equality of opportunity and optimal cash and in kind policies abstract this paper examines the argument for public provision of certain private goods like education and health based on equality of opportunity by studying the utility possibility frontier of a society in which there is a concern for the distribution of these goods a given quality of education or health services can be consumed for free in the public sector but people can opt out and purchase their desired quality levels in the private sector some of the conclusions are i a pure cash transfer is optimal when the utility redistribution is either sufficiently small or large ii if and only if both the equality of opportunity concern and the utility redistribution are large enough can an in kind program which attracts the whole population be justified iii even when everybody chooses the in kind program it may be optimal to perform some additional utility redistribution by increasing the size of such program

financing and funding health care optimal policy and political implementability health care financing and funding are usually analyzed in isolation this paper combines the corresponding strands of the literature and thereby advances our understanding of the important interaction between them we investigate the impact of three modes of health care financing namely optimal income taxation proportional income taxation and insurance premiums on optimal provider payment and on the political implementability of optimal policies under majority voting considering a standard multi task agency framework we show that optimal health care policies will generally differ across financing regimes when the health authority has redistributive concerns we show that health care financing also has a bearing on the political implementability of optimal health care policies our results demonstrate that an isolated analysis of optimal provider payment rests on very strong assumptions regarding both the financing of health care and the redistributive preferences of the health authority

the effect of taxes on labor supply in the underground economy this paper uses micro data from a randomized survey carried out in the metropolitan area of quebec city canada to analyze the decision to evade taxes and work in the underground economy the results indicate that taxes distort labor market activities away from the regular sector to the underground sector but the distortion is small for the average worker the distortion is large however for particular groups of the population such as welfare claimants copyright 1994 by american economic association

public provision of private child goods abstract this paper analyzes the public provision of private goods for children in a politico economic model with endogenous fertility the government provides every child with goods that can also be purchased by parents in private markets and the level of provision is determined by majority rule households with many children benefit from the public provision more than those with fewer children thus a political conflict arises between them the distribution of the number of children across households which is a crucial factor for determining which group is politically dominant is endogenously determined by households fertility decision the sequential interaction between fertility and political decisions might lead to multiple equilibria equilibrium with high fertility and low private public spending ratio and equilibrium with low fertility and high private public spending ratio our model could explain the large differences in fertility and structure of child related spending across countries

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

the political economy of mass privatisation and imperfect taxation winners and loosers this article investigates the connection between the apparently uncorrelated issues of tax evasion and privatisation in a political economy framework we first consider how the political process given a country s level of development and income distribution will affect the efficiency of the tax system we then discuss the impact of the efficiency of the taxation system on the outcomes of privatisation we consider under which condition privatisation will proceed and who will be the political supporters as well as the main winners of the privatisation process moreover we investigate the impact of different forms of corruption both on the initial public support for privatisation as well as on its long term political sustainability

tax evasion and self employment in a high tax country evidence from sweden self employed individuals have arguably greater opportunities than wage earners to underreport their incomes this article uses recent swedish income and expenditure data to examine the extent of underreporting of income among self employed individuals a key hypothesis is that underreporting of incomes among the self employed would be visible in the data as excess food consumption for a given level of observed income our results confirm the underreporting hypothesis in particular we estimate that households with at least one self employed member underreport their total incomes by around 30 under reporting appears to be much more prevalent among self employed people with unincorporated businesses as among those with incorporated businesses

the political economy of publicly provided private goods abstract this paper integrates two different approaches to the analysis of public provision of private goods education health care day care etc while normative public economics has established an efficiency case for such provision the commonly held political economy view has been that it is an economically inefficient phenomenon generated by the political process we establish a political economy framework which in general yields an efficient choice of distributional policy it follows that the central mechanism studied in the normative theory is equally relevant to voting models of decisions on public provision it is shown that under plausible information constraints economically efficient public provision of private goods will be part of politically rational decisions the result is established both within a median voter process and a representative democracy of political parties

tax evasion across italy rational noncompliance or inadequate civic concern the paper suggests anexplanation for the geographical dimensionof tax evasion that focuses on thestructure of territorial government taxesadministered by the central government arenot differentiated by regions poor areasmay prefer a combination of lower taxes andlower levels of public services at both thecentral and the local level this isespecially true when income and wealthlevels differ among the areas and thedemand for publicly provided goods iscorrelated to these levels but the use ofnationally uniform tax schedules imposes awelfare burden on poorer areas while thetax rates of local taxes can be adjusted tolocal preferences tax evasion may betacitly accepted as a compensation for thewelfare loss deriving from too highcentrally set tax rates

