L9: Public Finance

D; As mentioned in the video shown in class, tax revenues as a percent of GDP is about 15% in developing countries compared to 40% in developed countries.

Tax revenue as a percent of GDP is 15% in developing countries, on average, compared to ______% in developed countries. a. 1.5% b. 4% c. 10% d. 40%

B; A Value Added Tax is a tax where each firm or corporation along a supply chain pays a tax on the value of the output they sell, but receives a credit on the value of the inputs they purchased from a supplier. In other words, they only pay a percentage tax on the value that they added to the final product.

A Value Added Tax is a tax where _________________ a. Each corporation along a supply chain pays a tax on the value of inputs they purchase from a supplier b. Each corporation along a supply chain pays taxes on the value of output, but receives a credit for taxes paid on any inputs c. Taxes are paid by the customer as a percentage of the final sale price d. Taxes are paid by the retailer (the last firm in the supply chain) as a percentage of the final sale price

B; Non-rival goods typically refer goods whose consumption by one person does not limit or prevent someone else from consuming that good. Non-excludable goods refer to those where once supplied, no one can be prevented from freely consuming the good. Public goods are those goods that are both non-rival and non-excludable.

A public good is one whose consumption is non-rival and non-excludable. Non-rival goods are those ___________________________ and non-excludable goods are those ________________________________. a. whose consumption by one person does not prevent anyone else from consuming the good ; where no one who is willing to pay for the good can be prevented from consuming the good b. whose consumption by one person does not prevent anyone else from consuming the good ; where no one can be prevented from consuming the good c. where no one can be prevented from consuming the good ; whose consumption by one person does not prevent anyone else from consuming the good

C; As discussed in class, there are a number of goods and services that governments might be responsible for providing for its people. One point of view taken by many economists is that the government should only supply certain types of things that the private sector cannot or does not effectively supply, and that the private sector should supply the rest. For example, the government could supply things such as military defense which the private sector would under-provide, since people would not purchase defense individually since they could free-ride off others who purchased it. In contrast, the private sector might be better-suited to supply things such as food, clothing, and leisure activities.

As discussed in class, from the point of view of many economists, what types of activities should governments be responsible for? a. Setting prices and wages to ensure that goods remain affordable and inflation is low b. Providing any goods or services that citizens specifically vote for c. Providing any goods or services that for whatever reason the private sector cannot supply or does not supply efficiently d. Producing goods that fulfill "basic needs" such as food, clothing, and housing

All; As Professor Olken discusses in class, there are a number of reasons why the private sector might be better suited to provide many goods and services than the government. All of the above are reasons that the private sector might supply certain goods and services. In contrast, the government might want to supply certain goods and services such as military protection or legal courts, which it may not make sense for the private sector to supply.

As discussed in class, why might the private sector be better-suited to paying for provision of certain services? (Check all that apply) a. The private sector might be more efficient b. The market might be better able to determine what people want than the government c. Government programs are funded by taxes; taxes can be inefficient and distortionary

C; In this model, the total surplus from agreement is τ∗−τ . The taxpayer's outside option is −τ∗ and the tax collector's outside option is 0. In order to come to an agreement, the value of the bribe will be equal to the tax collector's share of the surplus, or (1−γ)(τ∗−τ).

Assume τ∗ is the amount of tax owed, and γ is the bargaining weight of the taxpayer. The tax collector and taxpayer could come to an agreement where the taxpayer would pay τ instead of τ∗ (where τ<τ∗). In the case that the tax collector and taxpayer settle on a bribe, ______________ represents the total surplus from agreement, and ______________ represents the value of the bribe. a. τ∗−τ ; (γ)(τ∗+τ) b. τ∗+τ ; (1−γ)(τ∗−τ) c. τ∗−τ ; (1−γ)(τ∗−τ) d. γ∗(−τ) ; (1−γ)(τ∗−τ)

D; Dividing the ITT estimate by the first stage, or 0.09/0.28=0.32 gives the TOT estimate (Wald estimate) of the impact of receiving a card on being able to identify your own status.

Assuming there are no effects of being in a card village if you did not receive a card, what is the TOT estimate of getting a card on being able to identify your own status? a. 0.09 b. 0.14 c. 0.28 d. 0.32

C; The evidence presented in lecture shows that people show up based on their observable (Yo) as well as their unobservable income (Yu). As Professor Olken mentions in lecture, the people that show up to apply are poorer than the people who do not show up along both dimensions, (Yo) and (Yu). The government cannot observe both (Yo) and (Yu), but can only directly observe or measure (Yo), in this case through a proxy means test.

