inequality and the dynamics of public opinion the self reinforcing link between economic inequality and mass preferences this article assesses the influence of income inequality on the public s policy mood recent work has produced divergent perspectives on the relationship between inequality public opinion and government redistribution one group of scholars suggests that unequal representation of different income groups reproduces inequality as politicians respond to the preferences of the rich another group of scholars pays relatively little attention to distributional outcomes but shows that government is generally just as responsive to the poor as to the rich utilizing theoretical insights from comparative political economy and time series data from 1952 to 2006 supplemented with cross sectional analysis where appropriate we show that economic inequality is in fact self reinforcing but that this is fully consistent with the idea that government tends to respond equally to rich and poor in its policy enactments

why are taxes so high in egalitarian societies in an analysis of the relative income or relative consumption hypothesis it is shown that if the ratio of agent i s consumption to agent j s consumption enters into the utility function a tax on labor income may increase welfare for all agents if pretax wage inequality is low all agents will unanimously be in favor of such a tax thus there will be a tendency for taxes to be high in societies where pretax wage inequality is low copyright 1995 by the editors of the scandinavian journal of economics

the power of parties evidence from close municipal elections in norway we show that small shifts in representation can affect policy in proportional election systems using data from norway we find that a larger left wing party leads to more property taxation higher child care spending and less elderly care spending while local public goods appear to be a non partisan issue these effects are partly due to shifts in bloc majorities and partly due to changes in the left right position of the council keeping the majority constant the estimates on spending allocations are rather imprecise but they are consistent with evidence on politicians fiscal preferences and patterns in media attention this article is protected by copyright all rights reserved

democracy comes to europe franchise extension and fiscal outcomes 1830 1938 abstract this paper examines the relation between public spending and the spread of democracy in western europe during the period 1830 1938 our data set includes measures of the size of the electorate the election rule and electoral participation as well as measures of the size and composition of central government expenditures for 12 countries we estimate panel regressions and find that 1 the gradual lifting of socio economic restrictions on the voting franchise contributed to growth in government spending mainly by increasing spending on infrastructure and internal security 2 the female suffrage had a weak positive effect through spending on health education and welfare 3 the change from majority to proportional rule which took place in 10 of the countries did not contribute to growth in government spending and held back spending on health education and welfare 4 there exists weak complementarity between economic development and the spread of democracy

tax limited reaction functions summary this paper models for the first time a spatial process in local tax policies in the presence of centrally imposed fiscal limitations focusing on the frequently encountered case of a tax rate cap we evaluate three empirical approaches to the analysis of spatially dependent limited tax policies i a bayesian spatial approach for censored dependent variables ii a tobit corner solution model augmented with a spatial lag iii a spatial discrete hazard model the evidence arising from an investigation of severely state constrained local vehicle taxes in italy suggests that ignoring tax limitations can lead to substantial underestimation of inter jurisdictional fiscal interaction copyright 2011 john wiley sons ltd

how to identify trust and reciprocity this paper uses a three games or triadic design to identify trusting and reciprocating behavior a large literature on single game trust and reciprocity experiments is based on the implicit assumption that subjects do not have altruistic or inequality averse other regarding preferences such experimental designs test compound hypotheses that include the hypothesis that other regarding preferences do not affect behavior in contrast experiments with the triadic design do discriminate between transfers resulting from trust or reciprocity and transfers resulting from other regarding preferences that are not conditional on the behavior of others decomposing trust from altruism and reciprocity from altruism or inequality aversion is critical to obtaining empirical information that can guide the process of constructing models that can increase the empirical validity of game theory

tests of a rational theory of the size of government in many countries the political party holding power changes more frequently than the trend growth rates in government spending and taxes shifts of political power are often preceded by rhetoric about meeting needs or cutting taxes which post election performances rarely match yet changes in the size of government up and down occur on average the size of government measured by the share of taxes or spending to output has increased in many countries during the past century but changes in size occur at diffrent rates and at times the relative size of government declines

legislative organization and pollution taxation the role of political institutions in shaping public policy has been analyzed in isolation from corruption and legislative organization specifically bicameralism has received minimal attention we analyze pollution taxation when decisions are influenced by several veto players such as legislative chambers our theory predicts that an increase in the number of veto players e g moving from uni to bi cameralism pushes the pollution tax towards the social optimum with the effect being conditional on corruption as such dispersion around the optimal tax is lower under bicameralism empirical tests using data from 86 countries support the theory

democratic institutions versus autocratic regimes the case of environmental policy the literature suggests that democracy positively affects environmental policy stringency using the method of propensity score matching we find that this result appears to be largely driven by the parliamentary democracies as opposed to the presidential congressional proportional or majority systems moreover it appears that presidential congressional systems often set environmental policies not significantly different from autocracies these are novel contributions to the literature

property tax and fiscal discipline in oecd countries this paper investigates the effects of property taxation on fiscal discipline for a sample of oecd countries over the period 1973 2011 we find that aggregate property taxation in total tax revenues is not statistically correlated with the primary surplus to gdp ratio in contrast a greater reliance on property taxes pertaining to sub national governments contributes to fiscal discipline suggesting that fiscal decentralization should favor responsive tax base instruments

