Three essays in public economics [electronic resource]
Keywords: Economics.

This dissertation explores the intersection between the government, small businesses, and households in the presence of information asymmetry and imperfect enforcement. The first chapter, titled Optimal Tax Mix with Income Tax Non-compliance, is co-authored with Juan Rios. The motivation for this chapter is that, although developing countries face high levels of income inequality, they rely more on consumption taxes, which tend to be linear and are less effective for redistribution than a non-linear income tax. One explanation for this pattern is that the consumption taxes are generally more enforceable in these economies. This chapter studies the optimal combination of a linear consumption tax with a non-linear income tax for redistributive purposes. In our model, households might not comply with the income tax code by reporting income levels that differ from their true income. However, the consumption tax is fully enforceable. We derive a formula for the optimal income tax schedule as a function of the consumption tax rate, the recoverable elasticities, and the moments of the taxable income distribution. Our equation differs from those of Mirrlees (1971) and Saez (2001) because households face a consumption tax and they respond to income tax not only through labor supply but also through misreporting their incomes. Both aspects are empirically relevant to our calibration of the optimal top rate in the Russian economy. We then characterize the optimal mix between a linear consumption tax rate and a non-linear income tax schedule. Finally, we find that the optimal consumption tax rate is non-increasing in the redistributive motives of the social planner. The second and the third chapter examine New York City's food inspection system. Customers cannot easily monitor a restaurant's food preparation process to ensure that it follows proper hygiene standards. In response to this information asymmetry, local governments send out trained public servants to conduct regular health inspections. In the second chapter, titled Can Monitoring and Citations Make Food Safer?, I estimate the impact of citations given out during these inspections on restaurant cleanliness, measured by subsequent inspection results and 311 complaint calls. To address the endogeneity of the inspection outcomes, which conflates the detection of the inspectors and the compliance by the restaurants, I exploit the random assignments of inspectors and construct inspector-specific measures of stringency as an instrumental variable. I find that this variable is highly predictive of not only the overall results but also the specific violations that are cited, despite the random assignment process. I find that more citations leads to better subsequent inspection outcomes, and the effects are larger for chain affiliates. Given that cleanliness is a multi-dimensional task, I document how citations in one dimension affect results in other dimensions during subsequent inspections. While I find that the restaurants respond the most in areas in which they received citations, I also find that citations in one area improve other areas as well. These cross-dimension estimates shed light on the production function of the retail food industry and can guide the optimal design of the grading rubric or the violation fine schedules. Lastly, I find that consumers respond to these improved sanitation conditions by making 311 complaint calls less frequently. In the third chapter, titled Impact of Food Inspection Grades on Restaurant Business and Customer Composition, I study how consumers respond to New York City's move to make the inspection results more transparent. I combine the food inspection data with proprietary debit and credit transactions data to estimate how consumer choices and customer composition react to changes in these grades. I test not only whether the new information revealed by the changes in grades affect overall business but also whether repeat customers respond differently from transient ones. I find that getting a letter grade lower than an A is associated with an economically small but statistically significant dip in daily revenue and foot traffic. In addition, I find that customers who had frequented the establishment in the past two months were less responsive to that restaurant's grade changes.