are higher education subsidies second best an optimal taxation framework is considered in which part of the population can take advantage of investment in higher education it is shown that social welfare can sometimes be increased by supplementing linear income taxes with a subsidy to material investment in higher education but that social welfare can never be increased by supplementing a nonlinear income tax with such a subsidy

existence of competitive equilibrium with incomplete markets abstract the existence of competitive equilibrium is proved for a model with incomplete futures markets the security returns in this model are denominated in terms of units which represent certain composite commodities specific to events

a minimum wage can be welfare improving and employment enhancing abstract we examine whether minimum wages can fulfill a useful role as part of an optimal tax transfer scheme the government cannot observe household abilities only their incomes and is constrained to ensure that those working are at least as well off as those not working a minimum wage combined with the institutional features of typical welfare systems allows the incentive constraint to be severed at the ability level associated with the minimum wage if such a scheme can be enforced the government can increase the amount of redistribution from those working to those not working and possibly lower the number of unemployed

who gains from capital market integration tax competition between unionized and non unionized countries the welfare effects of capital market integration are examined under a model of tax competition with two asymmetric countries the asymmetry is expressed through the labour market one country has a perfect labour market whereas the other country s labour market is unionized our results indicate that the welfare effects of capital market integration differ depending on whether governments are active or passive in attracting capital in the absence of active governments capital market integration benefits the country with a competitive labour market whereas it harms the unionized country capital market integration benefits both countries if governments are active and compete for mobile capital using taxes subsidies

fdi and taxation a meta study despite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses it still remains open whether or when tax competition is harmful moreover the influence of tax differentials on multinationals decisions is still insufficiently analyzed thus economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of fdi with respect to company taxation as a result the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence in this paper we extend former meta analyses on fdi and taxation in three ways first we add the most recent publications unconsidered in meta analyses up to date second we apply a different methodology by using a broad set of meta regression estimators and explicitly discuss which one is most suitable for application to our meta data third we address some important issues in research on fdi and taxation to the clarification of which meta analysis can make valuable contributions these issues are mainly the influence of variables which might moderate effects of tax differentials e g public spending the implications of using aggregate fdi data as opposed to firm level information on measured tax effects the implications of bilateral effective tax rates and the possible presence of publication bias in primary research

the structure of financial equilibrium with exogenous yields the case of incomplete markets1 this paper presents an analysis of the structure of competitive equilibrium in a model whose principal feature is incomplete financial markets formulated in the spirit of arrow specifically the overall payoffs or returns from financial instruments are assumed to be fixed or predetermined independently of the operation of the economy and these instruments are assumed to be fewer in number than required to span all potential spot markets for commodities our main result establishes that market incompleteness generates a corresponding degree of allocation indeterminateness suppose there are n 1 spot markets but only 0 m n linearly independent financial instruments so that the deficiency in financial markets is 0 n n m n then subject to some relatively innocuous technical qualifications the set of equilibrium allocations contains a smooth n dimensional submanifold we also indicate how real indeterminacy may increase when returns for example the market price and promised interest on an ordinary bond are treated as variables rather than parameters

gross versus net equalization scheme in a federation with decentralized leadership this paper compares the impact of two equalization transfer schemes on regional budgetary choices a gross equalization scheme where ex post transfers to regions are financed from federal tax revenues and a net equalization scheme where region to region ex post transfers allocated by the federal government are self financed the net equalization scheme reduces ex post federal intervention and should therefore be favored over the gross equalization scheme in order to reduce opportunistic regional behaviour in addition the two equalization schemes differently affect the composition of public expenditures the gross equalization scheme generates an upward distortion of the amount of capital public expenditures whereas the net equalization scheme generates a downward distortion of the amount of current public expenditures compared to the optimum a welfare analysis reveals that incentives to use a net equalization scheme are strengthened for a sufficiently high number of regions

foreign direct investment and the dark side of decentralization countries differ in their government architecture some countries are characterized by a high degree of concentration of fiscal administrative judicial executive and lawmaking powers whereas others have decentralized many functions and responsibilities of government to different jurisdictions and various levels of government the cross country differences in the organization of government are also not static but have been subject to substantial change in many countries the co existence of different organizational patterns of government has created an important debate regarding the determinants of particular government structures as well as questions regarding the optimality of different forms of organization

does competition for capital discipline governments decentralization globalization and public policy competition among countries or regions within them to attract mobile capital is often thought to discipline their governments motivating them to invest more in infrastructure reduce waste and corruption and spend less on non productive public goods the result should be convergence on business friendly policies we argue that this requires an assumption units start out very similar that is often unrealistic if units are heterogeneous in natural resources geographical location inherited human capital or infrastructure capital mobility often weakens discipline on the poorlyendowed units this may help explain disappointing results of liberalizing capital flows within russia and sub saharan africa jel f36 h73 h87

existence of competitive equilibria for option markets abstract in a general equilibrium model with options h polemarchakis and bon il ku options and equilibrium working paper columbia university 1986 give an example of an economy where no competitive equilibrium exists their model is robust in the sense that slight changes of the parameters of the economy do not lead to the existence of an equilibrium the aim of this paper is to show that this nonexistence of equilibrium results from too little variation of the aggregate supply of commodities over the states of the world we show that the fraction of economies parameterized by endowments with equilibria converges to one with increasing variation in the total endowment in a precise sense