demand for local public spending evidence from the british social attitudes survey the british social attitudes survey bsas is a uk wide survey that provides a rich source of information on individuals attitudes to a variety of topics including locally provided service in this paper we seek to model answers to questions on attitudes to local authority spending which invite the expression of a private demand for local public spending a convincing picture has emerged of locally provided public goods as imperfectly congested public goods with a price elastic and probably income inelastic demand the view that central government grants may induce voter confusion over tax prices of public services also finds support

state responses to fiscal crises the effects of budgetary institutions and politics this paper explores the dynamics of state taxes and spending during the late 1980s when regional economic downturns and increased expenditure demands led to substantial state budget deficits more restrictive state fiscal institutions such as no deficit carryover rules and tax and expenditure limitations are correlated with more rapid fiscal adjustment to unexpected deficits political factors are also important when a single party controls the state house and the governorship deficit adjustment is much faster than when party control is divided in gubernatorial election years tax increases and spending cuts are both significantly smaller than at other times

explaining the appearance and success of open space referenda many communities in the united states have begun enacting policies to preserve open space often through local voter referenda new jersey sponsors such municipal action through the green acres program by providing funding and low interest loans to towns that choose to increase property taxes and spend the money raised on open space preservation for the purposes of conservation and or recreation this paper endeavors to understand which factors contribute to the appearance and success of these measures although previous literature has examined this issue this is the first study to account for spatial dependence spatial autocorrelation and to explore dynamic issues through survival analysis the traditional two stage model from the literature is extended by incorporating a bayesian spatial probit for the first stage and a maximum likelihood spatial error model in the second stage a cox proportional hazard model is used to examine the timing of referenda appearance spatial dependence is found in the second stage of the analysis indicating that future studies should account for its influence there is no strong evidence for spatial dependence or correlation in the first stage the survival model is found to be a useful complement to the traditional probit analysis of the first stage

the politics of digits evidence of odd taxation from the concept of odd pricing i e setting rightmost price digits below a whole number this paper advances the political counterpart of odd taxation using a panel of danish municipal taxes first the distribution of tax decimals is non uniform and resembles the distribution of price endings data second nine ending and other higher end decimals are found to be over represented which echoes odd pricing research it suggests that incumbents take voters biases into account and apply odd taxes to minimize the political costs of taxation while maximizing revenue attention should be given to how policy digits are arranged to exploit voters cognitive biases

inequality redistribution and growth a challenge to the conventional political economy approach abstract this paper reconsiders the conventional political economy view that 1 1 more unequal societies tend to make more redistribution and 2 2 more redistribution is harmful to growth we present a number of theoretical arguments suggesting that the two previous implications are not necessarily true and that the empirically observed negative correlation between inequality and growth might just come from the fact that more unequal societies tend to redistribute less which in turn is actually detrimental to growth

income inequality size of government and tax progressivity a positive theory abstract i investigate the relationship between income inequality and the composition of public spending in redistributive policies i extend the meltzer richard model of voting over redistribution allowing voters to choose not only the amount of a uniform lump sum transfer but also the level of provision of a public good the governmental budget is balanced thus these two choices determine the tax rate on labor income the multidimensionality of the policy space implies that there is no condorcet winner i adopt a citizen candidate model of electoral competition to tackle this problem i show that the progressivity of the tax system is increasing in the mean to median income ratio while the size of the government need not be this means that higher income inequality implies a more progressive tax system but in contrast with the traditional analysis it may also result in a smaller size of government such results are consistent with the most recent findings in the empirical literature

foreign aid and market liberalizing reform market oriented economic policies reflected in limited economic activity by government protection of private property rights sound monetary policy outward orientation regarding trade and efficient tax and regulatory policy have been strongly linked to faster rates of economic growth foreign aid is often provided in the belief that it encourages liberalizing reforms in these areas this paper analyzes the impact of aid on market liberalizing policy reform correcting for the possible endogeneity of aid results indicate that higher aid slowed reform over the 1980 2000 period as measured by a broad index of policies disaggregating policy into five areas aid is significantly linked to slower reform in some policy areas but not in others disaggregating by decade aid s adverse impact on policy reform is much more pronounced for the 1980s than for the 1990s

fiscal illusion and political accountability theory and evidence from two local tax regimes in britain local tax reform in britain in 1993 reinstating a propertytax may have reversed some intended fiscal illusion reducing and accountability improving features of the poll tax itself a reform introduced in 1990 with the specific aim ofpromoting accountability we formalize these features withina median voter model of the demand for local publicexpenditure that distinguishes between accountability andfiscal illusion effects the model shows that a prioriaccountability effects on expenditures are ambiguous available data for england and wales are used to test themodel we find strong evidence of grant illusion the flypapereffect similar across tax regimes with evidence of renterillusion and of less accountability under the property tax the degree of local income inequality appears to affectexpenditure levels only with the property tax

evaluation of property tax bonus to promote solar thermal systems in andalusia spain abstract this paper evaluates the effects of a property tax bonus to promote the installation of solar thermal energy systems in buildings in andalusia southern spain the propensity score matching methodology is used the treatment group consists of municipalities of andalusia that established property tax bonuses in their municipalities in 2010 the control group consists of municipalities that did not the response variable measures the number of new square meters of solar thermal systems installed in 2010 the analysis leads to the conclusion that municipalities that established a property tax bonus had installed on average 102 245 to 122 389 square meters more these results indicate that the percentage increase in squares meters installed in municipalities which adopted the tax bonus promotion ranged from 70 74 to 98 38 these percentages were lower for rural municipalities 49 00 to 77 06

a theory of focal points the paper presents a theoretical framework that distinguishes between the strategic structure of a game the existential game and the way the players describe the game to themselves each player works with a private description of the game in which strategies are identified by labels labels are generated by a stochastic labeling procedure each player chooses a decision rule which for each possible private description picks one of the available strategy labels a criterion of collective rationality is applied to choices among decision rules the implications of collective rationality are explored for a range of games with different labeling procedures copyright 1995 by royal economic society

