Essays in Applied Microeconomics

This dissertation studies topics related to public economics, public policy, and financial economics. The first chapter examines how shifting the tax burden between residential and business property affects local government spending, business activities, and residential mobility. I exploit shifts in the tax burden stemming from staggered reassessment cycles. The infrequency of reassessments results in sudden and often substantial shifts in the property tax burden, while the differential timing of reassessments across towns allows for credible causal identification. The analysis reveals that local governments are not sensitive to revenue source, as shifting the tax burden between residents and businesses does not affect revenue levels or the nature of public expenditures. However, I find that higher business tax burdens reduce the number of small establishments in industries that have low profit margins, a result that is evident in data on local business counts, commercial vacancy rates, and foreclosures. Further, increased business property tax burdens appear to reduce employment levels and wages. In contrast, I do not find significant evidence of increased residential mobility. The analysis is informative for tax policy and contributes to the literatures on the residual versus strategic views of tax rate setting and the benefit versus capital views of tax incidence. In Chapter 2, we provide new evidence of the "flypaper effect" in a context of a budget shortfall generated by a targeted tax reduction. Specifically, we examine whether local government increases tax revenue from other sources, reduces expenditures that benefit the targeted group, and consider the net impact of these responses on income and economic productivity after China abolished its agricultural tax in 2004. Comparing nearly identical counties in adjacent provinces reveals that differences in revenue shortfall are not offset by increased taxes. However, local agriculture expenditure is disproportionately reduced, attenuating the benefits to farmers. Further, farmers in counties that experienced larger revenue shortfalls suffered losses of net income.The final chapter investigates the impacts of firm scandals by scandal types and sectors. This chapter exploits a unique setting that generates a large set of systematically reported scandals, allowing us to measure investors' responses across scandal types. We document the recent 10-year scandals and use an event study approach to estimate the effects across product quality, personal information, and business practice scandals. We find that the effects are the largest for defective products, but there are also strong negative responses to personal information breaches. We find little stock response to the revelation of deceptive business practices. We also make comparisons across industry sectors and find that the consumer goods sector suffers the largest impacts, followed by the services sector, while the technology sector exhibits the smallest responses. These results shed light on how the market responds to various types of scandals and whether some industries are more vulnerable to negative effects