Comparing show up rates based on observable and unobservable characteristics, which of the following do the data reveal? a. Having low unobservable income does predict greater showup behavior, but having low observable income does not predict greater showup behavior b. Having low unobservable income does not predict showup behavior, but having low observable income does predict greater showup behavior c. Both having low unobservable income or having low observable income predict greater showup behavior d. The results were inconclusive

C; The below table provides some insight into the different mix of taxes collected in developed versus developing countries. Developed countries tend to collect more tax revenue overall, which also represents a higher percentage of GDP. (Developed countries collect tax revenues that amount to 25% of GDP while on average, developing countries collect tax revenues that amount to 17.6% of GDP). Furthermore, in developed countries, a higher percentage of tax revenues comes from sources of income. (Developed countries collect 54.3% of tax revenue from sources of income, and developing countries on average collect 31.2% of tax revenues from sources of income.)

Developed countries collect ___________ revenues from taxes, which represents a _______ percentage of GDP compared to developing countries. Taxes on income represent a _______ fraction of tax revenues in developed countries compared to developing countries. a. More ; lower ; greater b. More ; higher ; lesser c. More ; higher ; greater d. Less ; lower ; greater

B; Professor Olken mentions in lecture that developing country governments tend to collect more income from tax revenue from corporate income rather than from individual income. One reason for this might be the "information problem," where governments find it more difficult to collect accurate information on individual income than on corporate income. Inaccurate or incomplete reporting, lack of digital reporting, and lack of double reporting of income could all contribute to the "information problem."

Developing country governments tend to collect a greater share of tax revenue from taxing corporate income than from taxing individual income. Professor Olken attributes this to which of the following reasons? a. Individual income is very low to begin with in developing countries b. The "information problem," where it is more difficult for governments to gather information on individual income than on corporate income c. Developing countries prefer to tax corporations, rather than people, since individual income is low and this would place too high a burden on individuals

C; According to the table above, bribes are about 16% less common in the treatment group for reassessed properties. (This corresponds to the coefficient on reassess * treatment in column 3.) On the other hand, total taxes paid increased, as shown by the estimates in column (1) for self-reported tax payment corresponding to reassess * treatment.

For reassessed properties in treatment areas compared to reassessed properties in control areas, there are __________ bribes paid, and the value of taxes paid ________________. a. Fewer ; decreases b. More ; increases c. Fewer ; increases d. More ; decreases

All of the above; All of the above are discussed as possible risks associated with implementing the tax collector incentives scheme. It could be that the tax collectors overvalue properties, or only visit properties that they know are highly valued, or may extract greater bribes. Depending on the incentives ultimately paid to the tax collectors, additional taxes collected, and the impact on bribes, the program could become expensive for the government.

In Khan, Khwaja, and Olken (2014), what are some of the issues or risks associated with incentivizing tax inspectors based on the amount of tax revenue collected? (Check all that apply) a. Tax inspectors may overvalue properties and overtax property owners b. Tax inspectors may only visit properties they know to be highly valued c. Bribes may increase d. The program may fail to raise additional revenue

D; If there is heterogeneity among tax collectors in terms of the risk of being caught (some with high β and some with low β), and the incentive r is increased, fewer taxpayers and tax collectors will be come to a bribery agreement, since more tax collectors will choose to collect the true tax owed (τ∗) instead of collecting a bribe. In cases where a bribe is paid, the value of the bribe will increase, since the tax collector forgoes a greater incentive payment (rτ∗), and will need to be paid a higher bribe to offset. Since these two forces act in opposite directions, the total amount of bribes paid is ambiguous.

In cases of heterogeneity among tax collectors (in terms of β), increasing the incentive r would have which of the following impacts overall? a. Decrease amount of individual bribes paid, decrease total bribes paid b. Increase amount of individual bribes paid, increase total bribes paid c. Decrease amount of individual bribes paid, impact on total bribes ambiguous d. Increase amount of individual bribes paid, impact on total bribes ambiguous

B, C, D; B, C, and D are all discussed in lecture as potential channels - other than receipt of the card - that might have changed people's ability to correctly identify their status. A is incorrect. If people did not actually receive the card, but there were no other issues, this would be a weakening of the first stage, but would not be a potential violation of the exclusion restriction.

In instrumental variables analysis, the exclusion restriction requires that the instrument only impacts the outcome through the effect of the endogenous variable. In the Raskin experiment, the exclusion restriction requires that correctly identifying status only is impacted through having received the card. Which of the following might be threats to the validity of the exclusion restriction? (Check all that apply) a. People did not actually receive the card b. Spillover effects c. The list was posted publicly d. Village heads heard about the cards and changed their behavior

D; In the Nash bargaining model presented in class, the total surplus from agreement is 1−A0−B0. This represents the gain from agreement. If person A and person B did not agree, then they would earn A0+B0 total. By agreement, they earn $1, which they have to determine how to split. The total surplus from agreeing instead of simply claiming A0+B0 is total amount earned (1) less what they would have otherwise earned (A0+B0), or 1−A0−B0.

