Vesal, Mohammad
(2014)
Essays in public economics.
PhD thesis, London School of Economics and Political Science.
Abstract
I present three essays in this thesis. The first essay investigates the decision of small businesses with respect to an optional Flat Rate Scheme (FRS) in the UK. FRS replaces VAT with a turnover tax providing some traders with a tax saving opportunity. Using the universe of VAT returns between 2004-05 and 2010-11, I find 26 percent of eligible traders have non-negative tax gains from FRS. I show gains are highly persistent and not so small, yet only 3 percent of gainers join the scheme after one year. Temporal and spatial correlations point to information frictions and learning as potential explanatory factors. Results show traders registering after introduction of FRS and those registering in high FRS density areas are more likely to join the scheme. The second essay estimates stimulus effect of the temporary reduction in the standard VAT rate in the UK. From 1 December 2008 to 31 December 2009, the standard-rate was reduced from 17.5 to 15 percent. I use the universe of VAT returns submitted to HMRC between 2002 and 2010q1q4 and compare changes in sales growth of standard-rated traders during the cut to that of zero-rated traders
(difference-in-differences). To control for heterogeneous recession effects, I first rely solely on post-recession observations and utilize the fact that the cut and the recession don't fully overlap. Second, I allow for sector specific recession impacts. Both strategies show a small insignificant impact on gross sales and purchases which suggest a proportionate increase in quantity demanded in response to the tax induced price cut. The third essay estimates the impact of Iran Iraq war on educational
attainment of children. I use a two percent sample of 2006 Iran Population Census, and compare exposed cohorts in war provinces to unexposed cohorts (difference-indifferences). The estimates suggest probability of finishing high school is respectively reduced by 4.8 and 1.9 percentage points for cohorts exposed to war in early childhood and those exposed during schooling (former significant at 10 percent, latter insignificant). Interestingly, the war impact on early childhood cohorts is robust to controlling for differential linear trends while the impact on school cohorts is not.
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