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

electoral rules and environmental policy abstract this paper investigates the effect of electoral rules on environmental policymaking using several estimators from the program evaluation literature we find that governments set stricter environmental policies under proportional as opposed to majoritarian systems

fragmented fiscal policy abstract this paper explores on a panel of 19 oecd countries the role of fragmentation in determining fiscal outcomes over the 1970 95 period we first define the notion of fragmentation of fiscal policy making as the degree to which the costs of a dollar of aggregate expenditure are internalized by individual decision makers empirically this notion has two key logical components the number of decision makers and the rules of the game or the budget process in turn the number of decision makers can refer to the number of parties in a coalition or the number of ministers in the cabinet we test all these determinants against each other and against perhaps the oldest explanation of all ideology we show that cabinet size and to a lesser degree coalition size and ideology are significant and robust determinants of fiscal outcomes in particular transfers are the budget items most affected by these factors

the influence of decentralized taxes and intergovernmental grants on local spending volatility abstractthe influence of decentralized taxes and intergovernmental grants on local spending volatility regional studies this paper studies what affects the volatility of sub central public spending in 20 organisation for economic co operation and development oecd countries the evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure on the other hand the volatility of local tax revenues mainly that of property taxes exerts the opposite effect these findings suggest that making local governments rely more on grants than own tax revenues adversely affects their spending stability allowing them to levy autonomously taxes relying on responsive tax bases provides incentives to smooth their expenditure

does firm size comfound the relationship between corporate social performance and firm financial performance there has been some theoretical and empirical debate that the positive relationship between corporate social performance csp and firm financial performance ffp is spurious and in fact caused by a third factor namely large firm size this study examines this question by integrating three meta analyses of more than two decades of research on 1 csp and ffp 2 firm size and csp and 3 firm size and ffp into one path analytic model the present study does not confirm size as a third factor which would confound the relationship between csp and ffp that is even if firm size is controlled for across studies comprising on average over 15 000 observations csp and ffp remain positively correlated showing a true score corrected path coefficient p of 0 37

the size and scope of government comparative politics with rational politicians we try to demonstrate how economists may engage in research on comparative politics relating the size and composition of government spending to the political system a downsian model of electoral competition and forward looking voting indicates that majoritarian as opposed to proportional elections increase competition between parties by focusing it into some key marginal districts this leads to less public goods less rents for politicians more redistribution and larger government a model of legislative bargaining and backward looking voting indicates that presidential as opposed to parliamentary regimes increase competition between both politicians and voters this leads to less public goods less rents for politicians less redistribution and smaller government we confront these predictions with cross country data from around 1990 controlling for economic and social determinants of government spending we nd strong and robust support for the prediction that the size of government is smaller under presidential regimes and weaker support for the prediction that majoritarian elections are associated with less public goods

a meeting of the minds informal agreements and social norms using coordination games we elicit social norms directly for two different games where either an agreement to take the first best action has been reached or where no such agreement exists we combine the norms data with separately measured choice data to predict changes in behavior we demonstrate that including social norms as a utility component significantly improves predictive performance then we compare social norms to guilt aversion and lying aversion we estimate that honoring an agreement in the double dictator game is worth giving up approximately 10 of total earnings and more than 120 in the bertrand game we show that informal agreements affect behavior through their direct effect on social norms as well as through an indirect effect on beliefs this paper was accepted by uri gneezy behavioral economics

budget spillovers and fiscal policy interdependence evidence from the states abstract this paper formalizes and tests the notion that states expenditures depend on the spending of similarly situated states we find that even after allowing for fixed state effects year effects and common random shocks among neighbors a state government s level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors ceteris paribus a one dollar increase in a state s neighbors expenditures increases its own expenditure by over 70 cents

bayesian spatial probit estimation a primer and an application to hyv rice adoption increasingly spatial econometric methods are becoming part of the standard toolkit of applied researchers in agricultural environmental and development economics nonetheless applications in discrete choice settings remain few and despite its appeal applications of the bayesian paradigm in these settings are still fewer we provide a primer to the bayesian spatial probit with the objective of making accessible to non users a class of iterative estimation methods that have become fairly routine in bayesian circles offer an extremely powerful addition to applied researchers toolkits and are essential in bayesian implementation of spatial econometric models we demonstrate the methods and apply them to estimate the neighbourhood effect in high yielding variety hyv adoption among bangladeshi rice producers we estimate the strength of this relationship using a standard spatial probit model and compare the policy conclusions with and without the neighbourhood effect included

optimal contracting with endogenous social norms research in sociology and ethics suggests that individuals adhere to social norms of behavior established by their peers within an agency framework we model endogenous social norms by assuming that each agent s cost of implementing an action depends on the social norm for that action defined to be the average level of that action chosen by the agent s peer group we show how endogenous social norms alter the effectiveness of monetary incentives determine whether it is optimal to group agents in a single or two separate organizations and may give rise to a costly adverse selection problem when agents sensitivities to social norms are unobservable

