- Authors: Stephen Schmidt, Therese McCarty
- Abstract: We use a twenty-one year panel of data to examine the role of past income and aid, and expectations of future income, in regressions explaining state and local education spending. We show that simple estimates of the elasticity of spending with respect to financial resources are not robust to specification changes because the variables are non-stationary over time, causing inconsistent estimation of model parameters. Estimation in first differences (or equivalently, in growth rates) solves the time-series problems and produces robust estimates of the model's parameters. We then show that current spending by states responds to changes in expected future income. This explains why using fixed effects in simpler models reduces estimated income elasticities; fixed effects partially capture permanent income effects on spending. Estimates of lagged income are significant when used in models that do not explicitly model the expectations process, but present and past aid both have no effect on education spending. Models with structural assumptions about expected income produce estimates very similar to simpler models which include lagged information on income as a control variable. We conclude with recommendations for estimating models when only cross-section data or only short panels are available.
- Article: "Estimating Permanent and Transitory Income Elasticities of Education Spending from Panel Data"
Public Finance, Economics of Education
ARTICLE: Stephen Schmidt & Therese McCarty, "Estimating Permanent and Transitory Income Elasticities of Education Spending from Panel Data." Journal of Public Economics - October 2008
ARTICLE: Therese McCarty, Terri A. Sexton, Steven M. Sheffrin & Stephen D. Shelby, “Allocating Property Tax Revenue in California: Living with Proposition 13.” State Tax Notes - March 2002
- Authors: Therese McCarty, Terri A. Sexton, Steven M. Sheffrin & Stephen D. Shelby
- Abstract: The authors suggest new ways of allocating California property tax revenue among local governments. They propose basing allocation on assessed value and population. The change would result in a revenue gain for 82 percent cities, but only 15 percent of counties.
- Article: “Allocating Property Tax Revenue in California: Living with Proposition 13”
ARTICLE: Therese McCarty & Stephen Schmidt, "Dynamic Patterns in State Government Finance." Public Finance Review - May 2001
- Authors: Therese McCarty, Stephen Schmidt
- Abstract: The authors estimate vector autoregressions for three categories of state government expenditure: education, highways, and welfare. Each regression contains state expenditure on that category, federal aid to the state in that category, total federal aid to the state, state general revenue, and personal income. The authors calculate impulse response functions for these vector autoregressions to analyze changes in aid and expenditure over time. The authors find that deviations in expenditure and category-specific aid have large and long-lasting effects on future expenditure. Category-specific aid has a much stronger effect than aid, revenue, or income, suggesting a flypaper effect in which aid is spent disproportionately in the category in which it is granted. This effect persists for up to 5 years, suggesting that there are structural dynamic links between category-specific aid and expenditure by states on those categories.
- Article: "Dynamic Patterns in State Government Finance"
ARTICLE: Therese McCarty & Stephen Schmidt, "A Vector-Autoregression Analysis of State-Government Expenditure." The American Economic Review - May 1997
- Authors: Therese McCarty & Stephen Schmidt
- Article: "A Vector-Autoregression Analysis of State-Government Expenditure"
ARTICLE: Therese McCarty, "Demographic Diversity and the Size of the Public Sector." Kyklos - February 1993
- Author: Therese McCarty
- Abstract: We investigate the possibility that diversity in income, religion, and ethnicity affects the size of a country's public sector. Public provision of goods may be inefficient in the presence of diverse preferences about public sector spending, and voters may be unwilling to finance transfer payments to people whom they perceive as different from themselves. We find that ethnic diversity discourages transfer payments by central governments, and that income diversity discourages other public expenditure.
- Article: "Demographic Diversity and the Size of the Public Sector"
ARTICLE: Therese McCarty & Suthathip Yaisawarng, "Technical Efficiency in New Jersey School Districts." The Measurement of Productive Efficiency: Techniques and Applications, Oxford University Press - 1993
- Authors: Therese McCarty & Suthathip Yaisawarng
- Article: "Technical Efficiency in New Jersey School Districts"
ARTICLE: Therese McCarty & Harvey Brazer, "On Equalizing School Expenditures." Economics of Education Review - 1990
- Authors: Therese McCarty & Harvey Brazer
- Abstract: A conflict between efficiency and equity exists in the provision of public education. We examine this conflict and consider a compromise approach to school finance, “district power equalization” (DPE). DPE has never been implemented in its “pure” form, which would require raising tax prices in wealthy districts as well as lowering them in poorer districts. We present simulations of districts' expenditure per pupil under two DPE plans in three states. We find that a “pure” DPE plan would reduce variance in expenditure among districts and have sometimes dramatic consequences for the rank ordering of districts within a state by expenditure per pupil.
- Article: "On Equalizing School Expenditures"
ARTICLE: Therese McCarty, "The Effect of Social Security on Married Women’s Labor Force Participation.” National Tax Journal - 1990
- Author: Therese McCarty
- Abstract: The Social Security program potentially affects labor supply decisions by altering the wage rate and by creating non-labor retirement income. As a group, married women's wage rates are reduced by relatively high net payroll tax rates. Using a probit procedure to estimate a labor force participation equation with data from the Retirement History Survey, we find that high net payroll tax rates are a labor supply disincentive for many married women, particularly those near retirement age. However, Social Security wealth, the present value of claims to future benefits, does not appear to affect women's labor supply decisions.
- Article: "The Effect of Social Security on Married Women’s Labor Force Participation”
ARTICLE: Therese McCarty & Harvey Brazer, “Interaction Between Demand for Education and for Municipal Services.” National Tax Journal - 1987
- Authors: Therese McCarty & Harvey Brazer
- Abstract: In recent litigation in several states it has been contended that a high demand for municipal services impinges on the community's capacity to provide an adequate educational opportunity to its children. This alleged interaction between demand for education and for municipal services is commonly known as "municipal overburden." It is now widely accepted among educators and enjoys a place among established "facts" in opinions handed down by jurists in at least three states. In this paper we test the validity of the hypothesis in Connecticut, New Jersey, and Virginia. The results of our estimations are highly consistent across the three states. The municipal overburden concept, in its several versions, contributes not at all to explanation of variance among school districts in per pupil expenditures for elementary and secondary education. Rather, the results strongly suggest that the demand for both education and municipal services is a function of income, price, and preferences. Such characteristics of cities as high incidence of poverty, unemployment, aged people, an old housing stock, and high population density have little or no predictive value in equations estimating demand for municipal services.
- Article: “Interaction Between Demand for Education and for Municipal Services”
College service and administration
Interim Dean of Studies, Fall 2018
Stephen J. and Diane K. Ciesinski Dean of the Faculty and Vice President for Academic Affairs, 2007-2016
Acting President July-December 2013
Interim Dean of the Faculty and Vice President for Academic Affairs, 2005-2007
Member, Minerva Council, 2004-2005
Chair, Department of Economics, 2001-2004
Chair, Faculty Executive Committee, 1998-2000
Chair, Social Sciences Division, 1996-98
Chair, Benefits Committee, 1997-98
Member, Faculty Appeals Committee, 1995-98
Other professional activities
Visiting Scholar, Center for State and Local Taxation, University of California At Davis, 2000-2001.
Visiting Research Fellow, Center for the Study of the States, Rockefeller Institute, Albany, NY 1994.
Visiting Faculty, Center for International Education, Kansai Gaidai University, Japan (Union College Term Abroad), Fall 1993.