Essays on Public Finance and Development

This dissertation consists of three contributions to the literature at the intersection of development economics and public economics, set in the context of Uganda but with broader applications. In each of the three chapters, I use rigorous identification and a rich variety of administrative data to answer interesting and challenging questions about a variety of ways in which the public sector influences and is influenced by economic development./nThe first chapter studies the subnational fiscal response to international aid, and examines how other donors and the Ugandan government respond to exogenous increases in the amount of World Bank funds allocated to local projects. While similar analysis has been done before at the country level, my analysis is the first that is focused on the subnational level. I find evidence of a ``crowding in'' of donors, whereby some other donors follow the lead of the World Bank in determining where to allocate funding across Uganda's smaller administrative units. The crowding in of aid, and the subsequent potential for overspending and diminishing marginal returns, may help explain why international aid sees large returns viewed locally, but smaller returns on national levels./nThe second chapter focuses on a randomized control trial which I conducted with the Uganda Revenue Authority (URA), studying tax compliance in the context of low state capacity. Although the ability of the state to collect tax revenue is crucial for development, relatively little is known about what drives tax compliance and how it can be improved in poor, low-capacity countries. I show that low-cost, easily implementable tax compliance interventions can succeed, testing a highly effective tax encouragement scheme in conjunction with URA. I find a 6x rate of return to sending a simple text message to prospective taxpayers in the days before taxes are due, which increases to 13x when considering an enforcement-focused message; this intervention is estimated to have raised over $12,500 USD. To further understand the levers of tax compliance, I build an extensive, granular, nationwide dataset of public good provision, and utilize machine learning tools to estimate state capacity using this dataset; I then examine the heterogeneity of the treatment effect across different levels of state capacity. I find that the treatment was most effective in areas where state capacity is low, and particularly in areas where state capacity was low and there have been recent investments in public goods. These results suggest that while deterrence-based methods may be most effective across the board, there is a crucial role for fiscal exchange in encouraging tax compliance in low-capacity environments./nThe third chapter focuses on the effects of administrative unit proliferation, or the creation of new subnational administrative units, on the provision of governmental services and the processes of economic development. I utilize a variety of rich data sources on budgets, educational personnel and infrastructure, household well-being, economic activity, political attitudes and voting behavior in a differences-in-differences framework to examine the effects of the 2009-2010 wave of district creation in Uganda. I compare parent districts, which inherit the administrative capacity of their predecessors; newly formed districts, which must build administrative capacity from the ground up; and non-splitting districts, which are unchanged, while controlling for a variety of underlying static and temporally varying characteristics. I find that parent districts benefit from the split in terms of service provision and medium-run economic development, suggesting that smaller districts may have been better able to respond adequately to the needs of the population. However, new districts benefit from the split only in terms of service provision and not in terms of economic development, suggesting that a lack of adminstrative capacity may have hampered their internal growth. These findings suggest that even under favorable conditions for the creation of new districts, a lack of adequate staffing capability may hinder the benefits of decentralization./nJointly, these three papers address three topics crucial to the fields of both development and public economics: fiscal response, taxation, and decisions on governmental size. In other words, this dissertation addresses how countries raise funding, both internally and externally, and where and how capably they spend it. Although I study these questions in the context of Uganda, all three papers have broader implications, whether on the dynamics of international aid, the importance of state capacity to taxation (and vice versa), or the dynamics of economic development under insufficient administrative capacity.

Advisor: Finan, Frederico