assistance to the poor in a federal system abstract this paper explores the roles of different levels of government in assisting the poor using a model incorporating utility interdependence the paper first presents some theoretical results indicating how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support it then provides a survey of the empirical work on migration of the poor along with a brief historical discussion of the experience under the english poor laws the concluding section turns to normative issues and contends that mobility of the poor is a basic source of inefficiency in wholly decentralized systems of support this inefficiency along with certain other equity considerations establishes a role for the central government in assistance to the poor

local choice of property taxation evidence from norway fiscal competition may influence the design of tax systems the tax competition literature has concentrated on mobility of tax base and tax levels while we turn the attention to the political decision making system and the determination of tax structure in the norwegian setting local governments make a discrete choice whether to have property tax the local choice is investigated in an econometric model allowing for yardstick competition our results indicate that yardstick competition explains the distinct geographic pattern in local property taxation observed grants have no effect on the propensity to have property taxation consistent with the flypaper effect the main methodological challenge handled concerns spatial interaction with discrete choice

redistributive public employment abstract politicians may use disguised redistributive policies in order to circumvent opposition to explicit tax transfer schemes first we present a theoretical model that formalizes this hypothesis next we provide evidence consistent with the prediction of the model namely that in u s cities politicians use public employment as such a redistributive device we find that city employment is significantly higher in cities where income inequality and ethnic fragmentation are higher

voting for income immiserizing redistribution in the meltzer richard model this paper argues that income received via redistributive transfers unlike labor income requires no direct sacrifice of leisure this makes it attractive to many voters even if it leaves them poorer this point is made within the classic meltzer and richard 1981 model wherein heterogeneous voters evaluate an income redistribution program that finances a lump sum transfer to all via a distorting income tax the politicalequilibrium policy under majority rule is the tax most preferred utility wise by the median voter she and many poorer voters may support income redistribution that ironically leaves them poorer in income terms but with higher utility jel h2 e6 d

comparative politics and public finance we propose a model with micropolitical foundations to contrast different political regimes compared to a parliamentary regime the institutions of a presidential congressional regime produce fewer incentives for legislative cohesion but more separation of powers these differences are reflected in the size and composition of government spending a parliamentary regime has redistribution toward a majority less underprovision of public goods and more rents to politicians a presidential congressional regime has redistribution toward powerful minorities more underprovision of public goods but less rents to politicians the size of government is smaller under a presidential regime this last prediction is consistent with cross country data

comparative politics and environmental taxation abstract in this paper we take a step towards understanding the role of democratic institutions on the level of pollution taxation persson et al j polit economy 108 2000 1121 argue that presidential congressional regimes set lower taxes than parliamentary regimes this conclusion results from the checks and balances built into the former and the higher degree of legislative cohesion in the latter we test this prediction on gasoline and diesel prices using the method of propensity score matching along with data from 86 democratic countries the empirical evidence is consonant with the theory we find that ceteris paribus the average price of super gasoline is 0 14 0 20 less per liter in presidential congressional systems the average price of diesel gasoline is 0 11 0 14 less per liter

federal deductibility and local property tax rates abstract recent econometric work has suggested that federal deductibility of state and local taxes has raised the proportion of these taxes especially property taxes in local budgets this paper lends additional support to these earlier findings by showing that one channel through which deductibility leads to higher local property tax revenues is by increasing the rate of local property taxation specifically we find that if deductibility were eliminated the mean property tax rate in our sample would fall by 0 00715 7 15 per 1000 of assessed property or 21 1 of the mean tax rate

license to cheat voluntary regulation and ethical behavior although monitoring and regulation can be used to combat socially costly unethical conduct their intended targets can often avoid regulation or hide their behavior this surrenders at least part of the effectiveness of regulatory policies to firms and individuals decisions to voluntarily submit to regulation we study individuals decisions to avoid monitoring or regulation and thus enhance their ability to engage in unethical conduct we conduct a laboratory experiment in which participants engage in a competitive task and can decide between having the opportunity to misreport their performance or having their performance verified by an external monitor to study the effect of social factors on the willingness to be subject to monitoring we vary whether participants make this decision simultaneously with others or sequentially as well as whether the decision is private or public our results show that the opportunity to avoid being submitted to regulation produces more unethical conduct than situati

