fiscal benefits and costs, on the margin, are quite balanced, with subsidies closest to the present value of future taxes minus benefits. At higher levels of schooling, however, marginal fiscal benefits exceed costs by 5 percent of per-capita consumption. Chapter 3 studies the effects of taste-based discrimination on the educational outcomes of the children in India. Using nationally-representative data, we find that there is a declining birth-order gradient in the learning outcomes of both boys and girls. Conditional on birth-order, boys outperform girls which indicates general son-preferences. Moreover, after controlling for birth-order effects, boys with no elder brother perform better than boys who have an elder brother. This indicates preferences towards elder sons in the family. The gap widens in districts with higher elder-son preferences and results in a steeper birth-order gradient in those districts. Societal preferences affect learning through differential allocation of educational resources within a family.