In the Nash bargaining model presented in class for modeling agreement on a bribe, person A and person B must reach an agreement to split $1, or otherwise earn A0 and B0 respectively, where A0+B0<1. Which represents the surplus from agreement? a. A0+B0 b. A0−B0 c. 1−A0+B0 d. 1−A0−B0

c. 4.50 In this simplified example, Watch Builders Inc would owe $1.50 in taxes for each watch assembled and sold to Books & Accessories. Watch Builders Inc purchases inputs from EZ Components for $20, assembles the watch, and then sells the watch to Books & Accessories for $35. The value added by Watch Builders Inc to the final product is $35 - $20 = $15. 10% of $15 is $1.50, so Watch Builders Inc owes $1.50 in taxes for each watch assembled.

In the following example, there is a supply chain composed of 3 corporations that each add something to the process of building a watch. To make a single watch, a company called EZ Components sells a variety of raw components to a company called Watch Builders Inc for $20. Watch Builders Inc uses these components to assemble a watch, and sell it to a retailer called Books & Accessories for $35. Books & Accessories puts the watch on its shelves, and sets a final price of $45. Assume a 10% VAT in this economy. How much does Watch Builders Inc pay in taxes for each watch? a. $1.00 b. $1.50 c. $4.50 d. $15.00

All

In the movie shown, what are some of the reasons given why tax collection is difficult? (Check all that apply) a. Tax records are kept manually, and difficult to maintain b. Working as a tax inspector is difficult work c. Incentives are not in place for tax inspectors to collect taxes due

B; Since total surplus is 1 less the sum of each person's outside option, when person A's outside option goes up, total surplus goes down. Since A and B split the total surplus in some fashion, the payoff to B decreases.

In this framework, what happens to person B's payoff when person A's outside option (A0) increases? a. Increases b. Decreases

All; All of the above are possible ways that "ordeals" may pose higher costs on the poor than they do on the rich. The unintended effect if such ordeals could be that they fail to deter the rich, and instead deter some poor people who should in principle receive the benefits.

In which ways could "ordeals" be too high such that they dissuade poor people from applying, but might not have the same deterrent effect for rich people? (Check all that apply) a. Low-income people could be uncomfortable filling in forms compared to high-income people b. Low-income people may not have the flexibility to take off of work and apply for the program c. Low-income people may have less convenient, more costly transportation options for traveling to the place of application d. Low income people may not have access to online or other resources required to apply

B; Once we introduce the risk of being punished and factor in the tax collector's outside option to keep some fraction of the tax revenue collected (that would necessarily decrease if the collector accepts a bribe), total surplus changes somewhat. The taxpayer's surplus is as before, or (τ∗−τ)−b. Now, the tax collector's surplus is the forgone incentive payment plus the value of the bribe less the "cost" imposed by the risk of being caught, of (rτ∗−rτ)+b−β(τ∗−τ). Combining these, total surplus becomes (1−r)(τ∗−τ)−β(τ∗−τ).

Let b=the value of the bribe, β=the expected penalty from being punished per dollar undertaxed, and r=the proportional incentive (proportional of tax revenue the tax collector would get to keep). Which of the following represents total surplus? a. τ∗−τ b. (1−r)(τ∗−τ)−β(τ∗−τ) c. (τ∗−τ)−b d. (rτ∗−rτ)+b−β(τ∗−τ)

C; Pakistan collects less tax revenue as a percent of GDP than other developing countries. As we say before, the average tax revenue collected as a percent of GDP in developing countries is 15%, but only 9% in Pakistan.

Tax revenue as a percent of GDP in Pakistan is _______ than the developing country average at _____%. a. Higher; 20% b. Higher; 40% c. Lower; 9% d. Lower; 1.6%

A, B, D; A, B, and D are discussed as reasons that providing public information might help to improve targeting. Publicly listing who is eligible for the program provides everyone in the community with what is known as "common knowledge," which means that everyone knows who else is eligible, and further, everyone knows that everyone else knows who is eligible. This could allow people to police each other, make it easier for beneficiaries to work together and demand complete provision of services, or remove any stigmas associated with applying for the program. C is incorrect; if providing common knowledge removed social stigmas and made it more likely that rich people would apply for the program, then that would worsen targeting, since now more people who should not be eligible for the program would apply.

Receiving eligibility cards provides community members with first-order, private knowledge, while posting a list of who is eligible provides the community with common knowledge. How might providing common knowledge improve targeting? (Check all that apply) a. Allows eligible and ineligible people in the community to police each other b. Removes stigma attached to applying, so that poor people are more likely to apply c. Removes stigma attached to applying, so that rich people are more likely to apply d. Increases knowledge and communication among eligible people, and ultimately increase their bargaining power

B; B is correct. Redistribution tends to be a solution taken to assist low income people by redistributing resources from some of the wealthiest to some of the poorest people in a population. On the other hand, insurance programs are a way of providing relief against shocks to income, where income is suddenly much less than or much greater than is typical, or where people face a sudden shock to their spending needs, for example in the case of a costly health emergency.

Redistribution tends to provide relief for ___________ while insurance tends to provide relief for __________ a. Shocks to income; low levels of income b. Low levels of income; shocks to income c. Low levels of income; low levels of income d. Shocks to income; shocks to income

A; As shown in panel A, column (1) of the above table, total revenue collected increases by about 0.09 log points or 9%, a significant increase. These impacts appear to persist in year two (column (4)), where the increase is 0.093 or about 9.3%.

