on the endogenous allocation of decision powers in federal structures abstract this paper provides a political economy explanation of the degree of centralization in economic policy making to determine which policies are to be centralized regions select representatives who then negotiate the degree of centralization and the regional cost shares of centrally decided policies we show that the resulting degree of centralization is suboptimally low voters strategically delegate to representatives who are averse to public spending and hence prefer decentralized decisions in order to reduce their region s cost share when spillovers are asymmetric strategic delegation is stronger at the periphery than at the center

the age wage profile and structural change in the japanese labor market for males 1964 1982 the focus of this paper is on the impact of demographic change and the catching up of japanese industry with the west technologically upon the age wage profile in japan over the period 1964 1982 we argue that changes on the supply side of the aggregate labor market especially the aging of the japanese labor force have had a profound influence on determining the relative wages of senior to junior workers but we also argue that structural shift on the demand side especially that associated with the slowing down of output growth as japan caught up with western economies was important in determining the age wage profile finally we offer a variety of statistical findings consistent with our thesis including new evidence on the dualistic structure of the japanese labor market

the demand for college education in postwar japan since world war ii the number of japanese college applications has expanded at an impressive rate this paper concentrates on evaluating the extent to which economic factors underlie this expansion salient among the findings are results suggesting that an important segment of the population whom we call marginal investors respond sensitively to shortrun economic factors governing higher education these factors include direct college costs the household liquidity constraints and the probability of entering a large firm it also appears that the quality of college education has been an important determinant of postwar demand for college education in japan

nash equilibria in models of fiscal competition abstract this paper analyzes nash equilibria in a simple model of an economy with jurisdictions engaging in fiscal competition small number nash equilibria in which tax rates are the strategic variables are shown not to coincide with nash equilibria in which public expenditure levels are the strategic variables

are those paid more really more productive the case of experience this study uses computerized personnel microdata on the white male managerial and professional employees at a major u s corporation to address the following question can the additional earnings which are associated with more labor market experience at a point in time really be explained by higher productivity at the same point in time our answer to this question based on both cross sectional and longitudinal information is that performance plays a substantially smaller role in explaining cross sectional experience earnings differentials and earnings growth than is claimed by those who have adopted the human capital explanation of the experience earnings profile this response depends critically on our assumption that the performance ratings which supervisors give to their white male managerial and professional subordinates adequately reflect the subordinates relative productivity in the year of assessment we present a great deal of evidence which strongly supports this assumption

choosing size of government under ambiguity infrastructure spending and income taxation i examine choice of size of government by a planner who has partial knowledge of population preferences and the productivity of public spending focusing on income tax financed spending for infrastructure i examine scenarios where the planner observes the outcome of a status quo policy and uses various decision criteria to choose policy the analysis shows that the planner can reasonably choose a wide range of spending levels thus a society can rationalise having a small or large government i conclude that to achieve credible conclusions about the desirable size of government we need to improve current knowledge of preferences and the productivity of spending vastly

search profiling with partial knowledge of deterrence consider the choice of a profiling policy where decisions to search for evidence of crime may vary with observable covariates of the persons at risk of search i pose a planning problem whose objective is to minimise the social cost of crime and search the consequences of a search rule depend on the extent to which search deters crime i study the planning problem when the planner has partial knowledge of deterrence i show how the planner can eliminate dominated search rules and how he can use the minimax or minimax regret criterion to choose an undominated rule

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

endogenous federal grants and crowd out of state government spending theory and evidence from the federal highway aid program contrary to simple theoretical predictions existing evidence suggests that federal grants do not crowd out state government spending a legislative bargaining model with endogenous grants documents a positive correlation between grant receipts and preferences for public goods this correlation has likely biased existing work against measuring crowd out to correct for such endogeneity the model motivates instruments based on the political power of state congressional delegations exploiting this exogenous variation in grants the instrumental variables estimator reports crowd out that is statistically and economically significant this endogeneity may explain the flypaper effect a nonequivalence between grant receipts and private income jel d70 h40 h77