the composition of government expenditure economic conditions and preferences i introduction there are substantial variations among countries in their tax and expenditure policies even among developed democracies sharing similar economic and political regimes as discussed by tanzi 2000 and alesina and glaeser 2004 this study examines the question of why expenditure patterns differ among democratic countries using a sample of countries with a high democracy index section ii presents empirical evidence showing that the united states has a low ratio of expenditure on transfer payments to that on public goods despite its high income inequality scandinavian countries typically combine low inequality and much higher expenditure on transfer payments relative to public goods british commonwealth countries have higher income inequality than scandinavian countries and yet a lower ratio of transfer payments to public goods expenditure these findings seem inconsistent with the prediction of a large theoretical literature more basic income inequality leads to a larger extent of redistributive expenditure 1 however the observed partial relationship between the expenditure composition and income inequality is possibly obscured by many other factors reflecting differences in economic and demographic conditions or cultural differences across countries see lind 2005 and alesina and glaeser 2004 in order to attempt to understand the way in which cultural factors and economic conditions may combine to influence the composition of expenditure this paper examines the division of expenditure between public goods and a transfer payment under majority voting in the context of an overlapping generations model by taking a growth context and focusing on the expenditure composition for a given tax rate the model allows for a range of factors which may contribute to cross country variations in expenditure compositions such as income and population growth rates and the discount factor in particular cultural factors are captured by a parameter in the utility function reflecting individuals preference for public goods relative to private goods consumption direct independent evidence regarding preferences for public goods is extremely difficult to obtain in view of well known problems of preference revelation mechanisms a wide range of studies however take such differences as their starting point see for example haufler 1996 the transfer payment in the model is referred to as a pension as it is received in the second period of life 2 however it may be thought of more broadly as a standard type of income transfer as it involves in the present overlapping generations framework a decision regarding income shifting between periods within the life cycle as well as intra and intergenerational redistribution members of each cohort are considered to vote on their desired pension during the retirement period on the understanding that during the working period each cohort finances the expenditure previously agreed by the preceding cohort and voters are aware of the nature of the government budget constraint therefore there is a social contract in which each generation in the retirement period is able to benefit from the income and population growth of the following generation the condition under which the social contract is supported by a majority of the members of any cohort involves extending the condition obtained by aaron 1966 and samuelson 1958 the model yields a closed form solution for the majority choice of the expenditure ratio defined as the ratio of transfer payments to public goods expenditure consistent with previous theoretical literature the model predicts a positive relationship between income inequality and the expenditure ratio a numerical exercise is then implemented to examine the sensitivity of the expenditure ratio to variations in model primitives where baseline parameter values are calibrated to the dataset for a group of democratic countries

welfare and food assistance at the state and sub state level a framework for evaluating economic and programmatic changes welfare and food stamp program changes may affect local economies and economic changes may affect local program participation in this paper we outline a model of these interactions first we highlight key changes in the programs and report recent program and labor market participation patterns in metro and non metro portions of the midwest and the state of iowa then we describe computable general equilibrium cge model equations that formalize the types of choices being made and discuss the regional economic impacts that can be simulated in the process we raise several related research questions

decentralisation as an incentive scheme recent changes have introduced more decentralization in a number of traditionally centralized countries 1 in the case of france it is sometimes claimed that the 1982 1983 reform of subcentral government is of historical importance although the principles of that reform are not contested any more by the new majority elected in 1986 opinions still differ on a number of policy issues some of the issues are presented in this introductory section but the main purpose of this paper is not to expose or discuss in detail the problems of decentralization in france as argued in the second part of the introductory section the theoretical framework in which the policy issues of decentralization are usually discussed by economists is somewhat unsatisfactory in particular when applied to unitary states such as britain or france the bulk of the paper is devoted to the exploration of a different approach to decentralization it is not purported however that this approach could completely replace the more traditional one consequently when in the concluding section we return briefly to the policy issues identified here this is to be read as a preliminary attempt to evaluate the relevance of the reasoning developed in the paper

the size of government in majoritarian and consensus democracies this article looks at the effect of democratic institutions on the size of government with the help of the ordinary least squares regression analysis of data from the organization for economic cooperation and development oecd countries from 1974 to 1995 the study provides considerable evidence that the variance in the type of democracy measured by the lijphart index of majoritarian consensus political institutions has a systematic effect on the variance in the size of government measured both by total government outlays as well as total government revenue as a percentage of gross domestic product the article further argues that such institutional effects on the size of government are strengthened by partisan politics more specifically the analysis demonstrates the presence of the multiplicative interaction effect of the mutually reinforcing nature between the institutional structure and partisan composition of government in their association with the size of government

can contracts signal social norms experimental evidence we investigate whether incentive schemes signal social norms and thus affect behavior beyond their direct economic consequences a one shot principal agent experiment is studied where prior to contract choice principals are informed about the past actions of other agents and thus have more information about norms of behavior compared with a setting in which principals are uninformed agents exert substantially higher effort under a fixed wage contract when they are aware that an informed principal chose this contract the informed principal s choice apparently signals a norm not to exploit trust which leads to more trustworthy behavior this mechanism s robustness is explored in further experiments data as supplemental material are available at http dx doi org 10 1287 mnsc 2015 2336 this paper was accepted by uri gneezy behavioral economics

public choice perspectives on the poll tax the community charge which was introduced to england and wales on i april i990 is part of a reform of local government finance with the avowed intention of enhancing local accountability by creating a direct link between local expenditure local taxation and local voting this paper applies public choice theories to evaluate both the economics of its introduction and the responses of the public to the charge in its initial months section ii reviews the main public choice rationale for the community charge and relates accountability to efficient resource allocation section iii examines evidence on voter awareness and fiscal illusion in order to consider whether the replacement of domestic rates by this tax will increase local accountability the stance taken in sections ii and iii is one in which the conservative government is privy to the messages of public choice theory and acts as if to further the public interest by eliciting the correct responses to slay the local government leviathan however any government may have interests other than and divergent with those of the public and this will introduce distortions even in the implementation of public choice prescriptions this point is developed in section iv to offer one explanation of the recent history of the community charge