public good differentiation and the intensity of tax competition we show that in a setting where tax competition promotes efficiency variation in the extent to which firms can use public goods to reduce costs brings about a reduction in the intensity of tax competition this in turn brings about a loss of efficiency in this environment a minimum tax counters the reduction in the intensity of tax competition thereby enhancing efficiency split the difference tax harmonization also potentially enhances efficiency but would not be agreed upon by governments because it lowers the payoff to at least one of them this paper also presents an explanation for how traditionally high tax countries have continued to set taxes at a relatively high rate even as markets have become more integrated

optimality properties of alternative systems of taxation of foreign capital income foreign source capital income taxes are examined from the point of view of optimal taxation in the framework of a simple economy with international real capital flows a taxonomy of alternative systems of such taxation is first presented showing how crediting and other tax parameters induce what are called source based residence based and related systems next tax rates are determined that are optimal from a single country s point of view given those of the others the achievability of these rates under the various systems is analyzed finally tax rates that are optimal from an international point of view are considered again achievability of an international optimum under the various systems is considered leading to the main conclusions that i a pure residence based system in all countries can achieve an international fiscal optimum ii it cannot however be sustained as an equilibrium

a note on unemployment and capital tax competition abstract we introduce a labor market imperfection into the capital tax competition literature to study the equilibrium tax formulae and their efficiency in the presence of unemployment since we allow for labor market imperfection the standard conclusions of the tax competition literature would be generalized in the case of non full employment our first result shows that even when head taxes on immobile residents are available the optimal capital tax rate for jurisdictional governments is not zero our second finding is that decentralized equilibrium might be characterized by the overprovision of local public goods when the labor market is imperfect

taxes redistribution and the minimum wage a theoretical analysis this paper considers a simple general equilibrium model that contains two types of workers with differing levels of ability and a social welfare maximizing government the paper shows that social welfare can sometimes be increased by supplementing an optimal linear income tax with a minimum wage but that social welfare can never be increased by supplementing an optimal nonlinear income tax with a minimum wage

tax competition and tax co ordination under destination and origin principles a synthesis this paper proposes a general framework for analysing commodity tax competition under destination and origin principles based on three possible tax spillovers the consumer price spillover the producer price terms of trade spillover and rent spillovers a model is presented which can be extended to accommodate all three spillovers using this model many of the results in the existing literature can be derived compared and extended

volatility in wheat spot and futures markets 1950 1993 government farm programs seasonality and causality we explore how wheat spot and futures market volatility has been impacted by government farm programs during the 1950 1993 period we find that changing volatility in both markets is highly associated with changing farm programs the mandatory allotment programs of the 1950s and early 1960s 1 3 50 4 10 64 were associated with low volatility while the voluntary programs initiated in the mid 1960s seem to have induced high volatility 4 11 64 12 22 85 both market driven loan rates and conservation reserve programs appear to have helped volatility revert to lower levels since the mid 1980s 12 23 85 12 30 93 we also examine seasonality and causality in conjunction with the farm programs we explore how wheat spot and futures price volatility has been impacted by government farm programs many studies have examined the effects of various farm policies mckinnon 1967 blakeslee 1980 miranda and helmberger

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

equilibria with options existence and indeterminacy abstract this paper studies an economy in which trading takes place in spot commodity markets and incomplete futures markets for assets of various types there are real assets stocks or commodity futures options on real assets and a riskless nominal bond we show that for a generic set of economies parametrized by consumers endowments and structure of real assets there exists an equilibrium moreover we show that generically the set of equilibrium allocations of commodities contains a manifold of a high dimension even if the market structure is potentially complete i e the number of assets including options equals or exceeds the number of states of nature and the arrow debreu equilibrium can be achieved through sequential trading in spot and futures markets there are multiple inefficient equilibria without full rank of the asset payoff matrix

equity and efficiency in rationed labor markets the social welfare implications of income tax policy are shown to critically depend on whether or not labor markets are rationed i e on the existence of involuntary unemployment with rationed labor markets raising taxes on the employed and transfers to the unemployed might improve both equity and efficiency it improves equity by redistributing income from the employed to the unemployed it improves efficiency as it encourages people with a small utility surplus of employment to exit the labor market leaving their jobs for people with a higher utility surplus i derive conditions under which this result continues to hold when only part of the labor market is rationed when there is both frictional and rationing unemployment and when rationing endogenously follows from trade unions monopoly power

taxes and employment subsidies in optimal redistribution programs this paper explores how to optimally set taxes and transfers when taxation authorities 1 are uninformed about individuals value of time in both market and non market activities and 2 can observe both market income and time allocated to market employment we show that optimal redistribution in this environment involves distorting market employment upwards for low wage individuals through decreasing wage contingent employment subsidies and distorting employment downwards for high wage individuals through positive and increasing marginal income tax rates in particular we show that whether a person is taxed or subsidized depends primarily on his wage with the optimal program involving a cut off wage whereby workers above the cutoff are taxed as they increase their income while workers earning a wage below the cutoff receive an income supplement as they increase their income finally we show that the optimal program transfers zero income to individuals who choose not to work

