what drives the cross country growth and inequality correlation we present a neo classical model that explores the determinants of growth inequality correlation and attempts to reconcile the seemingly conflicting evidence on the nature of the growth inequality relationship the initial distribution of human capital determines the long run income distribution and the growth rate by influencing the occupational choice of the agents the steady state proportion of adults that innovates and updates human capital is path dependent the output elasticity of skilled labour barriers to knowledge spillovers and the degree of redistribution determine the range of steady state equilibria from a calibration experiment we report that a skill intensive technology low barriers to knowledge spillovers and high degrees of redistribution characterize the industrial countries with a positive growth inequality correlation a negative correlation between growth and inequality arises for the group of non industrial countries with the opposite characteristics jel classification e1 o4 qu est ce qui sous tend la correlation transversale entre la croissance des pays et son niveau d inegalite on presente un modele neo classique qui explore les determinants de la correlation croissance inegaliteet on tente de reconcilier les resultats qui semblent contra dictoires ace propos la distribution initiale de capital humain determine la distribution des revenus along terme et le taux de croissance en influant sur le choix occupationnel des agents

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

pressure groups and redistribution abstract the simple pressure group model of political redistribution can predict more with less restrictive assumptions instead of ready made pressure groups composed of individuals who vote their pocketbooks we posit heterogeneous agents each of whom decides which group to join and how much effort to expend on political activity our model then examines social affinity conditions that foster pressure group formation political sympathies based on social affinity imply testable effects of growth rate and income distribution on progressive transfers effects that prove substantial in pooled time series cross section regressions for 13 oecd countries 1960 1981

country of origin effects on product evaluations this article reviews the literature regarding the effect of country of origin on buyer evaluations of products the issue is important for countries especially resource poor developing countries that need to increase manufactured exports and for firms that source products in countries different from where sold marketing inferences are drawn and implications for future research are developed

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

the carnegie conjecture some empirical evidence this paper examines tax return generated data on the labor force behavior of people before and after they receive inheritances the results are consistent with andrew carnegie s century old assertion that large inheritances decrease a person s labor force participation for example a single person who receives an inheritance of about 150 000 is roughly four times more likely to leave the labor force than a person with an inheritance below 25 000 additional albeit weaker evidence suggests that large inheritances depress labor supply even when participation is unaltered warren kendall heir to an insurance company fortune says he s worth about 5 million and has an income of about oh 300 and some thousand a year h e has never held a job or wanted to going down to sea in cruise ships is his full time pursuit he estimates that he has taken about 250 cruises over the past couple of decades spending at least 50 percent to 70 percent of the year afloat morgenthaler 1991 p al

intergenerational mobility and macroeconomic history dependence a large literature on endogenous inequality has argued that persistent differences in macroeconomic performance across countries can be explained by historical inequality owing to indivisibilities in occupational choice and borrowing constraints these models are characterized by homogenous agents a continuum of steady states sss and lack of mobility in every ss we show that introducing even a little heterogeneity in order to generate ss mobility shrinks the ss set dramatically mobile sss are generically locally unique and finite in number sufficient conditions for global uniqueness and convergence of competitive equilibrium dynamics are provided

a federal voting mechanism to solve the fiscal externality problem abstract fiscal externalities arise whenever several countries choose independently some tax or regulation policy this results into a severe loss for everybody if the taxed or regulated factor is very mobile for example this implies a bias toward little or no capital taxation if capital can move easily toward the lowest tax rate federalism would induce voters to internalize these externalities but implies full harmonization which harms countries whose most preferred policy is too far from the federal median which may lead them not to enter the federation in the first place we study a natural intermediate mechanism between full independence and full federalism introducing flexible divisions of the surplus generated by the removal of these externalities in the first stage voting takes place in each country simultaneously in order to choose a federal policy in the second stage each country decides through voting whether to adopt the federal policy or to leave the federation in which case it chooses its own policy and possibly pays a fixed cost to the remaining federation even if the fixed cost is null the federal voting stage acts as a commitment device and softens the inefficiency of full independence by allowing voters to internalize the undesirable effects of federal break up in stage 2 moreover the fixed cost can be chosen so that situations where harmonization is desirable get self selected as a result every country always benefits from entering this mechanism combining the benefits of common decision making with those of flexibility

