Economics with an Open Mind


By Lea Bart
Apr 10, 2014 Bookmark and Share

Ugo Troiano

 

Ugo Troiano, Assistant Professor of Economics, joined the Department in Fall 2013. He has a BA and M.Sc. from Bocconi University in Milan, Italy, and received a PhD in Economics from Harvard in 2013. He specializes in public finance and political economy, with an international focus. I sat down to talk to him about his work and experiences at the University.

 

Tell me a little about your path here. What made you interested in the field of public finance?

I became interested in economics by following the economic and political situation of the city where I grew up – Taranto, in southern Italy. Taranto’s economy has been dominated for 50 years by the largest steelworks in Europe. For many years politicians failed to enforce environmental regulation, leading to increased rates of pollution related diseases. These circumstances made me realize quite early on the potential links between political and economic failures, the fact that policymakers are not necessarily altruistic, and the important role that public economic decisions can have on the life of many people.

 

How has your experience at the University been so far?

My experience at the University has been great so far. I really appreciate the University’s pride in their community. Everyone has been very nice to the starting junior faculty and I immediately felt like a part of this community. The first month I was here James Hines, a senior economist in my area of interest, invited me to watch the football game against Notre-Dame (we won!).

I also enjoy the free interaction between fields and Departments here. I often see faculty in other fields attending public finance talks, and I enjoy attending talks in other fields. I am excited about the ability to interact and exchange ideas with researchers across the whole community.

 

How do you feel about the classes you have taught and will be teaching?

I am currently teaching a public finance course for graduate students, Econ 684, and next year I will also be teaching the undergraduate course Econ 481: Government Expenditures. I am enjoying teaching public finance to students. Teaching those classes is a unique opportunity to affect how future generations will think about the field.

In the last few decades public finance has been comparatively more focused on taxes rather than on the rest of factors that can affect the relationship between the government and economic well-being. In my classes I am trying to teach not only taxes, but also those concepts that have received less attention in the last decades, such as political economy and community values. One of the founders of the field, Richard Musgrave, made clear in several of his books and articles that both political economy and community values should be of interest for public economists, but existing research on those topics lags behind the rest.

 

What is one thing you’d like people to know about the work you do?

I believe that future empirical research in public finance will be increasingly focused on studying specific institutions across the world. Traditionally, public finance has been focused on studying U.S. institutions, even when other countries offered data and settings that were better suited to answer the given question. However, in the past 10 years the field has been changing.

Several papers recently published in the top economic journals studied countries such as Brazil, China, Denmark, Italy, Russia, Sweden, and many others. Data availability for a given question, and the quality of the policy experiments, change from country to country and from question to question, and the new generation of public economists should probably have an international and open-minded perspective.


Outside of research and work, what do you like to do?

I like to watch movies, travel, and go to restaurants. I also enjoy soccer, although I have to say I am much better at watching it than playing it. I am a big supporter of Internazionale, one of the two soccer teams in Milan, and I am also slowly catching up with American football. Go Blue!

 

You have two published papers and are working on quite a few more. Can you tell me about each of your published papers and the results?

My first publication dealt with exploring whether political corruption is more diffuse in regions with low social capital, and why in those regions the quality of public good provision is much lower. The conjecture that social capital can affect equilibrium corruption and rent extraction was first made by the political scientists Banfield and Putnam in some of the most cited political science works of the last century. Interestingly, those political scientists developed this idea while thinking about the differences between northern and southern Italy. However, little evidence has been provided on those claims because of the lack of credible data on corruption, and because of lack of variation in social capital within a given administrative territory. We use Italian data, both for the (unfortunate) availability of corruption data and because there is widespread variation of social capital within Italy. In the work we show how corruption is more widespread in areas with less social capital, and, when politicians are corrupt, they are disproportionately more likely to be punished in high social capital areas.

The second publication is focused on explaining the large variation in the length of maternity leave across countries. Traditional public finance models predict that providing a longer maternity leave, under reasonable assumptions in those models, would hurt women, rather than helping them. However, the data seems at odd with that conclusion. As we show in the paper, the more gender-equal societies provide a longer, rather than a shorter leave. Thus, we amend the traditional model to reconcile it with the existing data. Our main idea is that a society’s tolerance of gender discrimination affects the optimal length of leave. We show theoretically that increasing the length of leave in gender-equal countries does not reduce women’s salaries nearly as much as in societies that are hostile to women, and that this might be a causal relationship. 

 

Since this issue of the newsletter has a tax focus, I’d like to hear about the research you’re working on about anti-tax evasion programs.

Although many economists, including my senior colleague Joel Slemrod, have studied tax compliance and its determinants, there is little evidence regarding the political effects of tax enforcement. Policies that target specific forms of tax evasion have theoretically ambiguous effects on the electorate. Understanding the incentives of the policymakers to enforce taxation can help design better policies to maximize compliance.

First, my co-author and I present a theoretical framework to formalize the trade-off involved in thinking about tax evasion enforcement from a political economy perspective. The model predicts that the political returns to fighting tax evasion should be higher where the efficiency of public good provision is higher and when tax culture is more hostile to evaders. One Italian governmental agency compared aerial pictures of the whole country with tax base registry maps, detecting 2 million buildings that were unregistered in the tax base record. We used this data to show that higher enforcement leads to increased likelihood of reelection for incumbent politicians. The fact that the program allows local politicians to increase public good provision, as well as that tax enforcement and tax culture are complementary, are some likely explanations.

 

What type of work would you like to do in the future?

In the future I would like to continue to explore the link between government public finances and politicians incentives. Often politics and the incentive to get re-elected can distort the choices that policy-makers make. Economists and other social scientists should work together to understand how to create mechanisms that reduce these political distortions and provide the correct incentives to policy-makers.

 

Special thanks to Assistant Professor Troiano for his help with this piece.