minimum wage legislation and unemployment insurance as instruments for redistribution the use of minimum wages and unemployment insurance as instruments for redistributing income is analyzed the government is assumed to be able to implement an optimal income tax in an economy consisting of two types of individuals who differ in ability the effect of introducing a minimum wage which induces involuntary unemployment will be to improve social welfare under weak conditions circumstances under which combining unemployment insurance with the minimum wage will be welfare improving are also considered

infrastructure investment a review essay economists try not to be faddists but they often cannot help themselves while work on a topic should mirror the prospective importance of the topic that situation seems to occur with disappointing frequency instead the usual pattern is that some reasonably important topic will be totally ignored for the longest time then recognized and then the subject of a flurry of work all out of proportion to its likely long run importance nowhere has this speculative bubble of economic research been more clearly illustrated than with infrastructure investment macroeconomists havelong felt that the stock of public capital is an important factor input in the production of total output macroeconomists have known that u s productivity growth slowed dramatically in about 1973 and macroeconomists should have known that united states investment in public capital has been down since the late 1960s yet analysis of the u s productivity slowdown completely ignored infrastructure investment for the first fifteen years of this slowdown concentrating instead on energy prices social regulation the composition of the work force research and development different rates of obsolescence of the private capital stock and any number of other matters the public capital stock was hardly ever even mentioned as a potential factor in the productivity slowdown aschauer changed all that he wrote a series of papers 1989a 1989b 1989c that put these two movements together econometrically infrastructure investment turned down and aggregate productivity turned down slightly later both in the united states and in some other developed countries his work hit the magic button those who had worried about the productivity puzzle for fifteen years welcomed a new suspect those who were worried about low rates of u s national saving welcomed a new way to make their argument even more forcefully than with official figures on saving and investment which do not count infrastructure investment as investment political liberals and liberal politicians saw a way to rescue government spending and projects from the assaults of reaganism and even a way to avoid oth

after maastricht public investment economic integration and international capital mobility this paper studies some implications of economic integration in the context of a neoclassical model of international trade public investment and capital mobility owing to the endogeneity of the productive public capital stock international capital mobility while equalizing returns to capital can lead to a divergence in the wages earned by labor the authors also demonstrate that international capital mobility can set off an infrastructure investment boom if the benefits of capital spill over across national borders governments in the nash equilibrium spend the 1992 dividend on an excessive provision of public services attempting to free ride on the public capital of their neighbors copyright 1994 by the london school of economics and political science

optimal redistribution with productive social services publicly provided private goods are conventionally considered consumer goods departing from this perspective we analyze the public provision of inputs that improve household productivity e g education and childcare in a two class economy with distorting taxation public provision is always welfare improving with respect to pure taxation given that the public input directly affects household productivity moreover the case for public provision strengthens as households heterogeneity in input demand fades out contrary to consolidated results in the literature the features of optimal provision schemes depend on the nature of publicly provided input namely if it substitutes household productive capacity or just helps households to exploit it

public input competition abstract public investment in infrastructure may help create agglomeration economies by attracting mobile factors such as skilled labour competition among regions in public investment can then be destructive this paper analyzes the nash equilibria to a simple model of public input competition even though the regions are assumed identical the equilibrium may not be symmetric the problem with non cooperative behaviour is not only that regions invest too much but that too many regions may choose to invest depending on the parameter values the nash equilibrium may be efficient may be inefficient or may not exist at least not in pure strategies better mobility among regions leads to more aggressive competition the analysis suggests that rents from public investment may be dissipated by governments competition to attract mobile factors

the impressive contribution of canadian economists to fiscal federalism theory and policy the study of fiscal federalism has been central to the research of canadian economists since the rowell sirois report to mark the 50th anniversary of the founding of the canadian economics association it is fitting to take stock of their contributions we focus on the period since 1982 and emphasize the main scholarly publications of an inclusive array of canadian economists and economists in canadian universities our attention is devoted to applications in the context of federal and provincial governments setting aside related issues in municipal government finance we briefly discuss instances where the fiscal federalism literature has informed policy debates including through policy research institutes government commissions and international organizations la contribution impressionnante des economistes canadiens a la theorie et a la politique du federalisme fiscal l etude du federalisme fiscal a ete un element central de la recherche des economistes canadiens depuis la commission rowell sirois au moment de celebrer le 50eme anniversaire de la fondation de l association canadienne d economique le moment est approprie pour prendre la mesure de leurs contributions on se concentre sur la periode apres 1982 et on souligne les principales publications savantes d un ensemble inclusif d economistes canadiens et d economistes dans les universites canadiennes une attention particuliere est portee aux applications dans le contexte federal et provincial mettant de cote les enjeux relies a la finance municipale on discute brievement des instances ou la litterature sur le federalisme fiscal a eclaire les debats de politiques publiques y compris a travers les instituts de recherche sur les politiques publiques les commissions gouvernementales et les organisations internationales