Referring to the table above, what are the main impacts on revenue collected in the first year? a. Revenue collected in the first year went up by about 9%, and was significant b. Revenue collected in the first year went up by about 2.8%, and was significant c. Revenue collected in the first year went up by about 0.09%, and was significant d. Revenue collected in the first year went up by about 2.8%, and was insignificant

B; Whenever the unit of observation is smaller than the level of randomization, standard errors should be clustered at the level of randomization. For example, if entire villages are randomized into treatment versus control but the analysis takes place at the household level, standard errors should be clustered at the village level. This is to account for the fact that otherwise, outcomes for individuals within the same cluster may be correlated and standard errors would be underestimated.

Standard errors should be clustered at the level of the unit of randomization in cases where ________________________________ a. treatment was randomly assigned b. the unit of observation is smaller than the level of randomization c. the unit of observation is greater than the level of randomization d. instrumental variables analysis is used

C; If the government increases the time costs associated with applying for a specific program, then fewer people would apply for the program, and those that choose to no longer apply would tend to be those with relatively higher income. Graphically, the curve that relates the gain from applying to consumption (income) would shift inwards and become steeper. Previously, the number of people who would apply was represented by C; this would decrease to B.

Suppose that the government increases the time costs associated with applying for a benefits program (e.g. by making people wait longer in line), to screen out people whose income is too high. Graphically, this would ________________ the number of people who apply from _____________. a. Increase ; A to C b. Increase ; B to C c. Decrease ; C to B d. Decrease ; C to A

B; The intention to treat gives an estimate of the treatment effect for those in villages assigned to receive the cards, regardless of whether they actually received the cards. The treatment on the treated effect, also known as the Wald estimate gives an estimate of the impact of the cards on those who actually received the cards. The TOT is calculated by dividing the ITT estimate by the percentage that received the cards (the "take up rate") and so is necessarily always larger than the ITT estimate.

The ___________________ estimate gives the impact of cards for those in a village randomly assigned to receive the cards, while the __________ provides the impact of the cards for those who actually received the cards. The ITT is ____________ the TOT. a. Intention to treat (ITT) ; Treatment on the treated (TOT) ; always larger than b. Intention to treat (ITT) ; Treatment on the treated (TOT) ; always smaller than c. Treatment on the treated (TOT) ; Intention to treat (ITT) ; either larger or smaller than d. Intention to treat (ITT) ; Treatment on the treated (TOT) ; either larger or smaller than

D; This illustrates a case where people become aware of the eligibility requirements for a program, and have adjusted their behavior to make themselves appear eligible for the program. In this case incomes were measured using a proxy means test. Households could have hidden or lied about some of their possessions in order to make sure it appear that their income would qualify them for the program.

The above diagram shows income distributions measured using a proxy means test, where households with income less than I* are eligible for the program, over three years of the program. Which of the following can explain the pattern of measured income? a. The government has chosen a natural and meaningful cutoff for the program b. The program is not well-targeted and has effectively increased incomes over time c. The program is well-targeted and has actually decreased incomes over time d. People have adjusted their behavior or reporting over time to be classified as eligible for a program

A, B, C; In panel A, we can see the probability of receiving benefits vs. log per capita consumption. We can see that people with a log per capita consumption of 14 or higher have a relatively low probability of receiving benefits, but this probability is not 0%. Similarly, people with a log per capita consumption of 12 or lower have a relatively high probability of receiving benefits, but this probability is not 100%. The first two statements are therefore false. The other statements are true. Someone with a log per capita consumption of 13 has a probability of approximately 10% of receiving benefits (panel A), whereas the probability of someone with a PMT score of 13 of receiving is close to 0 (panel B). This is because PMT scores are used to determine eligibility, but these scores are based only on observable income and therefore imperfect. Someone's PMT score does therefore not necessarily reflect their actual consumption level. For example, someone with a log per capita consumption of 14 might have a PMT score of 12, if this person has a lot of unobservable income not picked up by the PMT. The idea behind requiring people to apply for the program, instead of the government coming to their houses, is that relatively rich people who are incorrectly measured as eligible by the PMT might filter themselves out, since they think it is not worthwhile to apply (because of the costs this has and because they think they are likely not eligible).

The graphs above compare the probability of being classified as eligible for a program based on income (Panel A) or income as predicted by a proxy means test (Panel B). Which of the following statements are true? (Check all that apply) A. No one with a log per capita consumption of 14 or higher receives benefits. B. All persons with a log per capita consumption of 12 or lower receive benefits. C. Someone with a log per capita consumptino of 13 has a higher probability of receiving benefits than someone with a PMT score of 13. D. Someone with a log per capita consumption of 14 might have a PMT score of 12. E. Requiring people to apply (wait in line etc.) might screen out people with relatively high per capita consumption and a low PMT score who would otherwise receive benefits.