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

the informal sector in developed and less developed countries a literature survey the main goal of this study is two fold 1 to provide ageneral overview of the contributions to the literature on theinformal sector with a special focus on the public choiceapproach and 2 to compare these contributions across twoinstitutionally different types of countries developed andless developed developing and transition countries thepaper focuses on the criteria used to define the informalsector the relationship between the formal and informaleconomy tax evasion and public choice analysis it isstressed throughout this paper that the distinction betweenthe two types of countries is of key importance

transfers in cash and in kind theory meets the data we review theoretical explanations for in kind transfers in light of the limited empirical evidence after reviewing the traditional paternalistic arguments we consider explanations based on imperfect information and self targeting we then discuss the large literature on in kind programs as a way of improving the efficiency of the tax system and a range of other possible explanations including the samaritan s dilemma pecuniary effects credit constraints asymmetric information amongst agents and political economy considerations our reading of the evidence suggests that paternalism and interdependent preferences are leading overall explanations for the existence of in kind transfer programs but that some of the other arguments may apply to specific cases political economy considerations must also be part of the story

support for public provision of a private good with top up and opt out a controlled laboratory experiment abstract this paper presents the results of a revealed choice experiment testing the theoretical predictions of political economy models regarding public support for a publicly provided private good financed with proportional income taxes when individuals can purchase the good privately and either continue to consume public provision top up or forego public provision opt out but in each case continue to pay income taxes our laboratory results confirm behavior is consistent with the predicted majority preferred tax rate under mixed financing with top up but we identify preferences for significantly higher rates of public provision than predicted under mixed financing with opt out using non parametric regression analysis we explore the relationship between individuals top up and opt out decisions and both their income levels and the implemented tax rates

the politics of redistributive social insurance this paper analyses the political support for a social insurance that includes elements of redistribution when there exists an imperfect private insurance alternative individuals differ both in their income and risk the social insurance is compulsory and charges an income related contribution with pooling of risks the private insurance is voluntary and charges a contribution based on individual risks however due to the adverse selection problem private insurance companies provide only partial insurance adopting a non expected utility model we show that there is a general majority support for social insurance and that this support is increasing with risk aversion we also show that a mixed insurance is politically impossible regardless of the degree of redistribution of social insurance and the joint distribution of risk and income in the population lastly we analyse how the political support for social insurance is affected by any change in its redistributive component and the possibility of using genetic tests

an econometric analysis of income tax evasion and its detection this article presents an econometric analysis of income tax evasion and its detection based on individual level data drawn from the internal revenue service 1982 and 1985 taxpayer compliance measurement programs i specify a model consisting of two equations the first measures the extent of evasion the second the fraction of evasion detected the empirical analysis explores the effects of income the marginal tax rate and various socioeconomic characteristics on filer evasion behavior and it assesses the variability in detection rates among irs examiners finally i use the empirical estimates to construct new estimates of the income tax gap the new estimates are very close to the previous irs estimates

majority voting with single crossing preferences we clarify and extend a number of sufficient conditions for the existence of a majority voting equilibrium on one dimensional choice domains these conditions variously stated in the previous literature all impose order restrictions on voter preferences for instance monotone marginal rates of substitution which we show to imply or be equivalent to a general ordinal version of the single crossing condition this simple property is economically intuitive and easily checked in applications this ease of application is demonstrated through an examination of voting models of redistributive income taxation and trade union bargaining behaviour

majority voting and the welfare implications of tax avoidance abstract a benchmark result in the political economy of taxation is that majority voting over a linear income tax schedule will result in an inefficiently high tax rate whenever the median voter has a below average income the present paper examines the role of tax avoidance for this welfare result for a right skewed distribution of taxed income we show that the political distortion from majority voting is increasing in the median voter s avoidance vice versa keeping the decisive voter s avoidance constant the political inefficiency is decreasing in the average level of avoidance in the economy

sizing the government is there such a thing as an optimal government size we investigate the so called armey curve which claims an inverted u shaped relationship between government size and economic performance using non parametric data envelopment analysis dea the dea scores are linked to control variables such as initial per capita income openness population density urbanization country size and family size for 23 oecd countries we estimate the country specific efficiency scores which reveal the extent to which a country uses excess public resources to achieve the observed growth rate of gdp

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

a little fairness may induce a lot of redistribution in democracy we use a model of self centered inequality aversion suggested by fehr and schmidt 1999 to study voting on redistribution we theoretically identify two classes of conditions when an empirically plausible amount of fairness preferences induces redistribution through referenda we test the predictions of the adapted inequality aversion model in a simple redistribution experiment and flnd that it predicts voting outcomes far better than the standard model of voting assuming rationality and strict self interest

how much income redistribution an explanation based on vote buying and corruption this paper studies how income tax rates are determined and how they are related to government corruption in the form of fund capture a model is presented where rich voters can block redistribution by buying the votes of some poor voters in equilibrium there is only limited redistribution and income tax rates are a negative function of government corruption when rich voters can bribe the government an additional equilibrium with zero taxation is possible the link between corruption and tax rates is tested using cross country data the empirical evidence is fully consistent with the predictions of the model

health economics worldwide i issues in health insurance 1 pricing and imperfections in the medical care market place 2 how can we prevent cream skimming in a competitive health insurance market the great challenge for the 90s 3 the impact of utilization review on costs and utilization 4 the normative and positive economics of minimum health benefits ii criteria for allocating health care resources 1 cost effectiveness analysis of strategies for screening prostatic cancer 2 the validity of the mimic health index some empirical evidence 3 welfare economics and cost utility analysis iii administrative and market allocation in health care 1 excess demand and patient selection for heart and liver transplantation 2 non price allocative procedures scottish solutions to a national health service problem 3 priorities among waiting list patients 4 consumer information price and nonprice competition among hospitals iv health care in the political arena 1 cost containment in health care justification and consequences 2 political economy of hospital financing 3 a pooled cross sectional analysis of the health care expenditure of the oecd countries 4 is there a sisyphus syndrome in health care 5 deaths from gastrointestinal cancer in mexico probable cause for water sampling index of names index of subjects

market roll out and retailer adoption for new brands this paper proposes a descriptive model of the spatial and temporal evolution of retail distribution for new packaged goods the distribution model postulates separate processes for local market entry by manufacturers and adoption by retailers given entry of special interest is whether retail adoption occurs along a competitive network with retailers as nodes and overlapping trade areas of these retailers as links the model is calibrated on data covering the introduction of two very successful new brands in the frozen pizza category for these brands manufacturers sequentially enter markets based on spatial proximity to markets already entered spatial evolution and on whether chains in these markets adopted previously elsewhere market selection a retail chain adopts new brands based on the adoption timing of competing chains within its trade territory competitive contagion and on the fraction of its trade area in which the new brand is available trade area coverage the effects of market selection and of trade area coverage create dependencies between market entry and retail adoption because of these dependencies the attraction of a particular market as a lead market depends on its location in the geographic structure of the u s retail trade

majority voting in a model of means testing abstract we study a model of endogenous means testing where households differ in their income and where the in kind transfer received by each household declines with income majority voting determines the two dimensions of public policy the size of the welfare program and the means testing rate we establish the existence of a sequential majority voting equilibrium and show that the means testing rate increases with the size of the program but the fraction and the identity of the households receiving the transfers are independent of the program size furthermore the set of subsidy recipients does not depend on households preferences but depends only on income heterogeneity

voting on income tax exemptions most itemized tax exemptions lead to significant deductions for a minority of the population only this raises the question why the majority does not vote for the abolition of these tax privileges in exchange for lower tax rates in this paper we show that a reform proposal may be voted down even when the majority uses the exemption at stake below the average turning to an empirical application we simulate the voting outcome on the proposal to abolish the tax deductibility of commuting expenses in germany our model predicts that this proposal would be rejected even though a comfortable majority has below average deductions

two tier public provision comparing public systems abstract the paper considers a two tier institution in which government provides public services but individuals can opt out of public provision but not taxes funding for the public service is chosen endogenously by majority vote and we first provide necessary and sufficient conditions for a majority vote equilibrium in line with existing results the equilibrium tax rate usually falls below the one found in a one tier system opting out of public consumption is prohibited as the public system loses the political support of the rich who exit we prove that when the two tier system majority dominates a purely private system a majority in society always welcomes a transition from a one tier public system to a two tier system it is the only system that is stable in an evolutionary sense otherwise a majority consisting of the middle class may be in favor of staying in a one tier system prohibiting exit because of a slippery slope argument

public private mix of health expenditure a political economy and quantitative analysis this paper constructs a simple model to examine decisions on public and private health spending under majority voting in the model agents with heterogeneous incomes choose how much to consume and spend on health care and vote for public health expenditure the health status of an agent is determined by a ces composite of public and private health expenditure the existence and uniqueness of the voting equilibrium are established a quantitative exercise reveals the importance of the relative effectiveness of public and private health expenditure and their substitutability in determining the public private mix of health expenditure and in accounting for the observed differences across a sample of 22 advanced democratic countries

the political economy of public health expenditure and wait times in a public private mixed health care system this paper investigates the determinants of public health expenditure in a public private mixed health care system where a longer wait time for public care is the major difference between public and private sectors voter preferences for health care vary according to their age and by income and public policy choices are part of a multi dimensional competitive political equilibrium we show how equilibrium public health expenditure and wait times depend on demographics and explain why they are independent of the distributions of income and political influence we also show that population aging may not always lead to more public health expenditure ce texte examine les determinants des depenses en sante publique dans un regime mixte public prive de soins de sante quand un temps d attente plus long est la difference majeure entre les secteurs public et prive les preferences des electeurs dans le monde de la sante varient selon l ge et le revenu et les choix de politique publique sont partie d un equilibre politique concurrentiel multidimensionnel on montre que les depenses en sante publique et les temps d attente en equilibre dependent de la demographie et que cela explique pourquoi elles sont independantes de la repartition des revenus et de l influence politique on montre aussi que le vieillissement de la population peut ne pas toujours entrainer des depenses en sante publique additionnelles

a median voter model of health insurance with ex post moral hazard abstract one of the main features of health insurance is moral hazard as defined by pauly pauly m v 1968 the economics of moral hazard comment american economic review 58 531 537 people face incentives for excess utilization of medical care since they do not pay the full marginal cost for provision to mitigate the moral hazard problem a coinsurance can be included in the insurance contract but health insurance is often publicly provided having a uniform coinsurance rate determined in a political process is quite different from having different rates varying in accordance with one s preferences as is possible with private insurance we construct a political economy model in order to characterize the political equilibrium and answer questions like under what conditions is there a conflict in society on what coinsurance rate should be set and which groups of individuals will vote for a higher and lower than equilibrium coinsurance rate respectively we also extend our basic model and allow people to supplement the coverage provided by the government with private insurance then we answer two questions who will buy the additional coverage and how do the coinsurance rates people are now faced with compare with the rates chosen with pure private provision

ends against the middle determining public service provision when there are private alternatives abstract public provision of a service coexists with private market provision the quality of public provision is determined by majority vote preferences are not single peaked owing to the presence of private alternatives we identify two cases in one majority voting equilibrium always exists and the median income voter is pivotal in the other a necessary condition for equilibrium indentifies the pivotal voter who must have income below the median when equilibrium exists a coalition of middle income households who consume the public alternative will be opposed by a coalition of rich and poor households with the rich choosing private consumption

regulation and efficiency an empirical analysis of the united kingdom continental shelf petroleum industry abstract the petroleum industry of the united kingdom continental shelf ukcs has been subject to various degrees of regulation self sufficiency security of supply and developing offshore supply industry triggered government regulations that were seen as interventionary and protectionist this paper tests the extent to which regulations targeting involvement of british offshore supply industry in the ukcs activity created inefficiencies data envelopment analysis dea stochastic frontier analysis sfa malmquist indices and standard regression analysis are used to measure the amount and address the source of inefficiencies we will show that such inefficiencies could not be ruled out the results provide an important insight into the ukcs production techniques and more generally into governments abilities to influence private sector behaviour through contracts and tendering

in kind transfers cash grants and labor supply abstract in kind and cash transfer programs are compared in their impacts on labor supply it is demonstrated that labor supply is higher under an in kind transfer program if in kind transfers and leisure are hicks substitutes leisure is normal and in kind transfers are over provided it is further shown that under these conditions a one dollar increase in in kind coupled with a one dollar cut in cash transfers increases tax revenues finally the paper proves that weak separability of preferences between leisure and other goods in addition to normality of leisure and normality and over provision of in kind transfers is also sufficient to ensure a higher level of labor supply under in kind transfers

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

should i stay or should i go exit options within mixed systems of public and private health care finance abstract mixed public private finance is widespread in health care systems internationally in one variant of mixed finance some countries e g germany allow eligible beneficiaries to fully exit from the public social insurance system and purchase private insurance using a controlled laboratory experiment we empirically investigate the predictions of a political economy model of mixed systems of public and private finance with two types of exit universal exit when all individuals can choose to exit the public system and conditional exit when only individuals with an income at or above a threshold income level can choose to exit we find that high income individuals are less likely to exit under universal exit than under conditional exit despite having the same incentive to exit in both treatments sensitivity treatments suggests that a number of factors may be at play in explaining this result including learning effects a priming effect and a framing effect but that other regarding preferences do not appear to be an important factor

are tax subsidies for private medical insurance self financing evidence from a microsimulation model this paper develops an empirical strategy to estimate whether subsidies to private medical insurance are self financing in countries where public and private insurance coexist and the latter covers the same treatments as the former we construct a simulation routine based on a micro econometric discrete choice model that allows us to evaluate the impact of premium changes on the utilization of outpatient and inpatient health care services as an application we estimate the budgetary effects of scrapping a subsidy from the purchase of individual private policies using micro data from catalonia our results suggest that the subsidy is not self financing this result is driven by the fact that private medical insurance holders make concurrent use of public and private services and by the price inelasticity of the demand for private policies

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

on the public choice critique of welfare economics the public choice literature urges the welfare economist to anticipate how political forces will shape the levels of new policy instruments when government intervenes in a new way this paper argues that the welfare economist should also recognize that new interventions may impact the politically determined levels of existing policy instruments it shows how the introduction of a new instrument can lead to shifts in political coalitions or compromises in existing areas of conflict that can produce significant changes in existing policies such spillover effects can provide new arguments for introducing particular policy interventions even a policy instrument without an obvious welfare economic rationale can change voter coalitions and shift the policy equilibrium in a welfare improving direction

over incarceration and disenfranchisement this article presents a model wherein law enforcers propose sentences to maximize their likelihood of reelection and shows that elections typically generate over incarceration i e longer than optimal sentences it then studies the effects of disenfranchisement laws which prohibit convicted felons from voting the removal of ex convicts from the pool of eligible voters reduces the pressure politicians may otherwise face to protect the interests of this group and thereby causes the political process to push the sentences for criminal offenses upwards therefore disenfranchisement further widens the gap between the optimal sentence and the equilibrium sentence and thereby exacerbates the problem of over incarceration moreover this result is valid even when voter turnout is negatively correlated with people s criminal tendencies i e when criminals vote less frequently than non criminals

cheating ourselves the economics of tax evasion no government can announce a tax system and then rely on taxpayers sense of duty to remit what is owed some dutiful people will undoubtedly pay what they owe but many others will not over time the ranks of the dutiful will shrink as they see how they are being taken advantage of by the others thus paying taxes must be made a legal responsibility of citizens with penalties attendant on noncompliance but even in the face of those penalties substantial tax evasion exists and always has the history of taxation is replete with episodes of evasion often notable for their inventiveness during the third century many wealthy romans buried their jewelry or stocks of gold coin to evade the luxury tax and homeowners in eighteenth century england temporarily bricked up their fireplaces to escape notice of the hearth tax collector webber and wildavsky 1986 p 141 this essay reviews what is known about the magnitude nature and determinants of tax evasion with an emphasis on the u s income tax alm 1999 andreoni erard and feinstein 1998 and slemrod and yitzhaki 2002 offer more comprehensive recent reviews of the literature it then places this information into a conceptual and policy context

public health insurance and optimal income taxation abstract if individuals differ not only in their inherent capacity to earn income but also in the probability that they will fall ill can subsidized public health insurance be justified on the grounds that it serves as an efficient tool to redistribute welfare this question is analyzed in a model where the social welfare function is a weighted average of individual expected utilities and where taxation is by a linear income tax the answer is yes except in certain special cases

redistribution when avoidance behavior is heterogeneous abstract the optimal income taxation framework is extended to account for heterogeneity in avoidance behavior the optimal tax formulae are shown to be simply and intuitively modified to reflect the value of taxable income as an indicator of the need for transfers at a given skill level this effect is in addition to any effect implied by just considering additional margins of response to taxes alternative sources of heterogeneity and their likely consequences are discussed when the choice of administration is added to the model it is demonstrated that the optimal tax system may include some seemingly wasteful avoidance schemes even if they could be eliminated without any cost when an avoidance scheme is more heavily used by the needy it may provide additional redistribution without affecting standard incentive constraints

cryptocurrency adoption with speculative price bubbles this paper marries models of stochastic bubbles and the standard model of product diffusion to study the role of price bubbles in cryptocurrency adoption

what happens when you tax the rich evidence from executive compensation this paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995 the data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income indeed this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period one person alone can account for more than 2 percent the decline however is almost entirely a short run shift in the timing of compensation rather than a permanent reduction in taxable income the short run elasticity of taxable income with respect to the net of tax share exceeds one in this sample but the elasticity after one year is at most 0 4 and probably closer to zero breaking out the tax responsiveness of different types of compensation shows that the large short run responses come almost entirely from a large inc

the elasticity of taxable income evidence and implications abstract a central tax policy parameter that has recently received much attention but about which there is substantial uncertainty is the overall elasticity of taxable income we provide new estimates of this elasticity which address identification problems with previous work by exploiting a long panel of tax returns to study a series of tax reforms throughout the 1980s this identification strategy also allows us to provide new evidence on both the income effects of tax changes on taxable income and on variation in the elasticity of taxable income by income group we find that the overall elasticity of taxable income is approximately 0 4 the elasticity of real income not including tax preferences is much lower we estimate small income effects of tax changes on reported income implying that the compensated and uncompensated elasticities of taxable income are very similar we estimate that this overall elasticity is primarily due to a very elastic response of taxable income for taxpayers who have incomes above 100 000 per year who have an elasticity of 0 57 while for those with incomes below 100 000 per year the elasticity is less than one third as large moreover high income taxpayers who itemize are particularly responsive to taxation our estimates suggest that optimal tax structures may feature tightly targeted transfers to lower income taxpayers and a flat or even declining marginal rate structure for middle and high income taxpayers

majority rule and the public provision of a private good this paper extends the literature on the socialization of commodities by developing a model of voting over the public provision of a private good health care

public provision of private goods government may provide a good that can if legally permitted be supplemented by private purchases policy is determined by majority rule under standard assumptions on preferences a majority voting equilibrium exists a regime of positive government provision with no restriction on private supplements is shown to be majority preferred to a regime of either only market provision or only government provision combined public and private expenditure on the good is higher under this dual provision regime than under either of the alternatives under some preference configurations the median income voter is pivotal under others a voter with income below the median is pivotal

a problem of incentive compatibility in the north sea petroleum industry abstract the principal agent relationship between the governments of the uk and norway and the multinational oil companies active in the north sea petroleum industry is to some extent different from a typical principal agent interaction for almost three decades the major criterion for allowing a company to take part in the activity was its previous and planned contribution to the domestic economy by means of applying the highest possible domestic inputs this study applies mathematical modeling to show that the authorities had the opportunity to offer an incentive scheme to persuade the oil companies to involve domestic suppliers at the governments preferred level unlike a typical government regulatory framework which aims to increase efficiency in terms of price and or quality the incentive compatible scheme discussed in this paper could in certain circumstances generate inefficiency in the daily operation of the oil and gas fields

voluntary public health insurance we look at the consequences of allowing public health insurance puhi to be voluntary when its coverage can be supplemented in the market puhi redistributes with respect to risk and income and the market is affected by adverse selection we argue that making puhi voluntary does not lead to its collapse since individuals always participate in it additionally in some cases a voluntary puhi scheme increases market efficiency because participation in it sends a signal to private insurers of an individual s health risk type the welfare consequences depend on the status quo if in the status quo no political support exists for a compulsory puhi making it voluntary constitutes a pareto improvement and in some cases all individuals are strictly better off if instead the status quo implements compulsory puhi making it voluntary then results in less redistribution

new product diffusion with influentials and imitators we model the diffusion of innovations in markets with two segments influentials who are more in touch with new developments and who affect another segment of imitators whose own adoptions do not affect the influentials this two segment structure with asymmetric influence is consistent with several theories in sociology and diffusion research as well as many viral or network marketing strategies we have four main results 1 diffusion in a mixture of influentials and imitators can exhibit a dip or chasm between the early and later parts of the diffusion curve 2 the proportion of adoptions stemming from influentials need not decrease monotonically but may first decrease and then increase 3 erroneously specifying a mixed influence model to a mixture process where influentials act independently from each other can generate systematic changes in the parameter values reported in earlier research 4 empirical analysis of 33 different data series indicates that the two segment model fits better than the standard mixed influence the gamma shifted gompertz and the weibull gamma models especially in cases where a two segment structure is likely to exist also the two segment model fits about as well as the karmeshu goswami mixed influence model in which the coefficients of innovation and imitation vary across potential adopters in a continuous fashion

the political economics of not paying taxes this paper considers redistributive as well as political consequences of tax avoidance when tax avoidance is possible the official tax rate does not necessarily correspond to what individuals actually pay this affects both redistributive outcomes as well as political attitudes towards taxation depending on the avoidance technology different political equilibria emerge when the avoidance possibilities are limited the classical conflict between rich and poor is sustained if the tax avoidance technology is more effective however the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate comparing the model predictions with data on income inequality and evidence of avoidance activity it comes surprisingly close to actual observations

tax evasion and optimal commodity taxation abstract this paper incorporates tax evasion into ramsey s optimal taxation problem it provides i a precise and intuitive characterization of the tradeoff between optimal tax rates and audit probabilities and ii a modified version of the ramsey equation it also proves that in the presence of tax evasion a the well known requirement of proportional reduction in compensated demands b the traditional result on the optimality of uniform taxation when income is exogenous and c the equivalence of wage and uniform commodity taxes are no longer valid

collective choice and voluntary provision of public goods some public goods are provided entirely with private contributions others with a mixture of public and private funding and still others are entirely publicly funded in order to study this variation a model of dual provision is developed that endogenizes public and private funding households vote over an income tax that finances public supply of the good and on whether to permit private contributions while permitting private contributions may lead to a reduction in total provision a majority always favors permitting private contributions results are developed for small and large economies and the relevance of nonexcludability and noncongestion are investigated

efficiency performance and regulation of the international gas industry a bootstrap dea approach abstract natural gas has become increasingly important as a source of energy in recent years it is widely viewed as an attractive means of realizing environmental objectives post kyoto and individual country gas industries have been extensively restructured to encourage investment from the private sector barriers to international trade in gas have fallen particularly in areas such as europe and asia as pipeline facilities have expanded and trading systems have become established an important question for policy makers concerns the use of scarce resources by this expanding industry regulatory authorities increasingly use efficiency comparators to incentivise minimum cost use of resources by price cap methods yardstick competition and other techniques this paper explores some of the policy developments which affect efficiency of resource use in the gas industry and uses data envelopment analysis to measure relative performance at the individual country level recent developments in bootstrapping techniques are used to correct efficiency estimates for bias and to assess the uncertainty surrounding such estimates the implications of these results for regulatory authorities are then explored

a positive theory of in kind transfers and the negative income tax normative arguments for restricting redistribution to cash transfers or a negative income tax have not appealed to politicians or their constituents all modern governments redistribute income in kind and provide goods and services that can be produced and distributed privately at times public and private supply coexist housing services medical care and education are examples but so too are safety and many regulatory activities of government

the political economy of long term care we build a two dimensional political economy model to explain the provision and financing of long term care and income redistribution voting agents differ in need and income opening up two conflicts one sets families with disabled parents who are in favor of a public long term care program against the ones without such parents who oppose public financing the other sets the poor against the rich with the former preferring heavier income taxation than the latter we show that a structure induced equilibrium always exists and that it is unique if informal care is provided in equilibrium the equilibrium not only explains the negative association of income inequality and long term care financing but also allows predictions about how demographic change might impact long term care arrangements and expenses

price cost and exploration sensitivities of prospective activity levels in the ukcs an application of the monte carlo technique abstract building on previous work this paper develops a probabilistic economic model using the monte carlo technique to project activity levels in the uk continental shelf the modelling emphasises the importance of oil and gas prices the investor s hurdle rate of return changing prospectivity and the exploration effort activity in the medium term is found to be highly sensitive to oil and gas prices development costs and exploration effort field investment may fall very substantially and the oil production decline rate could be fast from 2000 to sustain higher activity levels further technological advances and their widespread adoption are essential

voting inequality and redistribution this paper surveys models of voting on redistribution under reason able assumptions the baseline model produces an equilibrium with the extent of redistributive taxation chosen by the median income earner if the median is poorer than average redistribution is from rich to poor and increasing inequality increases redistribution however under different assumptions about the economic environment redistribution may not be simply rich to poor and inequality need not increase redistribution several lines of argument are presented in particular political participation public provision of private goods public pensions and tax avoidance or evasion

alternative systems of health care provision health care timothy besley and miguel gouveia rising costs of health care provision throughout the world have provoked a vigorous debate about the design of health care systems and the role of government in health care in countries that have predominantly social provision there are moves towards privatization and direct attempts to regulate prices in more market oriented systems rising costs seem to be resulting in a greater uninsured problem and this too is provoking demands for reform technological change will put constant pressure on health care systems public or private generating serious social choice problems however this must be seen in the context of a traditional commitment to providing a non trivial minimum level of health care to all members of society we discuss evidence from oecd countries from 1960 to 1990 then focus on more recent changes the central problems of market oriented systems are cost containment and the fact that significant segments of the population go uninsured most oecd countries have therefore chosen solutions where health care financing is socialized we present a simple political economy model to describe the conditions under which this will arise the hallmark of public provision is relative uniformity in access to health care this creates incentives for individuals to opt out of the public sector and to supplement what they can obtain through the state in addition it creates a significant commitment to redistribution through public provision rising costs strain the generosity of taxpayers we expect to see increased reliance on market solutions and moves towards multi tiered health systems that differentiate health care provisions made for different groups in society

voting over taxes the case of tax evasion this paper studies majority voting on taxes when tax evasion is possible we characterize the voting equilibrium where the agent with median taxed income is pivotal since the ranking of true incomes does not necessarily correspond to the ranking of taxed incomes the decisive voter can differ from the median income receiver in this case we find unconventional patterns of redistribution e g from the middle class to the poor and the rich

should day care be subsidized in the presence of distortionary taxes on labor can subsidies on childcare flnanced by a further increase in taxes raise welfare by encouraging women with small children to work we approach this question in two difierent ways first we consider a set of stylized models where we prove analytically that under some conditions the ramsey optimal policy consists in making childcare expenses tax deductible then we construct a calibrated stochastic dynamic life cycle model of household decision making designed to capture some facts about labor supply in germany we flnd that the welfare gains associated with subsidizing childcare are considerable and that the maximum gains are realized when childcare is subsidized to an even greater extent than what tax deductibility implies