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

a political economy theory of partial decentralization we revisit the classic problem of tax competition in the context of federal nations and derive a positive theory of partial decentralization a capital poor median voter chooses to use redistributive capital taxes to provide public goods the expectation of high capital taxes however results in a small capital stock which lowers returns to redistribution the median voter therefore wants to commit to a lower level of capital taxes she does so by setting a partial degree of decentralization in the constitution the equilibrium degree of decentralization balances the positive effect of tax competition on capital taxes with the loss in redistribution that results we show that the degree of decentralization is nonmonotonic in inequality increasing in the redistributive efficiency of public good provision and decreasing in capital productivity when public goods are heterogeneous in their capacity to transfer funds all voters agree that goods with high redistributive capacity should be decentralized

optimal fiscal federalism in the presence of tax competition abstract this paper models the optimal division of public goods provision between central and regional governments in an economy with interregional tax competition regional provision is inefficient because governments compete for scarce capital by lowering their capital taxes and public good levels to inefficiently low levels on the other hand central provision is inefficient because it is determined by the minimum winning coalition within a legislature the optimal degree to which public good provision should be decentralized depends on a tradeoff between these inefficiencies in our main model complete centralization is never optimal regional governments should supply some public goods

simple versus optimal rules as guides to policy this paper compares the performance of different policy rules our comparisons focus on simple feedback rules versus rules which are optimal given knowledge of the correct economic structure and the appropriate loss function for the policymaker first we compare rule performance when the correct model is not known second we compare rule performance with respect to the frequency specific behavior for variables of interest taken as a whole our results indicate how the case for a model specific optimal rule can break down when one relaxes the assumption that the true model is known as well as the assumption that the appropriate loss function is known links are made to the literature on monetary policy

welfare improving competition for mobile capital abstract this paper constructs a model in which regions provide firms with a public input financed by taxes that residents choose to levy on capital and wage income self interested government officials face incentives to provide the public input because its positive impact on labor and capital productivity leads to larger tax bases the positive relation between tax revenue and the public input is strengthened if capital is mobile across regions government officials engage in expenditure competition leaving residents better off than they would be in the absence of capital mobility to further enhance public sector incentives residents may choose to tax capital income at a positive rate although investment is discouraged

the 2009 lawrence r klein lecture diversified treatment under ambiguity this article develops a broad theme about treatment under ambiguity through study of a particular decision criterion the broad theme is that a planner may want to cope with ambiguity by diversification assigning observationally identical persons to different treatments study of the minimax regret mr criterion substantiates the theme the article significantly extends my earlier analysis of one period planning with an individualistic treatment and a linear welfare function i show that mr treatment allocations are fractional in a large class of planning problems with nonlinear welfare functions interacting treatments learning and noncooperative aspects

robustness of simple menus of contracts in cost based procurement abstract we consider a model of cost based procurement in which the principal faces knightian uncertainty about the agent s preferences for cost reduction we show that a particularly simple incentive scheme a menu comprising a fixed price contract and a cost reimbursement contract minimizes the maximum expected payment where this maximum is taken over the set of possible agent preferences for some parameters of the problem a range of alternative incentive schemes also satisfy this criterion we show that the simple incentive scheme is not weakly dominated by any of the alternatives there does not exist an alternative mechanism for which the expected payment is no higher for all realizations of the agent s preferences and strictly lower for some realization

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

racial profiling fairness and effectiveness of policing citizens of two groups may engage in crime depending on their legal earning opportunities and on the probability of being audited police audit citizens police behavior is fair if both groups are policed with the same intensity we provide exact conditions under which forcing the police to behave more fairly reduces the total amount of crime these conditions are expressed as constraints on the quantile quantile plot of the distributions of legal earning opportunities in the two groups we also investigate the definition of fairness when the cost of being searched reflects the stigma of being singled out by police

