“An instrumental variables (IV) identification strategy that exploits statutory class size caps shows significant achievement gains in smaller classes in Italian primary schools. Gains from small classes are driven mainly by schools in Southern Italy, suggesting a substantial return to class size reductions for residents of the Mezzogiorno. In addition to high unemployment and other social problems, however, the Mezzogiorno is distinguished by pervasive manipulation of standardized test scores, a finding revealed in a natural experiment that randomly assigned school monitors. IV estimates also show that small classes increase score manipulation. Estimates of a causal model for achievement with two endogenous variables, class size and score manipulation, suggest that the effects of class size on measured achievement are driven entirely by the relationship between class size and manipulation. Dishonest scoring appears to be a consequence of teacher shirking more than teacher cheating. These findings show how consequential score manipulation can arise even in assessment systems with few NCLB-style accountability concerns.”
-Joshua Angrist, Erich Battistin, and Daniela Vuri, “In a Small Moment: Class Size and Moral Hazard in the Mezzogiorno.” So good.
“When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that, in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to low interest rates.”
-Isabel Correia, Emmanuel Fahri, Juan Pablo Nicolini, and Pedro Teles, “Unconventional Fiscal Policy at the Zero Bound.”
This is such a confusing constellation of views. And yes that appeared in AER last year.
“Impulse responses to government spending shocks in Standard Vector Autoregressions (SVARs) typically display ‘expansionary’ features. However, SVARs can be subject to a ‘non-fundamentalness’ problem. ‘Expectations – Augmented’ VARs (EVARs), which use direct measures of forecasts of defense spending, typically display ‘contractionary’ responses to a defense news shock. I show that, when properly specified, SVARs and EVARs give virtually identical results. The reason for the widespread, opposite view is that defense shocks have ‘contractionary’ effects while civilian government spending shocks have ‘expansionary’ effects. Existing EVARs and SVARs, however, include only total government spending. In addition, the former are typically estimated on samples that include WWII and the Korean war, when defense shocks prevailed, while the latter are estimated mostly on post-1953 samples, when civilian shocks prevailed.”
-Roberto Perotti, “Defense Government Spending Is Contractionary, Civilian Government Spending Is Expansionary.” This is the most important paper of the year for the government spending multipliers debate. I don’t quite believe it from my sorta dilettante understanding of modern empirical macro, but that might just be the confirmation bias talking. I may post on it in the future.