the productivity of schools and other local public goods producers abstract i construct an agency model of local public goods producers in which households make tiebout choices among jurisdictions in a world of imperfect information and costly residential mobility i examine producers effort and rent under local property tax finance and centralized finance i show that if there are a sufficient number of jurisdictions conventional local property tax finance can attain about as much productivity as a social planner with centralized finance can even if the social planner is armed with more information than a real social planner could plausibly have the key insight is that decentralized tiebout choices make some information the social planner would need verifiable and other information unnecessary

decentralized welfare will there be underprovision abstract this paper develops an asymmetric nash equilibrium model of welfare provision by states when the benefit payment is a local public good and a fixed population of welfare recipients distributes itself between states with logistic migration function the model shows that state size is an important demand shifter across states because it alters the supply elasticity of recipients the model provides estimates of how the degree of benefit under provision varies with this migration elasticity other demand instruments such as taxpayer resources and generosity likewise generate positive correlation between benefits and recipients while supply shifters generate negative correlation between benefits and recipients the model s predictions are closely matched empirically when examining the reduced form impact of these instruments on the pattern of welfare benefits and recipients across states using these impacts to assign the instruments to either supply or demand sides of the model it is possible to estimate the model s structural elasticities these turn out to be high enough so that simulated solutions to the model generate considerable welfare underprovision and thus raise concern about a race to the bottom with decentralized control over afdc

imperfect information and the meltzer richard hypothesis standard majority voting models predict that redistribution is positively linked to the mean to median income ratio but empirical evidence is mixed this paper shows that the different empirical reactions to rising mean to median income ratios can be rationalized in a simple romer roberts meltzer richard framework with imperfect information in such a model it is important to consider the source of rising mean to median ratios income growth of the poor can lead to less redistribution as more agents perceive themselves to be rich which tends to reduce the support for redistribution an empirical application reveals that the model can explain a substantial part of the first reagan tax cut

decentralization as a constraint to leviathan a panel cointegration analysis this paper extends the empirical literature about the effects of fiscal decentralization on the growth of government along three dimensions it distinguishes between the effects of the level of decentralization from the way local governments finance their expenditures common pool versus own resources it uses a panel cointegration approach to separate the long run effects of decentralization from the short run dynamics and it extends and revises the datasets generally used in these empirical analyses the results show that the amount of revenue raised by sub national governments leads to a long term fall in the size of government but grants have the opposite effect in addition a greater decentralization of expenditure leads to greater overall spending when the short term is considered these influences work slowly as the speed of adjustment towards the desired government size is relatively sluggish in addition in the short run there is also a clear effect from the role of local revenue raising powers that stimulates the growth of government these results appear robust to changes in the composition of the variables countries and periods included the sample

in search of yardstick competition a spatial analysis of italian municipality property tax setting this paper uses italian local government data to test for fiscal interaction arising from yardstick competition to discriminate yardstick competition from competing theories of strategic interaction we account for the incentives and constraints generated by the electoral system in particular for the presence of term limits and the size of the majorities supporting the mayors estimation of a local property tax setting equation uncovers positive spatial auto correlation in local tax rates of jurisdictions where the mayors run for re election in uncertain contests while interaction is absent where either mayors face a term limit or are backed by large majorities

rural urban welfare program and labor force participation nonmetro poor in the midwest participate more in the labor force and less in welfare programs than metro poor we formalize how household composition capital labor market conditions and state specific regulations define opportunity sets then estimate a bivariate binomial probit model of work and program participation choices an oaxaca decomposition analysis is conducted to compare differences in characteristics to differences in behavior in explaining the two groups choices we find no behavioral basis for the difference in labor market participation and while most of the lower midwestern nonmetro welfare program participation is due to demographics some is due to different life cycle behavior

currency unions and trade how large is the treatment effect currency unions and trade what can the data say the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated torsten persson i have always maintained that the measured effect of a single currency on trade appears implausibly large but i am not convinced by torsten persson s diagnosis and proposed solution i apply a variety of estimation techniques to a new larger data set where many more instances of currency union creation and abandonment make it possible to rely on time series as well as cross sectional evidence the results are similar to my earlier ones the effect of a single currency on trade is large andrew rose

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

property taxation as incentive for cost control empirical evidence for utility services in norway recent theoretical research suggests that property taxation has incentive effects that can help control cost problems in the public sector the institutional setting in norway allows this first empirical investigation of the incentive effect of property taxation since we can separate between local governments with and without property tax the raw data of the variation in the unit cost level for utilities show that local governments with property tax have about 20 lower unit cost using both linear regression and propensity score matching we are not able to wash out the difference in unit costs our interpretation is that having a visible and controversial local tax related to property stimulates voter interest in local government activities and thereby may help cost control the incentive effect is of interest for the design of fiscal federalism

tax and expenditure limitations and the fiscal relationships between state and local governments this paper uses comprehensive data on state and local tax and spending limitations for forty nine states between 1976 and 1990 to estimate the effects of these limits on the fiscal relationships between state and local government results indicate that tax and spending limits on local governments are only partially effective in reducing revenues because political agents bypass limitations by transferring revenue reliance to unconstrained revenue sources or because unconstrained levels of government take on additional revenue responsibilities in particular the empirical analysis demonstrates that binding local government fiscal constraints are associated with reductions in local revenues and increases in state aid to local governments in contrast state government limitations are related to reductions in both state and local own source revenues