tax competition uniform assessment and the benefit principle abstract in previous discussions it has been argued that tax competition between local governments results in a tax burden on business that is less than the cost of public services for business and in suboptimal levels of public expenditures for residents however this conclusion has never been substantiated by a full theoretical treatment here a theoretical model of tax competition is developed between metropolitan areas with labor perfectly immobile and two local public goods one for residents and one for business for plausible parameter values numerical solutions of the optimality conditions are computed by means of a nonlinear programming algorithm

on the optimality of a minimum wage new insights from optimal tax theory we build a theoretical model to study whether a minimum wage can be welfare improving if it is implemented in conjunction with an optimized nonlinear income tax we consider this issue in a framework where search frictions on the labor market generate unemployment workers differ in productivity the government does not observe workers productivity but only their wages hence the redistributive policy solves an adverse selection problem we show that a minimum wage is optimal if the bargaining power of the workers is relatively low however if the government controls the bargaining power then it is preferable to set a sufficiently high bargaining power

options sunspots and the creation of uncertainty we present two examples in which the addition of an option market leads to sunspot equilibria despite the fact that no sunspot equilibria exist without the market these examples highlight limitations in two prevalent views of option markets it is often assumed that option markets help complete otherwise incomplete markets we demonstrate that they can instead increase the number of events agents wish to insure against as in black and scholes it is often assumed that option markets are redundant we demonstrate that an option market may not be redundant even when markets were complete before its introduction

refocusing capitalism on the long term ownership and trust across the investment value chain after the 2008 9 global financial crisis the capitalist system has largely rebounded however recent measures show a decline in public and private sector investment growing income inequality declining trust in institutions and evidence of secular stagnation these indicators point to a diagnosis of an excessive focus on short term results at the expense of long term value creation the challenge of short termism is not isolated as it pervades the entire investment value chain from savers who are increasingly dependent on short term metrics to assess investments and institutional investors who are increasingly moving to passive investments to boards and executives who are under pressure from shareholders to deliver consistent quarterly results ultimately all actors in the investment value chain will need to play an active role in restoring our capitalist system to a proper balance between long term ownership and performance and in repairing the fraying bonds of societal trust

is a minimum wage an appropriate instrument for redistribution textabstractwe analyze the redistributional dis advantages of a minimum wage over income taxation in competitive labor markets without imposing assumptions on the in efficiency of labor rationing compared to a distributionally equivalent tax change a minimum wage increase raises involuntary unemployment but also raises skill formation as some individuals avoid unemployment a minimum wage is an appropriate instrument for redistribution if and only if the public revenue gains from additional skill formation outweigh both the public revenue losses from additional unemployment and the utility losses of inefficient labor rationing we show that this critically depends on how labor rationing is distributed among workers a necessary condition for the desirability of a minimum wage increase is that the public revenue gains from higher skill formation outweigh the revenue losses from higher unemployment we write this condition in terms of measurable sufficient statistics our empirical analysis suggests that a minimum wage increase is undesirable in nearly all oecd countries a reduction in the minimum wage along with tax adjustments that keep net incomes constant would yield a pareto improvement

a model of welfare competition with evidence from afdc in this paper we test empirically for strategic behavior among the states using the cash support program aid to families with dependent children afdc to motivate the empirical work we adapt wildasin s model of income redistribution 1991 american economic review 81 757 773 to a model of interjurisdictional welfare competition although welfare competition may be generated from different frameworks we choose wildasin s model to illustrate how welfare benefit interdependence is genereated in the context of welfare migration we estimate a representative reaction function for afdc using both cross sections and pooled cross section data after controlling for other determinants of afdc benefit levels and for spatial error autocorrelation we find evidence showing competition 2000 academic press

on pareto improving commodity tax changes under fiscal competition this paper shows that when a noncooperative fiscal equilibrium of the mintz tulkens 1986 model of tax competition is inefficient pareto improving changes are positive for the taxes of both regions under concavity of the regions welfare functions it also identifies a class of such equilibria that are always efficient

tax competition and leviathan abstract attitudes towards downward pressure on tax rates from international tax competition depend on attitudes towards government this paper synthesises the two extremes which as in other areas of public finance have dominated the debate typically being presented as stark alternatives the view of government as a leviathan from which tax competition emerges as a useful constraint on policy makers and the view of government as a benevolent maximiser of their citizens welfare from which it emerges as a source of inefficiency conditions are derived under which when policy makers are neither entirely benevolent nor wholly self serving tax coordination benefits the representative citizen

the political economy of tax coordination as a bargaining game between bureaucrats and politicians in the public finance literature the view prevails that taxcompetition among countries gives rise to an underprovision ofpublic goods and that coordinated tax increases are thereforedesirable public choice arguments in contrast suggest thattax coordination may not be in the interest of thetaxpayers citizens because imperfections of the politicalprocess political distortions may lead to a waste of taxmoney according to this view tax competition is a desirablecheck on the power to tax whereas tax coordination would onlyrelax the budget constraint of an inefficient public sector the present paper integrates the underprovision argument andthe public choice view into a common theoretical framework the government is assumed to consist of politicians andbureaucrats with diverging interests fiscal policy ismodelled as the outcome of a bargaining game between thebureaucrats and the politicians it turns out that coordinatedtax increases always raise the provision of public goods butalso increase the cost of political distortions the effect onthe welfare of the representative citizen may be positive ofnegative depending in particular on the distribution ofbargaining power between bureaucrats and politicians

