My dissertation addresses a variety of fiscal issues relating to the education sector in the United States. The funding of education in the Unities States is a complex topic which relies of a variety of programs at the Federal, state, and local level. This dissertation moves the literature forward by evaluating how these relationships respond to major policy changes.My first chapter seeks to identify the effect that public sector unions have on compensation. Specifically, I look at the compensation premium associated with teachers;; unions in Wisconsin. In 2011, Wisconsin passed a landmark law (Act 10) which significantly lowered the bargaining power of all public sector unions in the state. Using an event study framework, I exploit plausibly exogenous timing differences based on contract renewal dates, which caused districts to be first exposed to the new regulations in different years. I find that the reduction in union power associated with Act 10 reduced total teacher compensation by 8%, or $6,500. Roughly two-thirds of this decline is driven through reduced fringe benefits. Subgroup analysis shows that the most experienced and highest paid teachers benefit most from unionization. I supplement the event study approach with synthetic control methods to find that regulatory limits on contract terms, rather than other mechanisms such as state financial aid cuts or union decertification, are driving the results. My second chapter estimates the short-run flypaper effect in the education sector. From 2009-2012, the Federal government increased aid for K-12 education by a factor of 1.5.This expansion was channeled in large part through three formula-based programs - Title I, Special Education, and the State Fiscal Stabilization Fund. I exploit non-linearities in the Federal grant funding mechanisms to estimate the effects of these grants on local district spending and employment outcomes. I find that each $108,000 in grants lead to one additional hire per year. I also find that fiscal response to grants is sensitive to the nature of the program. Grants related to the temporary Stabilization Fund were nearly completely crowded out, while grants related to expanding permanent programs such as Title I or Special Education increased total spending nearly dollar to dollar.The final chapter (with Morris Hamilton) seeks to identify the causal relationship between increased state Medicaid obligations and higher education spending. After several decades of Federal mandates and high rates of health cost inflation, Medicaid spending has taken an increasingly larger share of state budgets, forcing states to make offsetting cuts elsewhere. We argue that state governments are likely to cut higher education in response to these changes, as institutions of higher education have the capacity to find additional revenues elsewhere. We use Federally administered Supplemental Security Income (SSI) enrollments to instrument for state Medicaid spending. We find that a $1.00 increase in Medicaid costs leads to a decrease in higher education subsidies of 20 cents to 37 cents. Our approach provides estimates which are both more credible and more precise than those which have previously been used in the literature.
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