B; As shown in column (4), the impact of the card treatment was Rp. 7,023 among eligible households. The control group mean is shown to be 28,605, so this represents a 25% increase relative to the control group.

The impact of the card treatment on subsidy received (total value of subsidy) was _________________ among eligible households, which represents a ________________ relative to the control group. a. Rp. 512 ; 25% increase b. Rp. 7,023 ; 25% increase c. Rp. -1,360 ; 4.8% decrease d. Rp. 7,023 ; 37% increase

False; Including interaction terms does allow you to interpret the interactions between sub-treatments. In the example given in class, including an interaction term for PUBLIC*COUPON would tell you the additional effect of the coupon in places where public information was given. However, getting this level of nuance would reduce power, since you would be comparing individual "cells" in the matrix design, each of which have fewer observations. You may choose to analyze your data in this way if you have reason to believe the interactions between sub-treatments are important or would be insightful.

True or False: With cross-cutting treatments, if you run a regression including interaction terms, you learn more about the interactions between sub-treatments and increase power. a. True b. False

False; This is false. Evidence from the Raskin experiment shows that there is no significant increase or decrease in the treatment along different levels of log per capital income, as shown in the below table that includes estimates for the log per capita income and the interaction between log per capita income and the treatment.

True or false: Among the eligible, the card treatment impacted the poorest households more than the richest households. True False

True; This is true. Running local regressions is a technique for estimating the relationship of interest between different variables without making an assumption about the function form of that relationship.

True or false: Running local regressions allows you to avoid making assumptions about the shape of a relationship.

True; This is true. Professor Olken discusses that self-targeting mechanisms need to be carefully designed, since the very trait that makes them effective - imposing costs to deter ineligible people - could also make them costly or burdensome on the very people they seek to help. While it is important to screen out people who should not be eligible for the program, governments may need to be careful that they do not also screen out people who should be eligible for the program.

True or false: Self-targeting mechanisms need to be carefully designed, so that the steps required to receive the benefits do not become too costly for beneficiaries. a. True b. False

True; As Professor Olken discusses in lecture, it could be that tax collectors are resistant to overtaxing property owners because they know that property owners would be more likely to complain. We can think of this as increase their risk of being punished, and it may be better for tax collectors to collect the correct amount (particularly if this comes along with an incentive payment given by r multiplied by the amount of tax collected.

True or false: Tax collectors may be resistant to overtaxing property owners because property owners may be more likely to complain if they are overtaxed. a. True b. False

False; This is false. It is not necessarily the case that the person or entity who pays a tax bears the full burden of a tax. Often, the burden of a tax is shifted from one person/entity to another, or spread across several people/entities. For example, a company selling clothing might be taxed on the revenues they earn. They might shift the burden of that tax to consumers by increasing the cost of their products, thus shifting the part of the tax burden onto the end consumer.

True or false: The person who pays taxes bears the full burden of that tax: a. True b. False

False; As discussed in lecture and shown in the table below, there was no treatment effect on the tax gap for reassessed properties. This provides support for the fact that these properties were not being overtaxed as a result of the incentive scheme. Instead, this supports that the additional taxes being paid for reassessed properties were coming closer to the actual taxes that should have been owed, based on the value of those properties.

True or false: The reassessed properties were overtaxed, which accounts for the increase in taxes collected from these properties.

False; This is false. The subsidy received increased for eligible households, by about Rp. 7,023 (significant), but did not decrease for the ineligible households. This is shown in column (8) where the impact of the card treatment on ineligible households is not significantly different from zero.

True or false: The subsidy received increased for the eligible households, but decreased for the ineligible households. a. True b. False

A; True. Under a Value Added Tax (VAT), the total amount of tax collected is the as it would be under a sales tax. With a Value Added Tax, the difference is that the payment of the tax is distributed along the supply chain in proportion to the value each firm adds to the final product.

True or false: To the end consumer, the amount of tax paid is the same under a 5% sales tax (as in the US) would be the same as us under a 5% Value Added Tax (as in many developing counties), assuming there is no tax evasion. a. True b. False

True; With concave utility functions, those with low levels of income have a high marginal disutility of losing income. This means that the marginal cost of an ordeal might be prohibitively high for someone who is very poor. For example, the cost of losing a day's work to wait in line for benefits could mean that person does not eat that day. Even if the benefits of receiving those benefits might be very high, the cost of going through the ordeal to receive those benefits could be even higher, and it is not worth applying.

True or false: With concave utility functions, a loss of $x in income results in a greater corresponding decrease in utility than the increase in utility from a gain of $x in income.