optimal minimum wage policy in competitive labor markets this paper provides a theoretical analysis of optimal minimum wage policy in a perfectly competitive labor market and obtains two key results first we show that a binding minimum wage while leading to unemployment is nevertheless desirable if the government values redistribution toward low wage workers and if unemployment induced by the minimum wage hits the lowest surplus workers first importantly this result remains true in the presence of optimal nonlinear taxes and transfers in that context a binding minimum wage enhances the effectiveness of transfers to low skilled workers as it prevents low skilled wages from falling through incidence effects second when labor supply re sponses are along the extensive margin only the co existence of a minimum wage with a positive tax rate on low skilled work is always second best pareto ineffcient a pareto improving policy consists of reducing the pre tax minimum wage while keeping constant the post tax minimum wage by increasing transfers to low skilled workers and financing this reform by increasing taxes on higher paid workers overall our results imply that the minimum wage and subsidies for low skilled workers are complementary policies pa

land leasing and local public finance in china s regional development evidence from prefecture level cities by analysing the evolution of local governments roles in different periods of china s growth in transition this paper explores local fiscal incentives to use subsidised land and infrastructure as key instruments in regional competition for manufacturing investment since the mid 1990s local land development behaviour is related to china s current land use institutions and intergovernmental arrangements on the basis of panel data covering prefectural level cities from 1999 to 2003 the paper empirically identifies and compares the fiscal impacts of different forms of land leasing by negotiation versus by auction tender policy implications are drawn from this analysis for the further reform of china s urban land system and fiscal institutions

redistribution and employment policies with endogenous unemployment abstract we study optimal redistribution policy in an economy with three types of unemployed persons those unable to work the voluntarily unemployed and the involuntarily unemployed both voluntary and involuntary unemployment are endogenous voluntary unemployment arises because individuals have different preferences while involuntary unemployment results from frictions in the labour market or from an efficiency wage we consider the employment policies of a well informed government when it can and cannot commit to its policies the model is simple yet rich enough to reflect real world policies including transfers to the disabled welfare for non working employables unemployment insurance employment subsidies and taxes on workers and firms

targeting transfers through restrictions on recipients our objective is to design transfer programs that maximize some social welfare function following the optimal income tax formulation we assume that a random process endows individuals with characteristics that influence welfare such as ability to earn income medical condition or unmonitorable income the goal is to maximize the utility of a randomly chosen individual other individualistic social welfare functions would lead to equivalent results if the random characteristics were observable a first best outcome could be achieved by making them the basis for lump sum transfers in practice however we can observe only indicators of these characteristics such as earnings medical expenditures or consumption patterns the challenge for policy is to design an efficient second best transfer program based on indicators in this paper we argue that 1 an optimal transfer program in general must sacrifice productive efficiency to target efficiency this is done by imposing restrictions on the choices made by intended beneficiaries 2 a program that incorporates restrictions such as means tested in kind transfers commodity specific taxes and subsidies and even ordeals i e the imposition of deadweight costs to qualify for a transfer will perform better than programs that rely solely on income taxes and cash transfers

international tax coordination regionalism versus globalism tax competition for mobile capital can undermine the attempts of governments to redistribute income from rich to poor i study whether international tax coordination can alleviate this problem using a general equilibrium model synthesizing recent contributions to the tax competition literature the model highlights the crucial distinction between global tax coordination and regional coordination with high capital mobility between the tax union and the rest of the world the welfare gain from regional capital income tax coordination is only a small fraction of the gain from global coordination even if the tax union is large relative to the world economy

public education spending and private substitution in urban china abstract this paper documents robust evidence that increases in public spending on basic education are associated with significant reductions in household private tutoring spending in urban china this reduction comes primarily from the top and bottom income households suggesting multi dimensional demands for private tutoring it concentrates on households with an only boy and is larger for middle school than primary school children increases in public education spending are associated with significant reduction in school tuition which is homogeneous across households of different income levels changes in household spending on textbooks in response to more public education spending are modest but statistically insignificant