local governments monopoly power and local tax reform theory and evidence from the u k this paper hypothesises the existence of several sources of monopoly power for local governments when the system of local taxation is reformed by central government in particular we argue that information asymmetries between tax payers and central and local government at the time of reform provide opportunities for local politicians to set tax levels which differ from those expected in a full information setting we predict that compared to pre reform tax levels local tax levels post reform will differ according to four local government characteristics i the size of the seat majority of the ruling local party ii whether the party controlling local government is the same as or is different from the ruling party of central government iii whether the local government structure has one or two tiers and whether the same party controls both tiers and iv the degree of indebtedness of the local authority testing the model on the u k local tax reform of 1990 we find strong evidence consistent with the hypothesis that inter authority differences in local tax levels reflect differences in the degree of local political monopoly power resulting from information asymmetries this monopoly power appears to have been used generally but not exclusively to raise tax levels

income distribution and tax structure empirical test of the meltzer richard hypothesis abstract the meltzer richard hypothesis that more unequal income distribution will create a majority for more redistribution has generated much research but little empirical support the empirical literature has concentrated on cross country studies and the size of the public sector and the results broadly do not indicate more redistribution with more inequality this analysis suggests that the hypothesis should be investigated in a more homogenous setting with comparable institutions and with an explicit decision about redistribution here tax structure new data on poll tax and property tax in decentralized government in norway are exploited we show how the multi dimensional decision can be analyzed as majority rule assuming intermediate preferences in the econometric analysis instruments are used to account for endogeneity of income level and income distribution the estimated model supports the understanding that more unequal income distribution implies a shift in the tax burden from poll tax to property taxes and thereby gives more redistribution

the importance of peers for compliance with norms of fair sharing a burgeoning literature in economics has started examining the role of social norms in explaining economic behavior surprisingly the vast majority of this literature has studied social norms in asocial decision settings where individuals are observed to act in isolation from each other in this paper we use a large scale dictator game experiment n 850 to show that peers can have a profound influence on individuals perceptions of norms of fair sharing which we elicit in an incentive compatible way however in contrast to these strong peer effects in social norms of fair sharing we find limited evidence of the influence of norms and peers on actual sharing behavior we discuss how these results can be explained by heterogeneity in normative views as well as in willingness to comply with norms

policy watch the food stamp program and welfare reform major changes have been proposed for the food stamp program including replacing the program with block grants to the states cashing out the benefits and reducing program funding from baseline levels this paper will explore the impacts of food stamp reform on food spending income support welfare reform agriculture and the rest of the economy a comprehensive set of scenarios is used to examine the potential economic consequences the analysis shows that the effect of cashing out the food stamp program can be as much as four times larger than the effects of program reduction alone

tax decentralization and local government size this paper investigates the relationship between fiscal federalism and the sizes of local governments while many empirical studies emphasized that grants encourage the growth of local public spending and local taxes constrain it they are more silent regarding the effects of different types of tax autonomy the paper addresses this issue by arguing that tax decentralization as organized on tax bases used only by local governments tax separation rather than on tax base sharing would restrain local public expenditures using an unbalanced panel of oecd countries the key finding is that only property taxes mostly based on a tax separation scheme seem to favor smaller local governments thus while tax decentralization is a necessary condition for limiting the growth of local governments it does not appear sufficient as tax separation schemes among government levels would in fact be required

loss aversion in politics we study how loss aversion affects the political equilibrium in a simple majority voting model first we show a status quo bias which leads to path dependence second loss aversion implies a moderating effect on the most extreme voters third in a dynamic setting the effect of loss aversion diminishes with the length of the planning horizon of voters however in the presence of a projection bias majorities are partially unable to understand how fast they will adapt to a new policy this makes changes less likely and induces time inconsistency policy changes are timid at the beginning while in later periods they are made progressively more radical fourth in a stochastic environment loss aversion yields a significant distaste for risk but also a smaller attachment to the status quo the application of these results to a model of redistribution leads to empirically plausible implications

the effect of direct democracy on income redistribution evidence for switzerland there is an intensive dispute in political economics about the impact of institutions on income redistribution while the main focus is on comparison between different forms of representative democracy the influence of direct democracy on redistribution has attracted much less attention according to theoretical arguments and previous empirical results government policies of income redistribution are expected to be more in line with median voter preferences in direct than in representative democracies in this paper we find that institutions of direct democracy are associated with lower public spending and revenue particularly lower welfare spending and broad based income and property wealth tax revenue moreover we estimate a model which explains the determinants of redistribution using panel data provided by the swiss federal tax office from 1981 to 1997 and a cross section of representative individual data from 1992 while our results indicate that less public funds are used to redistribute income and actual redistribution is lower inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution this finding might well indicate the presence of efficiency gains in redistribution policies

naturally occurring markets and exogenous laboratory experiments a case study of the winner s curse we examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain using common value auction theory as our guide we identify naturally occurring settings in which one can test the theory experienced agents bidding in familiar roles do not fall prey to the winner s curse yet experienced agents fall prey to the winner s curse when bidding in an unfamiliar role we conclude that the theory predicts field behaviour well when one is able to identify naturally occurring field counterparts to the key theoretical conditions

do constitutions cause large governments quasi experimental evidence abstract how do constitutional rules for elections and legislation affect the size of government we ask this question in a new sample of about 80 countries in the 1990s in addition to conventional regression methods we use quasi experimental matching methods which more convincingly address legitimate criticisms of causal inference from cross country data both sets of estimates suggest that presidential regimes and majoritarian elections produce smaller governments