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

strategic behaviour and the rules for international taxation of capital this paper examines the welfare of a capital exporting or source country and a capital importing or host country under tax credit and tax deduction systems for the international taxation of capital because the two tax systems may create quite different strategic incentives for the countries the authors compare the equilibria in the tax setting game played by the two countries under each system they find that the tax credits system introduces an antitrade bias into the equilibrium contrary to initial impressions and that both capital exporting and capital importing countries will prefer the tax deductions scheme to tax credits copyright 1989 by royal economic society

status intertemporal choice and risk taking this paper takes the position that an individual s concern for relative status is expressed in her preferences we embed this hypothesis in an otherwise conventional model of economic growth and examine its consequences the model generates two kinds of equilibrium in the first all individuals always follow a deterministic consumption and investment strategy such a strategy must be linear in output is independent of payo s and technology and only depends on the discount factor this sort of equilibrium exists when the individual cares only about status and the individual production function is convex in investment in contrast the other kind of equilibrium involves convergence to a steady state in which there is persistent and endogenously generated gambling this kind of equilibrium exists in more plausible circumstances the individual has a utility function that may depend on consumption per se as well as implied status and individual production functions are concave we characterize the unique steady state in such a situation and prove that any dynamic equilibrium path must converge to it risk taking arises not from the presumption of a utility function with strictly convex segments as in friedman savage but naturally from a view of utility as depending on relative status our steady state is broadly consistent with the stylized facts that individuals both insure downside risk and to gamble over upside risk and generates similar patterns of risk taking and avoidance across environments with quite di erent overall wealth levels finally in contrast to friedman 1953 endogenous risk taking here is generally pareto ine cient

persistent inequality an explanation based on limited parental altruism abstract this paper proposes an alternative theory for the observed persistence in income inequality across households a theory based on limited parental altruism we argue that the degree of parental altruism is limited by the economic status of the parent a poor parent not only has less ability but also has less willingness to invest in children s human capital formation this generates a non linearity in such investment expenditures as a result initial income differences may perpetuate over time even with convex technology and convex preferences in this context we also compare the efficacy of the public vis a vis the private education system from the perspective of long run growth

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

immiserizing deindustrialization a dynamic trade model with credit constraints abstract the paper develops an open economy dynamic model with bequests and credit constraints the agricultural sector uses only labor the industrial sector needs an indivisible investment under autarky productive agriculture provides the funds needed for investment in industry and in equilibrium credit constraints are not binding if agriculture is not sufficiently productive the price of the industrial good must be high enough to make the industrial sector sustainable in an open economy if the country has the comparative advantage in agriculture deindustrialization may occur over time deindustrialization is welfare reducing when the negative wealth distributional effects swamp the gains from trade

growing into and out of social conflict we develop a model of growth and distributional conflict which demonstrates that social tensions may peak at an intermediate development stage in fact unless the economy is caught in an underdevelopment trap the relationship between average wealth and the likelihood of radical redistribution tends to be hump shaped while the net benefits of redistribution for the poor are small at low development stages moving towards egalitarianism considerably improves their income prospects once an intermediate level of per capita wealth is reached as the economy grows further the incentive to challenge the existing social order decreases again and eventually vanishes

public finance of private goods the case of college education this paper describes a contract theory of public finance of college education that explains why everyone pays for the college education of a lucky minority the contract provides gambles that families desire optimizing the contract determines the taxes paid by all members of society fees paid by those whose children go to college the fraction of children who are admitted to college and the quality of college education changes in wealth lead to changes in taxes and admissions but fees and quality are invariant the practice of using a cutoff level of precollege achievement to determine admission to college is justified by the theory