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

optimal minimum wage legislation in this paper we present a model in which minimum wage legislation may be pareto optimal this arises because a higher wage would be preferred to the market clearing wage by demanders for and suppliers of labour even though unemployment is induced and minimum wage legislation is needed to support the preferred equilibrium consider a labour market where the quality of labour depends positively on the wage offered if labour quality is highly sensitive to wage increases effective unit labour cost will fall as the wage rises this would lead the representative firm to prefer paying an above market clearing wage and to ration job slots such an effect has been studied when quality depends on an individual firm s wage offer see for example weiss i980 or stiglitz i974 suppose however that labour quality depended not on any individual firm s wage offer but on the average market wage if firms were atomistic each invidual firm would have an incentive to undercut the optimal above marketclearing wage trying to get the quality benefits of high average wages while paying lower wages itself the high wage solution would not be viable legislation fixing minimum wages might be required to support the preferred equilibrium quality might depend on average market wages when workers must decide whether or not to enter a labour market before they can sample and obtain specific job offers migration into labour markets for example rural to urban migration in less developed countries provides one example as the decision to migrate and therefore the quality of the labour pool will depend on some average of expected wage offers the decision over which profession to enter at the beginning of the educational process provides another example of course imperfect information plays a key role here it is assumed that both firms and workers have imperfect information about the suitability of individual workers for jobs both before and to a lesser extent after employment has begun this lack of information will rule out both profitable selfselection mechanisms and wages strictly proportional to output so that firms will care about the quality of the labour pool the non optimality of market clearing prices which will be demonstrated makes this paper similar to a number of papers on the implications of adverse selection in labour and product markets one may mention two excellent papers on screening in labour markets by guasch and weiss i980 i98i this paper builds on some of the results in those papers stiglitz and weiss i98i show how credit rationing may arise from a similar type of argument wilson

optimal redistributive taxation in a search equilibrium model this paper characterizes optimal non linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labour markets redistributive taxation distorts labour demand and wages compared to their efficient values gross wages unemployment and participation are lower average tax rates are increasing marginal tax rates are positive even at the top finally numerical simulations suggest that redistribution is much more important in our setting than in a comparable mirrlees type setting

minimum wage legislation as a second best policy mass unemployment is a striking phenomenon of the present economic situation of european market economies although the profession of economists has been criticized for not providing satisfactory cures it has produced a number of different explanations either complementary or contradictory for the occurrence of mass unemployment in this paper we examine the argument that unemployment is the consequence of minimum wage legislation which is socially desirable the observation of current wage legislations suggests that the above argument is broadly at least partly accepted by policy makers curiously enough a defence of this argument meeting the rigorous requirements of modern theory seems to be missing symmetrically attacks against minimum wage legislation often rely upon reasonings of dubious relevance i e the obvious remark that unemployment is a waste with first best efficiency criteria the present paper proposes a second best analysis where second best stems from informational asymmetries which prevent the implementation of lump sum transfers needed for a first best redistribution policy the question under scrutiny can be reformulated in a more precise way as follows does a second best optimal redistribution policy lead to minimum wage legislation and unemployment our elements of answer are gathered in 3 sections in section 2 the principles of the analysis of the desirability of quantity controls and existing results are recalled in section 3 the analysis of section 2 is specified to a simple prototype model for the study of linear income taxation in section 4

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

ex ante free mobility ex post immobility and time consistency in a federal system abstract this paper examines regional population distribution when there is an interregional transfer policy without commitment we introduce explicitly the following time structure of actions individuals assumed to be identical make decisions on locational choices freely ex ante but are immobile ex post the fiscal policies of the local governments and the central government are implemented after individuals migration decisions the basic result is that locally stable no commitment equilibria are single community equilibria when there is a pure local public good we then illustrate the possibility for the interregional transfer policy to reduce the efficiency of population distribution

is it legitimate to encourage work sharing a generalization of mirrlees income taxation model is formulated in which qualifications of workers are both endogenous and observable by the government individuals differ by their unobservable abilities which simultaneously affect their disutility of labor and their cost of training in general the optimal tax schedule depends not only on income but also on its components i e wage rate or qualification and labor supply we find conditions under which it is optimal to subsidize lower qualifications or to encourage work sharing

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

real indeterminacy with financial assets abstract it is shown that in a two period general equilibrium securities model where assets pay in money the generic dimension of the set of equilibrium allocations in the incomplete market situation is s 1 where s is the number of assets hence the degree or real indeterminacy is independent of the number of assets this result requires beyond fewer assets than states that the number of traders be larger than the number of securities and that the asset return matrix be in general position the generic dimension for arbitrary returns matrix is also obtained it is argued in addition that the presence of real or mixed assets does not by itself lower the degree of indeterminacy

inter regional insurance this paper considers the problem facing a central government which can insure regional governments by use of intergovernmental grants against region specific and privately observed shocks either to income or demand for or cost of the public good notable results are i depending on the source of the shock the grant may induce over or undersupply of the public good relative to the samuelson rule ii with public good spillovers between regions there is two way distortion of public good supply that is qualitatively different distortions relative to the samuelson rule for different values of the shock iii the solution to the central government s problem may depend qualitatively on whether regional taxation is lump sum or distortionary 1999 elsevier science s a all rights reserved

paternalism and tax competition when consumers make mistakes the government may wish to use paternalistic taxation as a corrective measure we analyse the extent to which tax competition undermines the feasibility of paternalistic taxation we show that the paternalistic component of a tax on a harmful good is reduced when there is cross border shopping but it does not disappear altogether in a model with tax competition between two countries only one of which has a paternalistic objective we show that a minimum tax rate requirement can be pareto improving despite the divergence in policy objectives tax harmonization however reduces welfare in the non paternalistic country