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

a multimethod approach to identifying norms and normative expectations within a corporate hierarchy evidence from the financial services industry we use an incentive compatible economic experiment and surveys in the field at a large financial services firm to identify the norms for on the job behavior among financial advisers and their leaders and the normative expectations each group has of the other we examine whistle blowing on a peer an incentive clash between serving the client and earning commissions and a dilemma about fiduciary responsibility to a client we find patterns of agreement among advisers among leaders and between the two groups that are consistent with company guidelines identified ex ante however we also find measurable differences between what leaders expect and the actual norms of advisers when there is such a mismatch we are able to distinguish miscommunication from ethical disagreement between leaders and advisers finally we show that when advisers personal ethical opinions do not match group norms this mismatch is correlated with job dissatisfaction and lying for money in a second experiment this paper was accepted by brad barber teck ho and terrance odean special issue editors

credit constraints cyclical fiscal policy and industry growth this paper evaluates whether the cyclical pattern of fiscal policy can affect growth we first build a simple endogenous growth model where entrepreneurs can invest either in short run projects or in long term growth enhancing projects long term projects involve a liquidity risk which credit constrained firms try to overcome by borrowing on the basis of their short run profits by increasing firms market size in recessions a countercyclical fiscal policy will boost investment in productivity enhancing long term projects and the more so in sectors that rely more on external financing or which display lower asset tangibility second the paper tests this prediction using rajan and zingales 1998 s diff and diff methodology on a panel data sample of manufacturing industries across 17 oecd countries over the period 1980 2005 the evidence confirms that the positive effects of a more countercyclical fiscal policy on value added growth productivity growth and r d expenditure are indeed larger in industries with heavier reliance on external finance or lower asset tangibility

the food stamp program welfare reform and the aggregate economy the passage of the personal responsibility and work opportunity and reconciliation act prwora of 1996 swept away nearly six decades of federal welfare policy the act eliminated the aid to families with dependent children afdc entitlement program replacing it with a fixed block grant giving states a fundamental role in assisting poor families and added significant new work requirements for recipients although often overlooked in the extensive media coverage the food stamp program was changed fundamentally by the prwora the size of the food stamp program is expected to decrease by about 22 billion from 1997 to 2002 this is over half the

rational choice the contrast between economics and psychology rational choice the published record of a conference on economics and psychology frames the issues as a contest between economic theory and the falsifying evidence from psychology according to a third perspective that of experimental economics most standard theory provides a correct first approximation in predicting motivated behavior in laboratory experimental markets but the theory is incomplete particularly in articulating convergence processes in time and in ignoring decision cost this view has roots in the work of herbert simon and sidney siegel but it is not plainly represented in contemporary research in economic pyschology

economic and political determinants of fee income in norwegian local governments this paper presents an empirical analysis of the determinants of fee income in norweigan local governments the point of departure is a representative voter model emphasizing the effects of pure economic variables the benchmark model is extended by including two aspects of the political system ideology and strength it is evident that increased socialist influence increases the size of the local public sector while a strong political leadership has an advantage in opposing pressure to increase spending

why are there serial defaulters evidence from constitutions abstract presidential democracies were 4 9 times more likely than parliamentary democracies to default on external debts between 1976 and 2000 in this article i argue that the explanation for the serial defaults by a number of sovereign borrowers lies in their constitutions ceteris paribus parliamentary democracies are less likely than presidential democracies to default on their liabilities because the confidence requirement creates a credible link between economic policies and the executive s political survival this link tends to strengthen the repayment commitment when politicians are opportunistic i show that this effect is large in the contemporary world even when the comparison is restricted to countries that are similar in terms of colonial origin geography and economic variables since a country s form of government is typically chosen at the time of independence and is highly persistent over time constitutions can explain why debt policies in developing countries are related to individual

what drives u s immigration policy evidence from congressional roll call votes abstract immigration is today one of the most hotly debated policy issues in the united states despite marked divergence of opinion even within political parties several important reforms have been introduced in the post 1965 era the purpose of this paper is to carry out a systematic analysis of the drivers of the voting behavior of us representatives on immigration policy in the period 1970 2006 and in particular to assess the role of economic factors at the district level our findings suggest that representatives from more skilled labor abundant districts are more likely to support an open immigration policy towards the unskilled whereas the opposite is true for representatives from more unskilled labor abundant districts this evidence is robust to the introduction of an array of additional economic and non economic characteristics of the districts and suggests that a simple factor analysis model can go a long way in explaining voting on immigration policy

the relationship between firm mobility and tax level empirical evidence of fiscal competition between local governments the mobility of the tax base may influence fiscal outcomes the many theoretical contributions about the role of mobility are not matched by empirical evidence existing studies address strategic interaction between governments but have little to say about mobility we introduce a new measure of mobility conditions based on the geographic profit variability of industrial sectors the econometric analysis shows a systematic negative relationship between mobility conditions and tax level among municipalities in norway the analysis takes into account neighborhood effects in a spatial model and the endogeneity of mobility conditions is handled with instrumental variables