employment tenure and earnings profiles in japan and the united states comments the relationship between job tenure and annual earnings in japan has received considerable attention from social scientists examining employment contracts and the japanese compensation system in their widely cited article masanori hashimoto and john raisian 1985 using data for 1980 showed that japanese men have greater job tenure than comparable workers in the united states and that the earnings of japanese men rise more rapidly with increased tenure they found that an additional year of tenure increases earnings in both small and large firms in japan more than does an additional year of general market experience their results for the united states indicate that general market experience increases earnings more than an additional year of job tenure the 1970 s and 1980 s were a period of substantial change in japanese labor markets due to the rapid aging of the population and the restructuring of the economy following the oil crisis the present analysis extends the work of hashimoto and raisian by estimating earnings equations for japanese men for the years 1971 1976 1981 and 1986 specifically we wish to investigate whether hashimoto and raisian s findings have been stable over time or whether changes in the labor market have altered the importance of tenure relative to total labor market experience in the japanese labor market i changes in the labor market

competitive lending with partial knowledge of loan repayment some positive and normative analysis we study a credit market where lenders with partial knowledge of repayment use one of several criteria to make lending decisions supposing that a public authority wants to maximize the social return to borrowing we study interventions that manipulate the return on the safe asset or guarantee a minimum loan return manipulating the return on the safe asset is effective if lender beliefs about the return to lending are not too pessimistic relative to those of the authority guaranteeing a minimum return is effective if lender beliefs are not too optimistic relative to those of the authority

revisiting the decentralization theorem on the role of externalities the decentralization theorem oates w e 1972 fiscal federalism harcourt brace jovanovich new york is central to the discussion of fiscal federalism we revisit the role of consumption spillovers in evaluating the merits of de centralization unlike the general prediction a higher degree of spillovers may reduce the difference in utility of centralization and decentralization the non monotonicity result relates to the difference in expenditures on public consumption provided decentralized choices yield higher levels of public expenditure a rise in the amount of spillovers allows residents to enjoy larger gains in public consumption and thereby utility under decentralization relative to centralization

the welfare effects of tax competition reconsidered politicians and political institutions the views on the welfare effects of tax competition differ widely some see the fiscal externalities as the cause for underprovision of public goods while others see tax competition as the means of reducing government inefficiencies using a comparative politics approach we show that tax competition among presidential congressional democracies is typically welfare improving while harmful among parliamentary democracies if under the latter public goods are sufficiently valued the results hold when politicians seek re election because of exogenous benefits of holding office by contrast when politicians hold office only to extract rents tax competition is harmful if politicians are sufficiently patient in the debate on tax competition two extreme views dominate both in the academic literature and in the policy arena in the canonical tax competition model benevolent governments set tax rates without taking into account the effect national tax policy has on other countries tax bases as a result a fiscal externality arises that makes competition harmful in the sense that tax rates are set too low and public goods are under

redistribution fiscal competition and the politics of economic integration the paper examines the consequences of the economic integration of factor markets in a model with two countries that redistribute income among their residents the social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants if either capital or labour is internationally mobile the countries engage in fiscal competition and the partial integration of capital or labour markets is detrimental to the countries redistributive ability a move from partial to full integration however may alleviate rather than intensify fiscal competition particularly if the two countries face sufficiently similar economic and political conditions in such a situation for example tax competition for mobile capital is softened as the labour market becomes more integrated and even vanishes if both factors are fully mobile as a result there is more redistribution in equilibrium and a majority of the population in each country is strictly better off copyright 2002 wiley blackwell

optimal search profiling with linear deterrence i examine here an aspect of law enforcement that has recently been the subject of debate this is the choice of a profiling policy wherein decisions to search for evidence of crime may vary with observable covariates of the persons at risk of being searched policies that make search rates vary with personal attributes are variously defended as essential to effective law enforcement and denounced as unfair to classes of persons subjected to relatively high search rates variation of search rates by race has been particularly controversial see e g john knowles et al 2001 nicola persico 2002 jeff dominitz 2003 whereas recent research on profiling has sought to define and detect racial discrimination my concern is to understand how a social planner might choose a profiling policy this paper studies optimal profiling in a simple illustrative setting in related work manski 2004 i consider how a planner might reasonably behave when he does not possess all of the information needed to determine an optimal policy section i poses a utilitarian planning problem whose objective is to minimize the social cost of crime and search search is costly per se and search that reveals a crime entails costs for punishment of offenders search is beneficial to the extent that it deters or prevents crime deterrence is expressed through the offense function which describes how the offense rate of persons with given covariates varies with the search rate applied to these persons prevention occurs when search prevents an offense from causing social harm section ii derives the optimal profiling policy in the tractable case where search deters crime linearly one might think that search should focus on the most crime prone segments of the population however this is not necessarily the case if persons differ in the extent to which search deters crime it may be optimal to search a less crime prone group and not to search a more crime prone group if members of the former group are deterrable and those in the latter group are not sections i and ii consider ex ante search which apprehends offenders before their offenses cause social harm section iii performs parallel analysis for ex post search which apprehends offenders after completion of their offenses whereas ex ante search both deters and prevents crime ex post search only deters the two types of search have different implications for profiling policy although detection of discrimination is not my direct concern the findings reported here do have implications for that inferential problem the models studied in knowles et al 2001 and persico 2002 imply that in the absence of discrimination optimal profiling must equalize the offense rates of persons with different covariates provided that such persons are searched at all the present model differs from theirs and it does not produce their conclusion perhaps the most important difference is in the objective functions assumed for the agencies that make profiling policy they assume that police on the street aim to maximize the probability of successful searches minus the cost of performing searches i assume that a planner wants to minimize a social cost function with three components a the harm caused by completed offenses b the cost of punishing offenders who are apprehended and c the cost of performing searches

property taxation nash equilibrium and market power abstract differences in tax policy arise from differences in the number of jurisdictions in a metropolitan area following wildasin 4 and bucovetsky 2 the tax rates in the jurisdictions are determined in a nash game in the tax rate the tax rate and public service level as well as the welfare of residents increase as the number of jurisdictions in the metropolis decreases

mobile labor multiple tax instruments and tax competition abstract the tax competition literature shows that local governments keep property tax rates inefficiently low to prevent capital outflows thereby underproviding local public goods this paper adds mobile labor and an alternative tax instrument to the model jurisdictions have access to a property tax levied on land and capital plus either a head tax or a labor tax scale economies in public good provision create incentives to use the property tax but these incentives are not accompanied by increased incentives to underprovide public goods in contrast underprovision is associated with the use of a distortionary labor tax

distributive politics and the costs of centralization this paper studies the choice between centralization and decentralization of fiscal policy in a political economy setting with centralization regional delegates vote over agendas comprising sets of region specific projects the outcome is inefficient because the choice of projects is insufficiently sensitive to within region benefits the number of projects funded may be non monotonic in the strength of project externalities the efficiency gains from decentralization and the performance of constitutional rules such as majority voting which may be used to choose between decentralization and centralization are then discussed in this framework weaker externalities and more heterogeneity between regions need not increase the efficiency gain from decentralization

rent seeking spillovers and the benefits of decentralization abstract in the presence of spillovers decentralized provision of local public goods may lead to a higher surplus than centralized provision even though localities have identical preferences indeed free riding costs associated to decentralization can be lower than the costs of rent seeking and influence activities under centralization actually centralization yields a higher level of regional surplus only if both the spillover effect from local public spending is sufficiently large and the elasticity of the influence function is sufficiently small

a tiebout tax competition model abstract this paper analyzes a tiebout tax competition model where heterogeneity of consumer preferences is introduced into a standard tax competition framework following the modern tiebout tradition consumer sorting in the model is achieved through the activities of profit maximizing community developers once sorting is achieved the equilibrium is equivalent to that in a standard tax competition model with immobile but heterogeneous consumers a principal lesson of the analysis is that under capital taxation consumers with high public good demands are worse off than under a head tax regime in pursuit of high levels of public spending high demand communities impose high tax rates which drive away capital the analysis also establishes a number of other results