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

a new approach to test the effects of decentralization on public infrastructure investment this paper proposes a simple theoretical framework to obtain a tractable equation that considers the traditional criteria for allocating public infrastructure investment and variables to capture de

the impact of fiscal decentralization on the composition of public expenditure panel data evidence from italy grisorio m j and prota f the impact of fiscal decentralization on the composition of public expenditure panel data evidence from italy regional studies this paper is an original contribution to the understanding of the relationship between fiscal decentralization and public expenditure composition it studies the effects of the ongoing decentralization process in italy on the share of different categories of public spending in total expenditure of the italian regional administrations over the period 1996 2008 the data used allow one to go beyond the usual distinction between current and capital expenditures and to present a functional classification of public expenditures through a panel data analysis the paper shows that the level of decentralization influences the composition of expenditure

unemployment and labor market reform a contract theoretic approach why do many democracies fail to reform their labor market institutions to answer this question we study the feasibility of reforms that include compensation to insiders for the removal of labor market regulations under asymmetric information a reformer who wants to buy the approval of voters has to pay them an informational rent in addition to the pure costs of compensation that would arise under symmetric information in this setting unemployment may be constrained pareto efficient labor market reforms may fail politically because none of the reform packages proposed wins the approval of a majority of voters we also discuss the role of capital taxation in a reform program jel classification d70 e61 j68

public economics and the theory of public policy when james mirrlees and william vickrey were awarded the nobel prize in economics last year it marked only the third time that the award had gone to scholars of public sector economics in contrast to the reception given to the previous two winners ronald coase and james buchanan the news was greeted with some bewilderment by policy specialists once removed from the academic literature who are mirrlees and vickrey and what have they done that has been of lasting benefit to the study of public economics let alone of practical benefit to policy makers this seems to me to be a fair question coase after all had set out a conceptual approach to the study of externalities and transaction costs that has become an implicit part of the methodological baggage carried around by policy economists and policy makers alike buchanan was in part responsible for the welcome emphasis on institutions in public sector decision making and for insisting that politicians bureaucrats and voters are human beings with human motives the legacy of mirrlees and vickrey is less well known but i would argue it is every bit as profound their approach to the theory of economic policy which is grounded on the importance of imperfect information as a constraint on public policy has changed the very nature of public economics research and of its implications for economic

possibilities for the exportation of production taxes a general equilibrium analysis abstract this paper re evaluates previous discussions of inter regional tax incidence and tax exportation a two region general equilibrium model is developed that allows for inter regional capital mobility and explicit commodity price determination where one of the two regions is incompletely specialized conditions are determined under which either region will be able to export a production tax also the link between tax exportation and the welfare of the taxing region is analyzed in the case where taxes are not equal to zero initially tax exportation may be inadvisable even when it is possible

the consequences of labour mobility for redistribution tax vs transfer competition abstract in a context where both the poor and the rich are imperfectly mobile this paper compares the nash equilibrium levels of income redistribution from the rich to the poor when jurisdictions compete either in taxes in transfers or both in taxes and transfers although taxes and transfers are linked through the budget balanced requirement the analysis reveals intriguing differences indeed it turns out that transfer competition results in much less redistribution than tax competition while tax transfer competition involves an intermediate level of redistribution in each approach the mobility of the rich is detrimental to redistribution and an increase in the dependency ratio reduces taxes concerning the effect of the mobility of the poor these approaches reach opposite conclusions that is the mobility of the poor is beneficial to redistribution under tax competition but reduces redistribution under transfer competition

minimum wage policy with optimal taxes and unemployment abstract using a search model i derive a formula that links the welfare gains from the minimum wage to its effect on low skilled labor force participation and employment this formula shows that the minimum wage is welfare improving if pushing the low skilled labor market tightness downwards brings it closer to its efficient level i estimate the causal effect of the minimum wage on low skilled labor force participation and employment using federal and state minimum wage variation i discuss the policy implications of my estimates when viewed through the lens of the marginal welfare gain formula

the provision of local public goods and factors in the presence of firm and household mobility abstract this paper studies the efficiency properties of allocations when firms and households are mobile and when local governments provide local public goods and local public factors the analysis differentiates between immobile land owners and perfectly mobile workers and concludes that an efficient allocation is obtained if there is no outflow of land rents to absentee owners if rents flow out only local public goods are supplied in accordance with the samuelson rule the provision of local public factors is inefficiently low however and jurisdictions tax mobile firms and mobile households inefficiently high in order to restrict the outflow of rents an optimal intervention scheme is derived in this case we also analyze the distortions that result when the non availability of local head taxes makes it impossible to internalize crowding costs

who s responsible for irresponsible business an assessment the source of irresponsible business is a systems failure involving an ill conceived interface between government the law investors and firms addressing this systemic failure requires reform of our capitalist system to build a partnership between the four parties that recognizes the function of each and how they should coalesce together

tax competition and tax coordination in an optimum income tax model abstract the paper uses the self selection approach of stiglitz 1982 to study tax competition and tax coordination in a many country optimum income tax model in the model the government can impose a non linear tax schedule on wage income and a source based tax on mobile capital in an uncoordinated equilibrium it turns out that countries can use the capital tax instrument to weaken the self selection constraint the paper presents examples where positive and negative capital taxes are optimal from a single country perspective if the production function is weakly separable between labor and capital it can be shown that the optimal capital tax is zero the paper also shows that contrary to the standard tax competition model the uncoordinated equilibrium can be efficient if the wealth distribution the endowments with capital among individuals is egalitarian a coordination of capital taxes does not affect welfare for non egalitarian wealth distributions a coordinated increase in capital taxes can raise or lower welfare depending on the redistributive impact of a higher capital tax