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

equilibrium income inequality among identical agents the paper offers a theory of income differences in which income inequality exists and persists despite identical tastes and talents teams of unskilled labor supervised by schooled managers produce goods with increasing returns to scale agents are assumed unable to borrow to fund the human capital investment needed to become managers despite ex ante identical agents the model displays the following equilibrium phenomena i risk averse agents accept fair gambles implying an unequal ex post distribution of unearned income ii agents agree to publicly subsidize education although those receiving the subsidy have the highest material wealth and iii income and educational differences are perpetuated from generation to generation

the 2005 lawrence r klein lecture emergent class structure this article presents a model of the emergent class structure in which a society inhabited by inherently identical households may be endogenously split into the rich bourgeoisie and the poor proletariat for some parameter values the model has no steady state where all households remain equally wealthy in this case the model predicts emergent class structure or the rise of class societies even if every household starts with the same amount of wealth the society will experience symmetry breaking and will be polarized into two classes in steady state where the rich maintain a high level of wealth partly due to the presence of the poor who have no choice but to work for the rich at a wage rate strictly lower than the fair value of labor the nonexistence of the equal steady state means that a one shot redistribution of wealth would not be effective as wealth inequality and the class structure would always reemerge thus the class structure is an inevitable feature of capitalism for other parameter values on the other hand the model has the unique steady state which is characterized by perfect equality in this case the model predicts dissipating class structure or the fall of class societies even if the society starts with significant wealth inequality labor demand by the rich employers pushes up the wage rate so much that workers will escape from the poverty and eventually catch up with the rich eliminating wealth inequality and the class structure in the long run in an extension we introduce self employment which not only provides the poor with an alternative to working for the rich but also provides the rich with an alternative to investment that creates jobs due to this dual nature of self employment the effects of self employment turn out to be quite subtle yet within the present framework it is possible to offer a complete characterization of the steady states even in the presence of self employment

on the importance of public choice in migration models abstract recent general equilibrium tiebout models that use single crossing indifference curves to establish a migration equilibrium incorporate both voting and migration decisions these models have concentrated on the important question of the existence of an equilibrium but the incorporation of both voting and migration has important efficiency consequences as well this paper demonstrates the important effect of the interaction of voting and migration on efficiency conditions by showing that head taxes which are generally considered to provide efficient migration incentives with constant marginal congestion costs do not provide incentives for efficient migration decisions unless the public choice mechanism results in optimal public service provision within jurisdictions

worker allocation hierarchies and the wage distribution economists have traditionally viewed the allocation of workers among jobs through the concept of comparative advantage this paper investigates hierarchical production models which display an absence of comparative advantage in order to demonstrate that for hierarchical production there is a second allocating factor which plays an important role two results are found first the allocation of workers among jobs tends to match high ability workers with positions which value ability highly second despite the fact that the models display an absence of comparative advantage i e the standard theoretical explanation for why wage distributions might be skewed the models wage distributions are skewed to the right relative to the underlying ability distributions

knowledge based growth abstract this paper presents a model displaying sustained growth in output resulting from the accumulation of knowledge the accumulation of knowledge is endogenous determined by a level of study chosen by optimizing agents although knowledge can be owned and sold its equilibrium price is below its value to future production implying that the equilibrium suffers from a paretononoptimal underaccumulation of knowledge these features of the equilibrium result from two special properties of knowledge i an agent s stock of knowledge is undiminished by the transmission of that knowledge to someone else and ii the transmission of knowledge cannot be fully observed

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

genetic variation in financial decision making individuals differ in how they construct their investment portfolios yet empirical models of portfolio risk typically account only for a small portion of the cross sectional variance this paper asks whether genetic variation can explain some of these individual differences following a major pension reform swedish adults had to form a portfolio from a large menu of funds we match data on these investment decisions with the swedish twin registry and find that approximately 25 of individual variation in portfolio risk is due to genetic variation we also find that these results extend to several other aspects of financial decision making

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

gambles and the shadow price of death recent papers on the value of life involve preferences of the sort introduced by milton friedman and leonard savage 1948 1 given the choice between undergoing a particular gamble in wealth and possessing the mathematical expectation of the payoffs of the gamble the consumers in these studies may prefer the gamble the presence of such risk loving preferences is inferred from two well established facts life is an indivisible commodity in the models and indivisibility leads to preference for gambles the former fact is made clear by philip cook and daniel graham the latter was first noted by yew kwang ng 1965 and is widely known in spite of the obvious connection the implications of risk loving tastes in this area have not been explored this paper examines some implications of such risk loving the idea that indivisibility produces friedman savage preferences and that such preferences create a demand for gambles is extended in section i to a theory of demand for indivisible goods and derived demand for associated optimum gambles this theory suggests that the price of an indivisible good will not compensate for possessing or not possessing the good section ii applies the demand theory to an equilibrium model of labor supply that is relevant to the determination of the value of life in this model the wage diflerential is useful in guiding policy toward public risks in spite of the fact that the differential is not compensating i demand for gambles and demand for goods

aspirations and inequality the premise of this paper is twofold first people s aspirations for their future wellbeing or that of their children aect their incentives to invest second the experiences of others help shape one s aspirations this paper marries a model of aspirations based choice with a simple theory of aspirations formation to study the relationship between aspirations and the distribution of income through its impact on investments aspirations aect economic mobility and the income distribution which in turn shape aspirations thus aspirations income and the distribution of income evolve jointly and in many situations in a self reinforcing way we study the consequences of this model for income distribution as well as for growth rates over dierent quantiles of the distribution we show that extreme equality is unstable moreover when the same aspirations are shared in a society polarization arises the theory we propose captures both the complacency stemming from low aspirations and the frustration resulting from aspirations that are too high as a result for commonly held aspirations growth rates have an inverted u shape along the income distribution

intergenerational talent transmission inequality and social mobility abstract the paper investigates the effects of intra family talent transmission when human capital exhibits indivisibilities and parental financing of education involves borrowing constraints positive talent correlation reduces social mobility but steady state inequality and macroeconomic history dependence are not affected

economic and political foundations of tax structure this paper derives the essential elements of tax systems as the outcome of rational behavior in a model w here government maximizes expected support and where opposition to ta xation depends on the loss in full income the analysis treats the le vel of expenditures as endogenous and integrates the influence of adm inistration costs with that of political and economic factors tax st ructure is shown to be a system of related components in equilibrium a final section compares results to two alternative approaches opti mal taxation and the leviathan model copyright 1988 by american economic association

is equality stable economic inequality is of interest not only at some intrinsic level but also for its close connections to diverse variables ranging from economic indicators such as growth rates to sociopolitical outcomes such as collective action and conflict it is only natural then to study the evolution of inequality in an economic system it is fair to say that the dominant view on this topic is that inequality is the outcome of a constant battle between convergence and luck gary becker and nigel tomes 1979 current asset inequalities may echo into the future but their natural tendency is to die out owing to a convex investment technology disparities are only sustained through ongoing stochastic shocks see also david champernowne 1953 glenn loury 1981 a second approach emphasizes that initial conditions determine final outcomes owing principally to a nonconvex investment technology see e g mukul majumdar and tapan mitra 1982 abhijit banerjee and andrew newman 1993 oded galor and joseph zeira 1993 ray and peter streufert 1993 historical disparities may persist and magnify if such differences straddle some bifurcation threshold inequality is not inevitable in this view stable steady states with inequality coexist with others that involve perfect equality in this paper we examine a third view which emphasizes an intrinsic tendency of the market mechanism to create inequality in this approach economic inequality appears as an inevitable outcome even if all agents are identical to begin with and even if there is no uncertainty or technological nonconvexity this view has received attention in ray 1990 debasis bandyopadhyay 1993 lars ljungqvist 1993 scott freeman 1996 kiminori matsuyama 2001 and mookherjee and ray 2001 the basic argument is as follows suppose that an economy is populated by several dynasties each of which allocates resources to current consumption and bequests to descendants assume for the moment that the latter consists entirely of educational expenditures preparing children for their chosen professions of course the returns to such professions are endogenous they depend on the distribution of individuals across different professions now if several professional categories are necessary wages must adjust so as to force separation in choices even if all individuals are ex ante identical to be sure this broken symmetry matsuyama 2002 has no payoff implications for the generation alive today identical individuals must receive identical payoffs starting with the next generation however there must be inequality not just in wages but in payoffs there must be individuals in lowpaying professions that involve low training costs whose parents invested little and there must be others in high paying high trainingcost professions whose parents invested a lot once such inequality sets in it may well magnify richer offspring will find it easier to invest in better paying professions for their children two ingredients are used in this argument first credit markets must be missing or imperfect otherwise the necessary finances may be borrowed and wages net of costs must be equalized over all professions however the assumption that parents cannot borrow against their children s future earnings seems innocuous enough second parents cannot make financial bequests to supplement or substitute for educational expenditures such bequests could conceivably neutralize earnings inequality this motivates the question when might financial bequests compensate for earnings inequality in steady state moreover starting from perfect equality will equality be preserved thereafter or will inequality emerge and persist we discuss an extended example from an ongoing research project mookherjee department of economics boston university 270 bay state road boston ma 02215 ray department of economics new york university 269 mercer street new york ny 10003 and instituto de analisis economico csic barcelona spain we thank kiminori matsuyama who encouraged us to write this paper

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

distributive implications of european integration one of the main pitfalls of european construction is undoubtedly the alleged charge that it impedes redistributive policy at the national level this charge is indeed widespread in political circles and in the medias yet it had received little attention among economists up to recently over the last few years an increasing amount of research has been devoted to that accusation or to be more neutral to that conjecture the purpose of our paper is to survey this literature we first present the conventional wisdom according to which mobility makes redistribution difficult if not impossible we also discuss the most important qualifications to this result and the solutions that are generally advocated and that imply some sort of cooperation in a second part we consider a different issue that of redistribution across countries it assumes the existence of some supranational government which is not trivial in addition informational differences between the national and the supranational governments are shown to play a crucial role

introduction to development theory abstractthisarticle introduces the symposium on economic development theory 2007 elsevier inc all rights reserved jel classi cation o11 o12keywords development economics development economics a subject that studies institutions growth inequality and povertyin the developing world is a large lively and exciting area of research the objective of thissymposium is to put together some contributions in economic theory with a distinct focus ondevelopment questions much of early development economics as typi ed in the work of paul rosenstein rodan arthurlewis ragnarnurkse tiborscitovsky allynyoung gunnarmyrdal harveyleibenstein alberthirschman amartyasenandothers wastheoretical thoughnotnecessarilyinthesenseofformalmodel building theseauthorsallfelttheneedtobringnewconceptsintoeconomictheory ideas that would capture the essential features of underdevelopment and provide explanationsof the development process existing economic theory with its focus on competitive markets depersonalized exchange steady technical progress and balanced growth simply did not seemrightwhenmatchedwiththegroundrealitiesofunderdevelopment fragmented imperfect orjustplain missing markets highly personalized transactions in credit insurance or agrarian tenancy ambiguousornonexistentpropertyrights andwidespreadevidenceofpovertytrapsandhistoricallock ins a fair bit of modern economic theory was born in some of these early development writings young s article 40 on increasing returns was perhaps the rst systematic study of noncon vexities in economic growth rosenstein rodan s celebrated paper 32 on post war interven tion in europe provided a conceptual foundation for modern thinking on coordination failures

financial market globalization symmetry breaking and endogenous inequality of nations this paper investigates the effects of financial market globalization on the inequality of nations the world economy consists of inherently identical countries which differ only in their levels of capital stock each country is represented by the standard overlapping generations model modified only to incorporate credit market imperfection an integration of financial markets affects the set of stable steady states as it changes the balance between the equalizing force of the diminishing returns technology and the unequalizing force of the wealth dependent borrowing constraint the model is tractable enough to allow for a complete characterization of the stable steady states in the absence of the international financial market the world economy has a unique steady state which is symmetric and stable in the presence of the international financial market symmetry breaking occurs under some conditions that is the symmetric steady state loses its stability and stable asymmetric steady states come to exist in the stable asymmetric steady states the world economy is endogenously divided into the rich and poor countries the borrowing constraints are binding in the poor but not in the rich the world output is smaller the rich are richer and the poor are poorer in any of the stable asymmetric steady states than in the unstable symmetric steady state

tax competition and tax structure in open federal economies evidence from oecd countries with implications for the european union tax competition arguments suggest that governments that operate in an open economy such as local governments should not and will not rely on non benefit taxes such as the income tax yet we observe reliance on income taxes by local governments in many countries and such reliance changes over time evidence from a panel data set of 13 oecd countries over the period 1975 1984 suggests that competition between levels of government resulting in a vertical fiscal externality and between levels of government at the same level resulting in a horizontal fiscal externality provide some economic rationale for these changes moreover the evidence indicates that the vertical and horizontal fiscal externalities interact these results have some interesting implications for fiscal policy in the european union particulary as the eu continues to evolve one implication for the eu is that enlargement that increases tax base disparities within the eu and is not accompanied by an eu level income tax will tend to lower national income tax rates although this must be qualified because it also depends on the mobility of the population a second implication is that fiscal expansion of the eu to include an eu levelincome tax may tend to lower the reliance of national governments on income taxes through the vertical externality but may also tend to equalize tax bases across countries and so increase reliance on national income taxes through the horizontal externality

taxation of investment and savings in a world economy the equilibrium of capital and equilibrium market prices are derived for a world economy with a unified securities market mobile capital no uncertainty and varying tax rates on different sources of income in each country the paper then characterizes optimal tax rates for a small country in this setting focusing on the peculiar incentives created when the before tax rate of return differs among securities due to differences in their typical tax treatment copyright 1986 by american economic association

redistribution as a selection device abstract this paper studies the role of the wealth distribution for the market selection of entrepreneurs when agents differ in talent it argues that the redistribution of initial endowments can increase an economy s surplus because more talented individuals get credit for their risky investment projects moreover the redistribution of initial endowments may lead to a pareto improvement although all agents are non satiable an agent s entrepreneurial ability is his private information and there is moral hazard in production i find conditions such that unproductive rich entrepreneurs crowd out productive poor ones on the capital market then redistribution of initial endowments may lead to a new equilibrium where market participants are better informed about the entrepreneurs ability the new equilibrium is characterized by i the selection of better entrepreneurs ii a higher riskless rate of return on capital iii lower repayments of successful entrepreneurs to their creditors and iv the fact that all agents are better off

to each according to markets tournaments and the matching problem with borrowing constraints we compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints the economy consists of a continuum of individuals who differ in their initial wealth and ability level these must be assigned to a continuum of investment opportunities or inputs of different productivity with perfect capital markets matching is efficient under both mechanisms markets however generate higher aggregate consumption because of the waste associated with the production of signals under tournaments when borrowing constraints are present tournaments dominate markets in terms of matching efficiency and for sufficiently powerful signalling technologies also in terms of aggregate consumption

uneven growth a framework for research in development economics the textbook paradigm of economy wide development rests on the premise of balanced growth that is on the presumption that all sectors will grow in unison over time as a country gets richer this view has served us reasonably well in some circumstances but is not particularly useful for accounts of modern under development in many developing countries economic growth has been fundamentally uneven software development the outsourcing of services sectoral technological change quick compositional shifts between agriculture and other sectors the rise of particular exports special economic zones and so on this paper will discuss both the sources of uneven growth and its implications with greater emphasis on the latter the paper will argue that much of the distributional issues or the reactions to globalization that we see in modern developing societies can be viewed as reactions to a growth process that is fundamentally uneven and is indeed perceived as such

a re examination of the use of ability to pay taxes by local governments abstract the orthodox view of local finance in the u s is that local governments should abstain from using ability to pay taxes because migration would result in a misallocation of resources and would nullify any attempt to redistribute income this paper uses a general equilibrium model of a metropolitan area to examine the efficiency and redistributive properties of local income taxation relative to local head taxes contrary to the orthodox assertion the results indicate that local governments can use income taxation without substantially misallocating resources in addition some redistribution results from the use of local income taxes