A, C; The taxpayer and the tax collector will not come to an agreement in cases where the risk of being caught added to the fraction of tax collected that tax collector would get to keep exceeds one. That is, when 1<r+β, there will be no bribe paid. Intuitively, if the risk of being punished combined with the forgone income from accepting a bribe instead of the true tax owed is sufficiently high, the tax collector would prefer to collect the actual value of the tax rather than reduce taxes and collect a bribe. Mathematically, the two parties will agree on a bribe in cases where total surplus is positive. When the bribe is paid, the taxpayer pays no taxes (τ=0) and total surplus (1−r)(τ∗−τ)−β(τ∗−τ) becomes (1−r)(τ∗)−β(τ∗). In order for the total surplus to be positive, it must be that this is greater than zero. Rearranging this equation leaves that the condition for agreeing on bribe would be 1>r+β.

Under which conditions will the taxpayer and tax collector not come to a bribery agreement? a. When the expected punishment from being caught plus the fraction of revenue the tax collector would get to keep is greater than 1 b. When the expected punishment from being caught plus the fraction of revenue the tax collector would get to keep is less than 1 c. When either the expected punishment from being caught or fraction of revenue the tax collector would get to keep is greater than 1 d. When either the expected punishment from being caught or fraction of revenue the tax collector would get to keep is less than 1

b; Column (2) of the above table shows that the treatment increased the amount of bribes paid, but about 590 Rs. Submit

Using the table above, were the main impacts on the amount of bribes paid? a. No impact b. Significant increase of about Rs. 590 c. Significant increase of about 20% d. Significant increase of about 1%

A; Column (3) shows the impact of being assigned to get a card on correctly identifying status. This is 0.09, or about 9%

Using the table above, what is the ITT estimate of the impact of the card treatment on correctly identifying status for eligible households? a. 0.09 b. 0.14 c. 0.28 d. 0.32

C; Column (1) shows the impact of being assigned to receive a card on actually receiving a card, in other words, the "first stage." This is 0.28, or about 28%.

Using the table above, what is the estimate of the impact of being assigned to receive a card on actually receiving a card among eligible households? a. 0.09 b. 0.14 c. 0.28 d. 0.32

A, D; As Professor Olken discusses in class, taxation in developing and developed countries can be very different. Often, developing country governments have less information and less accurate information about people's income (as in A). Related to this is that it can be more difficult to enforce taxation laws in developing countries.

What are some of the fundamental differences between taxation in a developing and developed country? (Check all that apply) a. Developed country governments tend to have more accurate information about people's income than do developing country governments b. Developing country governments tend to have more accurate information about people's income than do developed country governments c. Developing countries always have higher tax rates d. It is more difficult to enforce taxation laws in developing countries

All; All of the above could be issues associated with a proxy means test. Though a proxy means test may be a useful way of estimating income, it may not be a perfect way to estimate income.

What are some of the issues associated with a proxy means test? (Check all that apply) a. Assets and possessions may not be perfect proxy for income b. People could hide or otherwise misrepresent their assets and possessions c. People could bribe assessors to be classified as eligible

A, B, C; A, B, and C all describe potential issues associated with the Raskin program. Only 30% know they are eligible for the program, and beneficiaries often report paying a price about 25% higher than what they should pay. Finally, people often receive less rice than they should receive under the program. While Professor Olken mentions that the rice was a lower quality variety, it is not the case that the beneficiaries are unwilling to eat the rice.

What are some of the issues related to the Raskin program described in lecture? (Check all that apply) a. Many eligible people do not know they are eligible or do not know what the eligibility requirements are b. People are often overcharged for the rice, relative to the intended price c. People often receive less rice than they are entitled to d. The rice is a variety which the beneficiaries are not willing to eat

A, B, C; A, B, and C are all possible benefits of the incentive scheme. The incentive scheme could encourage tax collectors to cover more properties and collect more revenue. To the extent that the extra money earned from the incentive payments exceeds current bribes paid, the incentive scheme may reduce bribery and reduce corruption in the system.

What are some of the potential benefits we might expect from incentivizing tax inspectors based on the amount of tax collected? (Check all that apply) a. May raise tax revenues b. May reduce bribery c. May encourage tax collectors to cover more properties d. May reduce reporting requirements

All; All of the above are discussed as examples of ways that governments might determine a household's income level. Governments might set up a procedure where people have to take certain steps or wait in line in order to receive the program. The idea behind setting up such a procedure relies on the assumption that only those who have a low enough income (and hence, for whom the program is designed) would be willing to pay the costs associated with taking steps or waiting in line for the program (known as "self-targeting"). The government could also enter a family's home and assess their possessions to estimate income levels (known as a "proxy means test"). Finally, the government could engage community members, asking them to identify or verify which households within a community fall within the intended income range ("community-based targeting").

What are some solutions to determine income levels? (Check all that apply) a. Observe willingness to wait or work for benefits b. Observe assets and possessions to estimate income c. Engage community members

All; All of the above could be reasons that the program is ineffectively implemented. To the extent that the issues relate to corruption, as in A and B, or to a lack of information about the program, as in D, providing information to potential beneficiaries about who should be eligible, how much they should receive, and at what price, could potentially improve the implementation of the program. Better targeting (or better monitoring of officials) could solve the issue mentioned in C.

What could be some of the problems in implementing the Raskin program? (Check all that apply) a. Officials sell the rice on the side b. Officials charge a higher price for the rice, and keep the surplus c. Officials don't follow eligibility lists d. People do not know they are eligible or how to collect the benefits

B; To measure the impact of printing information about prices on the cards, we need to compare the villages that receive cards without price information with villages that receive the same cards but with price information. The results of this comparison are presented in table 11B, which Professor Olken explains between 0:25 and 0:59 of the previous lecture segment. You can also find this on slide 27 of the lecture slides. The left-hand side panel fo the table shows the data for eligible households. The first row compares villages that received cards with price information with villages of the control group, the second row compares villages that received cards without price information with villages from the control group, and the third row compares villages that received cards with price information with villages that received cards without price information. We can see that the impact on the amount of subsidy received is more than twice as large for the price group as for the no price group (Rp. 6708 vs 3773) and that this difference is statistically significant. We can also see that this is due mainly to differences in amount purchased and not price: for amount purchased the impact on the price group is 2.5 times as large as for the no price group (1.13 vs 0.46), and the difference between both is statistically significant. For price it is only 1.6 times (-55 vs -34) and the difference is not statistically significant.

What do the results from the Raskin experiment suggest about the impact on eligible households of printing information about prices on the cards? A. It does not change the amount of subsidy received. It increases the amount of rice purchased, but also increases the price. B. It increases the amount of subsidy received, mainly by increasing the amount of rice purchased. C. It does not change the amount of subsidy received. It lowers the price but also lowers the amount of rice purchased. D. It increases the amount of subsidy received, mainly by lowering the price paid per kg of rice purchased.

C; C is correct. The issue of targeting refers to the challenge that governments face in ensuring that any policies or programs designed for specific populations reach the intended beneficiaries. For example, if a government designs a program that is intended to reach a certain subset of the population based on income level, the issue of targeting refers to determining whose income falls within that income level.

Which describes targeting? a. Designing programs or policies with a specific population of beneficiaries in mind b. Determining the best way to solve or address the problems that a specific group of people, for example poor people, face c. Determining who should and who should not receive the benefits associated with a specific program or policy d. Determining which of several programs or policies to implement, given resource constraints unanswered

All; All of the above are examples of negative externalities. Each of these examples represents a decision or choice taken by an individual or company that imposes some cost or home on those around them, which they do not take into consideration when making that decision. For example, when a factory produces goods and dumps the waste into a nearby river, they are not taking into consideration the impact of the waste on the surrounding environment.

Which of the following are examples of negative externalities? (Check all that apply) a. Someone smokes cigarettes in a public place b. Someone hosts a party with very loud music in a residential neighborhood c. A factory produces goods and dumps waste products into a nearby river d. A fishing company maximizes their catch without paying attention to the impact on fish populations

All; All of the above are examples of non-excludable goods. Non-excludable goods are defined as those for whom no one can be prevented from freely consuming the good, once supplied.

Which of the following are examples of non-excludable goods? (Check all that apply) a. Fireworks display b. Lighthouses c. Clean air d. National defense

B, C; Roller coasters and playground equipment are examples of goods that are rival in their consumption. Consumption by one person of either a piece of playground equipment or a roller coaster leaves one less place for someone else to consume that good. In contrast, fireworks and clean air are classic examples of non-rival goods. One person viewing fireworks does not diminish someone else's ability to view fireworks, and similarly one person's enjoyment of clean air does not diminish someone else's ability to enjoy clean air.

Which of the following are examples of non-rival goods? (Check all that apply) a. Playground equipment at a public park b. Clean air c. Fireworks display d. Roller coaster at Disney world

All; All of the above are examples of positive externalities. Each of these examples provides benefits that likely didn't play in to the decision to consume each of the goods. For example, when parents vaccinate their children against communicable diseases, they may do so because they want to protect their children. As an additional benefit, they may improve health outcomes for other children by preventing the spread of that disease or lowering the prevalence of that disease.

Which of the following are examples of positive externalities? (Check all that apply) a. Someone plants flowers on their private lawn b. Parents vaccinate their children against communicable diseases c. Some homeowners in a neighborhood pay for guards to patrol streets at night

A, B, D; A, B, and D all describe examples of self-targeting mechanisms. Self-targeting mechanisms are those that set up some kind of barrier to receiving benefits that would likely only be appealing to those that should in principle receive the benefits, and would deter those who should not be eligible for the program for attempting to receive the benefits.

Which of the following are examples of self-targeting mechanisms? (Check all that apply) a. Applications and paperwork b. Waiting lists and physical waiting lines c. Asking community members to identify low-income families in the community d. Locating benefits (housing, soup kitchens, etc.) to locations that may only be desirable for the low income families that should qualify for those benefits

All; In the US, all of A-E are taxed. Historically, tariffs on imports and exports were very common, but in the present day, taxes are applied on property, income, consumption (through sales tax), corporate income, and various activities that result in negative externalities.

Which of the following are taxed in the in the US? (Check all that apply) a. Property b. Income c. Consumption d. Corporate income e. Various activities that cause negative externalities

C; An externality is a good that has certain costs and benefits that are not fully internalized or taken into consideration by the person consuming that good. Externalities can be positive (imposing benefits on others) or negative (imposing costs on others).

Which of the following correctly describes an externality? a. A good or service whose consumption cannot be regulated by the government b. A good or service whose consumption is heavily regulated by the government c. A good whose consumption by one person imposes a cost or a benefit on someone else that the person consuming the good does not fully take into consideration d. A good whose consumption by one person harms other people

B; The CDF presented in class shows that within the group of beneficiaries, the entire income distribution was lower within the self-targeting group than with the automatic enrollment group. This provides some evidence that the self-targeting mechanism attracted lower-income program participants compared to the automatic enrollment mechanism.

Which of the following interpretations is consistent with the CDF that compares income (measured using consumption) among beneficiaries under a self-targeting compared to an automatic enrollment system? a. The automatic enrollment system attracted lower-income program participants than did the self-targeting enrollment mechanism b. The self-targeting enrollment mechanism attracted lower-income program participants than did the automatic enrollment system c. Enrollment was higher under automatic enrollment compared to the self-targeting enrollment system, but there was no change in the distribution of income among applicants d. The results were inconclusive

A, B, C (not D); The graph above shows that the likelihood of being selected to receive the benefit was higher for low income people under the self-targeting than under the automatic enrollment program, as in A. This is likely because they self-targeting mechanism more accurately attracted low-income people than whatever process was used to generate the lists for automatic enrollment. We can infer, then, that automatic enrollment criteria may be imperfect, as in B. C is also correct, since Professor Olken discussed that some portion of people discouraged to apply for the program under the self-targeting mechanism would have been included on the list under automatic enrollment.

Which of the following interpretations is consistent with the graph that shows the probability of receiving the benefit as a function of income (measured using consumption) between the self-targeting and automatic enrollment groups? (Check all that apply)

All; All of the above are reasons that it could be difficult for governments in developing countries to collect accurate information about taxes owed. Many people work in the informal sector, which means that wages and salaries may not be completely or accurately recorded. Some systems may not have checks and balances in place, or multiple places where income is recorded which would allow the government to cross-check information coming from different sources.

Which of the following make it difficult for governments in developing countries to accurately know how much someone owes in taxes? (Check all that apply) a. Many people work in the informal sector b. Lack of checks and balance c. Less information available than in developed countries to check the information provided by tax-payers

D; The sub-treatment where some cards included the price and others did not was aimed to tease out more specific information related to the information problem. Printing out a list of all who were eligible for the program could have provided new information that people otherwise may not have had. In contrast, basic information about the program such as price of the rice should have been known since the beginning of the program. Including price information on the cards would allow the government to determine whether some portion of the information problem was due to people now knowing this basic program information, such as the price, and whether making that information more well-known could improve the program's implementation.

Which of the following questions is the sub-treatment of randomly including the price on some cards intended to answer? a. Does illiteracy place the poorest recipients at a disadvantage? b. Is there a gap in information among the poorest recipients? c. Is it important for beneficiaries to have access to the physical card itself? d. Does the information problem have to do with gaps in information about basics of the program, such as price?

b3; Explanation β3 represents the additional effect of having a coupon, on top of having a card, for those in the non-public treatment. Imagine that PUBLIC=0, then the β2 and β4 would be "turned off," and so we would be left with β1∗CARD+β3∗COUPON where β1 gives the impact of the CARD and β3 gives the additional impact of the coupon.

yi=α+β1∗CARDi+β2∗PUBLICi+β3∗COUPONi+(β4∗PUBLICi×COUPONi)+ϵi In the equation above, which of the following represents the additional effect of having a coupon (on top of the effect of having a card) for those in the non-public sub-treatment? a. β1 b. β1+β3 c. β3 d. β1+β3+β4

D; The first derivative with respect to treatment, ∂y∂TREAT, gives the overall treatment effect. The second derivative with respect to income, ∂2y∂TREAT∂LNPCE, tells you the differential effect of the treatment for two different levels of log per capita income. Multiplying the second derivative by the difference in incomes between A and B provides an estimate for how different the impact of treatment would be for person A and person B, ∂2y∂TREAT∂LNPCE∗(LNPCEA−LNPCEB). In the equation above, this would be equal to γ multiplied by the difference incomes, or γ∗(LNPCEA−LNPCEB).

ykvist=αk+αst+βTREATv+ωLNPCEi+(γTREATv×LNPCEi)+ϵkvist Using the equation above, which of the following expressions represents how much the treatment effect differs for two people, A and B? a. ∂y∂TREAT b. ∂y∂TREAT∗(LNPCEA−LNPCEB) c. ∂2y∂TREAT∂LNPCE d. ∂2y∂TREAT∂LNPCE∗(LNPCEA−LNPCEB)