inter jurisdictional competition for firms regions inhabited with an immobile population of disabled and able individuals compete to attract mobile firms that provide jobs the redistributive goal of regional governments is to support the disabled who cannot work able individuals may work be involuntary unemployed because of frictions in the labor market or choose to be voluntary unemployed labor force participation decisions depend on regional redistributive policies both the size of workforce and tax on firms affect profits and therefore firms location decisions allowing regions to engage in tax competition may be efficient if regions cannot tax firms they compete by implementing inefficient redistributive policies

wealth inequality in the united states since 1913 evidence from capitalized income tax data this paper combines income tax returns with flow of funds data to estimate the distribution of household wealth in the united states since 1913 we estimate wealth by capitalizing the incomes reported by individual taxpayers accounting for assets that do not generate taxable income we successfully test our capitalization method in three micro datasets where we can observe both income and wealth the survey of consumer finance linked estate and income tax returns and foundations tax records wealth concentration has followed a u shaped evolution over the last 100 years it was high in the beginning of the twentieth century fell from 1929 to 1978 and has continuously increased since then the rise of wealth inequality is almost entirely due to the rise of the top 0 1 wealth share from 7 in 1979 to 22 in 2012 a level almost as high as in 1929 the bottom 90 wealth share rst increased up to the mid 1980s and then steadily declined the increase in wealth concentration is due to the surge of top incomes combined with an increase in saving rate inequality top wealth holders are younger today than in the 1960s and earn a higher fraction of total labor income in the economy we explain how our ndings can be reconciled with survey of consumer finances and estate tax data

the taxation of financial capital under asymmetric information and the tax competition paradox information sharing between governments is examined in an optimal taxation framework we introduce a taxonomy of alternative systems of international capital income taxation and characterize the choice of tax rates and information exchange the model reproduces the conclusion found in earlier literature that integration of international caopital markets may lead to the under provision of publicly provided goods however in contrast to previous results in the literature under provision occurs due to inefficiently coordinated expectations we show that there exists a second equilibrium with an efficient level of public good provision as well as complete and voluntary information exchange between national tax authorities

a pareto improving minimum wage this paper shows that a graduated minimum wage in contrast to a constant minimum wage can provide a strict pareto improvement over what can be achieved with an optimal income tax the reason is that a graduated minimum wage requires high productivity workers to work more to earn the same income as low productivity workers which makes it more difficult for the former to mimic the latter in effect a graduated minimum wage allows the low productivity workers to benefit from second degree price discrimination which increases their income

the redistributive role of unemployment benefits abstract this paper evaluates the role of unemployment benefits as a tool for redistribution in a setting with worker heterogeneity the provision of unemployment benefits achieves two goals it provides insurance to workers in the event of job loss and it redistributes wealth from individuals with more to those with fewer economic opportunities our model features a frictional labour market and an incomplete financial market when calibrated to match stylised facts of the us economy the optimal level of unemployment benefits is broadly similar regardless of whether workers differ in economic opportunities this suggests that taking into consideration the redistributive nature of unemployment benefits has only a limited role in altering the optimal level of unemployment benefits

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

eu regional policy and tax competition the european union eu provides coordination and financing of trans european transport infrastructures i e roads and railways which link the eu member states and reduce the cost of transport and mobility this raises the question of whether eu involvement in this area is justified by inefficiencies of national infrastructure policies moreover an often expressed concern is that policies enhancing mobility may boost tax competition we analyze these questions using a model where countries compete for the location of profitable firms we show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition in contrast with regard to union periphery infrastructure the union has an interest in a coordinated reduction of investment expenditures here the effects on tax competition are ambiguous our results provide a rationale for eu level regional policy that supports the development of intra union infrastructure

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages

nonlinear income taxation and matching grants in a federation with decentralized in kind transfers we extend to a fiscal federalism setting the literature on redistributive in kind transfers in the presence of nonlinear income taxation local governments have a cost advantage motivating decentralization of the in kind transfer the cost structure varies across regions and the central government cannot observe which region is which we show that decentralized in kind transfers can in this setting be an even more important instrument for relaxing self selection constraints thus helping redistribution than in single government models we characterize the optimal marginal tax rates and matching grants the grants have a very different structure than the one derived in earlier studies

fiscal competition and the pattern of public spending much attention has been given to the impact of fiscal competition on the level of public expenditure but relatively little to the impact on its composition using a broadly familiar and reasonably rich model of fiscal competition in the presence of mobile capital this paper establishes a systematic bias in public spending patterns starting from the non cooperative equilibrium and holding tax rates constant welfare would be improved by a coordinated reduction in the provision of local public inputs and a corresponding increase in the public provision of local public goods benefiting immobile consumers c 1997 elsevier science s a

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic