efficiency and equalization payments in a federal system of government a synthesis and extensions of recent results this paper investigates the rationale for a system of equalization transfers in a federal system of government the existing sources of inefficiency of resource allocation in economies with more than one level of government are synthesized in the framework of a simple decentralized multiprovince model with mobile factors of production the sources of inefficiency arise first because migrants respond at the margin to incorrect signals owing to the phenomena of rent sharing and fiscal exterality and second because of global rather than local inefficiencies the model is then extended to consider the role of the federal government in providing intergovernmental transfers in the face of such inefficiencies in addition to synthesizing the sources of inefficiency in federal models the equity arguments for equalization are briefly recounted efficacite et paiements de perequation dans un systeme federal de gouvernement synthese et extensions de certains resultats recents ce memoire examine la logique qui soustend un systeme de paiements de perequation dans un systeme fdderal de gouverement les auteurs utilisent un modele simple d un systeme multi provincial decentralise avec des facteurs de production mobiles pour definir les sources d inefficacite dans l allocation des ressources dans les dconomies qui possedent plus d un niveau de gouvernement ces inefficacites proviennent de ce que d abord ceux qui se deplacent le font en reponse a la marge a des signaux incorrects engendres par le partage de la rente sur la base de la residence et par les phenomenes d exteralites fiscales elles sont aussi le resultat d inefficacites globales plutot que locales dans le cadre de ce modele les auteurs analysent le role du gouvernement federal effectuant des transferts inter gouverementaux pour corriger ces inefficacites en plus de presenter une synthese des sources d inefficacite dans les regimes federaux les auteurs font un bref rappel en passant a l ensemble des arguments fondes sur l equite qu on utilise pour rationaliser les paiements de perequation this paper is a linear combination of two papers presented at the may 1982 meetings of the canadian economics association in halifax entitled the case for equalization payments by the authors and recent developments in the theory of regional economic policy in canada by boadway the authors are grateful for comments by the discussants jim johnson and baxter macdonald and by jack mintz brian scarfe gerard belanger david sewell tom courchene and the referees we are especially heavily indebted to dan usher for many stimulating comments and suggestions while the work was in progress some of the above persons will undoubtedly disagree with the emphasis we have chosen to put on various aspects of the analysis for policy purposes support for some of this work has been provided by the economic council of canada and is gratefully acknowledged canadian journal of economics revue canadienne d economique xv no 4 november novembre 1982 printed in canada imprimd au canada 0008 4085 82 0000 0613 01 50 1982 canadian economics association this content downloaded from 207 46 13 127 on wed 12 oct 2016 04 27 47 utc all use subject to http about jstor org terms 614 robin boadway and frank flatters

a characterization of erratic dynamics in the overlapping generations model abstract in this paper we characterize and give examples o wide classes of utility functions which generate erratic dynamics in the standard deterministic overlapping generations model erratic dynamics refers to feasible trajectories which are bounded but which do not converge to stationary points or periodic orbits we show that such trajectories are pareto efficient we introduce credit into the model and show how a constant credit expansion rate can result in erratic trajectories in prices and the real value of credit finally we briefly discuss certain technical aspects of the mathematics used and the statistical nature of the dynamics that can arise from deterministic dynamical systems

decentralization and intra country transfers in the great recession the case of the european union empirical evidence is found supporting the assignment of the redistribution function to the central government viewing the great recession or recessions in general as a shock it is found that a

reassessment of the tiebout model abstract the tiebout model has been the reference point for the classical approach to fiscal federalism its emphasis on mobility benefit taxation and the advantages of fiscal competition have informed fiscal federalism since the seminal contributions of musgrave and oates this paper reviews the influence that the tiebout model has had on fiscal federalism and argues that while its insights remain relevant for local government it is far from compelling as a positive description of or a normative prescription for fiscal federalism at the state level some aspects of alternative approaches are presented which lead to different perspectives than tiebout inspired ones

factor mobility and income redistribution in a federation abstract jurisdictions in a federation redistribute income by taxing capital and providing transfers to labor capital and labor move to earn higher returns net of taxes or gross of transfer benefits between jurisdictions in determining its redistributive policy the government for each jurisdiction thus takes into account the effects of its policy on the movement of factors from and to the jurisdiction hence the extent of redistribution depends on the mobility of factors the mobility of capital or labor leads to less redistribution than under autarky however mobility of both capital and labor may lead to more redistribution than if only capital moves as a consequence increased mobility of factors is not necessarily harmful to redistribution

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

state government cash and in kind benefits intergovernmental fiscal transfers and cross program substitution abstract us states provide both cash and health insurance benefits for the poor partially financed by fiscal transfers from the federal government the 1996 welfare reform drastically reduces federal support for cash transfers at the margin lowering the relative price to states of providing benefits to the poor through medicaid this paper analyzes the comparative statics response of state governments to such changes in intergovernmental transfers showing in central cases that they can contribute not only to reductions in state expenditures on cash benefits but to increases in expenditures on medicaid whether or not beneficiary populations are mobile among states

tax competition and revelation of preferences for public expenditure this paper considers a federal country composed of local jurisdictions that differ in their inhabitants tastes for public goods and which finance local public expenditure through a source based tax on capital income the taste for public goods is the private information of local governments the central government seeks an optimal policy in which grants to local governments are conditioned on local tax rates the uninformed central government seeks both to allocate capital efficiently among jurisdictions and to induce jurisdictions to provide an efficient mix of private and public consumption it is shown that there persist at this constrained optimum both some misallocation of capital and some violation of the samuelson rule for optimal public good provision in every jurisdiction c 1998 academic press

decentralisation of active labour market policy the case of swedish local employment service committees decentralisation of decision making in active labour market policy makes it possible to use local information to the fullest but may also impinge on the fulfilment of national objectives as suggested by principal agent theory the purpose of this study is to examine the effects of a swedish pilot programme in 1996 which strengthened the role of the local authorities in labour market policy in parts of the country survey evidence suggests a non negligible divergence between the objectives of the municipality representatives and the central government s goals regarding programme effects our econometric findings do not indicate any increase in geographical lock in of the unemployed but decentralisation seems to spur local initiatives in the form of labour market programmes organised by the municipalities in addition targeting on outsiders is to some extent more common in municipal projects than in others

matching grants and ricardian equivalence this paper investigates the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of bernheim general neutrality result indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good we find that matching grants are relevant although somewhat less ective we also find that optimal matching rates are independent of the number of jurisdictions and their strategic variables contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget

self selection of emigrants theory and evidence on stochastic dominance in observable and unobservable characteristics the roy model has more precise predictions about the self selection of migrants than previously realised the conditions shown to result in positive or negative selection in terms of expected earnings also imply a stochastic dominance relationship between the earnings distributions of migrants and non migrants we test these predictions using the danish full population administrative data we find strong evidence of positive self selection of emigrants in terms of pre emigration earnings and residual earnings the income distribution for the migrants almost stochastically dominates the distribution for the non migrants decomposing the self selection in total earnings reveals that unobserved abilities play the dominant role

inequality and the territorial fragmentation of solidarity a long tradition of research has shown decentralized political struc tures as an important cause behind lower levels of redistribution and higher levels of inequality this article offers an alternative interpretation of the association between fragmented fiscal structures and higher levels of inequality i argue that the distribu tive effects of decentralization depend on the preexisting territorial patterns of inequal ity therefore the political choice between alternative fiscal structures is largely driven by their expected distributive consequences as a result the territorial structure of inequality becomes an important factor to explain why some fiscal structures are more integrated than others two mechanisms link regional income distributions and preferences about the decentralization of redistributive policy differences in the demand for redistribution associated with interregional income differences and dif ferences in the demand for social insurance associated with the incidence of labor market risks i test the argument using a data set of fourteen countries in the orga nization for economic cooperation and development oecd over the period 1980 2000 in addition i illustrate the potential of the approach by analyzing why social solidarity remains territorially fragmented in the european union despite the fact that it has a common currency and a common market

incentive equivalence with fixed migration costs abstract if migration between communities is costless and if policy makers in each community anticipate the migration response to policy changes then the interests of the two communities are perfectly aligned decentralization is efficient this incentive equivalence is well known however the first order approach used in virtually all the literature may obscure the fact that no convexity assumptions need be made about technology or tastes this fact underscores the relevance of incentive equivalence even when there are scale economies in the public sector here the consequences of positive migration costs for this incentive equivalence are considered in contrast with much of the literature migration costs are assumed the same for everyone this formulation differs from the more common attachment to home assumption of heterogeneous migration costs conditional on the direction of migration interests of different communities are still perfectly aligned but natives of different communities may prefer different directions of migration weakening incentive equivalence if local policy makers have the power to induce large changes in migration flows however incentive equivalence fails only if economies of scale in population are important so that communities may be under populated

welfare reform and the race to the bottom theory and evidence economists have argued that welfare migration leads to a race to the bottom in the choice of welfare benefits although a system of federal matching grants can remedy this problem the recent welfare reform law replaced the existing matching grant structure with block grants a policy change that appears undesirable to judge whether this critique of welfare reform is justified this paper evaluates the evidence in favor of a race to the bottom after explaining the theoretical effects of welfare migration the paper surveys the empirical evidence on the occurrence of such migration concluding that the evidence is mixed the discussion also considers recent empirical tests for strategic interaction which show that benefit levels in nearby states affect a given state s benefit choice the most plausible source of such interaction is a concern about welfare migration which leads policymakers to look at benefits in neighboring states when making their own choices judging that the evidence appears consistent with the existence of a race to the bottom the paper concludes that the demise of matching grants may be undesirable from a policy perspective

revenue decentralization and income distribution abstract due to varying local revenue collection capacities and interest group activities revenue decentralization rd may lead to increased inequality this paper provides empirical evidence however that if coupled with good governance rd could improve income distribution

redistribution and administrative federalism in this paper redistribution is studied in the presence of migration externalities administrative federalism is defined as a constitution where statutory tax and transfer levels are set nationally while local administrations may refuse to pay the transfer or rebate the tax in single cases thereby introducing horizontal inequity with risk aversion this is less attractive than reducing the level of redistribution in a horizontally equal way it is shown that administrative federalism leads to higher transfers and higher utilitarian welfare than decentralized decisions that it may implement the first best solution and that horizontal inequality never occurs in equilibrium

where should the elderly live and who should pay for their care we consider a model with a population consisting of earners and retired persons elderly care is publicly provided there is one big city where congestion effects and agglomeration forces are at work and a number of small villages we show how the externalities related to population mobility lead to an inefficient spatial distribution of earners and retirees and we characterize the second best solution decentralization of this solution in a fiscal federalism structure requires the use of taxes and subsidies proportional to the number of earners and retired persons living in the city and the villages

migration and income redistribution responsibilities this study examines whether afdc benefits determine or discourage state to state migration flows in the united states a pooled cross section time series model is developed to estimate afdc benefits in a state and recipients and whether benefits in one state affect benefits in other states a second model using data from the 1980 census and the panel study of income dynamics estimates migration of afdc recipients and the level of benefits in in migration and out migration states both models indicate that small but statistically significant amounts of migration occur which may be quite important but only in the long run movers although small in number are much more likely to move to a state with higher benefits states perceive this migration as important indicating that states should have less control and the federal government more control over income redistribution

tax competition and income redistribution an empirical analysis for switzerland tax competition is supposed to lead to thecollapse of the welfare state because first it willbecome difficult for a single jurisdiction to levy aredistribution tax upon the rich and mobile andsecond such a policy if undertaken in onejurisdiction will attract poor individuals from otherjurisdictions and erode internal redistributionpolicies in this paper the impact of personal incometaxes and transfers on residence decisions oftaxpayers is analyzed with swiss subfederal data therelationship of tax competition and the erosion of theswiss welfare state is tested with aggregate data onincome redistribution

does decentralization reduce income inequality only in rich states we investigate the relationship between fiscal decentralization and income inequality using data from u s states over three and a half decades our study contributes to the literature in several ways in terms of empirical methodology and specification first we take into account integration and cointegration properties of the data and estimate the cointegratingrelationship between fiscal decentralization and income inequality using fully modified ordinary least squares following pedroni 2000 second we investigate the direction of the causality finally and perhaps most importantly we investigate if the relationship between fiscal decentralization and income inequality is conditional on income in each state we find that fiscal decentralization does reduce income inequality but only in rich states we also find that causality runs from fiscal decentralization to income inequality not the other way around

the generalized theory of transfers and welfare bilateral transfers in a multilateral world paul samuelson s 1952 1954 classic papers on the transfer problem addressed two separate analytical issues the positive effect of a transfer on the terms of trade and the welfare effect of the transfer on the donor and the recipient since then a considerable body of literature has grown up on the positive analysis while samuelson 1954 himself had extended the 2 x 2 x 2 free trade analysis to allow for tariffs and transport costs subsequent writers have analyzed other extensions of the model for example to allow for nontraded goods as with leisure in samuelson 1971 or general nontraded goods in john chipman 1974 and ronald jones 1970 1975 remarkably however the welfare analysis of transfers has not paralleled these developments since wassily leontief 1936 produced an example of immiserizing transfer from abroad and samuelson 1947 argued that the example required market instability the proposition that has monopolized attention has been that a transfer in the conventional 2 x 2 x 2 model in its free trade version cannot immiserize the recipient or enrich the donor as long as world markets are stable in the walras sense interestingly samuelson 1954 who did extend the positive analysis to include tariffs did not go on to ask whether immiserization of the transfer recipient and hence symmetrically enrichment of the donor in a two country model could now arise consistent with market stability recently the welfare analysis of transfers has been extended in two different directions both apparently unconnected and both yielding the conclusion that transfers from abroad can be immiserizing and that the donor may improve its welfare despite market stability one route to this conclusion has been the introduction of a third economic agent or country that is outside of the transfer process in the appendix of his 1960 paper analyzing the interaction between trade policy and income distribution harry johnson discussed the possibility of welfareparadoxical redistribution between two factor income classes capital and labor in an open economy thereby providing what can be interpreted as a treatment of the threeagent transfer problem for the case in which donor and recipient are both completely specialized in the ownership of a single different factor an independent analysis of the three agent transfer problem using a restrictive model with given endowments of goods and fixed coefficients in consumption was also undertaken in an important paper by david gale 1974 2 brecher and bhagwati bhagwati department of economics columbia university new york ny 10027 brecher department of economics carleton university ottawa on kis 5b6 hatta department of political economy the johns hopkins university baltimore md 21218 we thank the national science foundation grant no 524718 for partial financial support of the research underlying this paper the paper was written when brecher and hatta were visiting columbia university 1981 82 gratefully acknowledged are helpful comments and suggestions from john chipman avinash dixit jacques dreze robert feenstra jacob frenkel ronald jones murray kemp andreu mas colell michael mussa john riley lars svensson and robert willig from anonymous referees and from seminar participants at berkeley harvard minnesota rochester chicago and the university of california los angeles after the present paper was submitted for publication and following its presentation at rochester our attention was drawn to this appendix which was noticed by a student of ronald jones subsequently we learned from makoto yano that motoshige itoh had pointed out an important related paper by ryuotaro komiya and t shizuki 1967 whose condition 11 for the johnson case anticipated our equation 12 below we are grateful for having both of these references brought to our attention 2 gale constructs an example in which the donor is enriched along with the recipient furthermore this immediately implies that a reverse transfer will immis

the recent slowdown of productivity growth the slowdown of productivity growth in the developed countries during the seventies will in this paper be viewed as a combined effect of three closely interacting forces i a long term deterioration in the efficiency and flexibility of some basic mechanisms of the economic and political systems of these countries ii the fading away of a number of uniquely favourable circumstances for productivity growth during the fifties and sixties and iii the exposure of these economies to unusually severe macroeconomic disturbances in the seventies careful inspection of time series with attempted modifications for cyclical factors suggests that there was hardly any general slowdown of productivity growth among developed countries before approximately i972 4 1 as we know the situation is radically different since then labour productivity growth per year for the entire national economy gdp per man hour seems to have fallen between the periods i960 73 and i973 9 by about i 2 percentage points in the united states 45 by about 24 percentage points in western europe2 45 and by about 5 9 percentage points in japan 6o table i see also fig i the slowdown was of about the same size in the business and manufacturing sectors see table i to calculate the extent of the slowdown of total factor productivity growth is of course a much more hazardous matter to which i will return later if just the various system changes and the fading away of the uniquely favourable factors had been the dominating forces behind the productivity growth slowdown we would expect the slowdown to have been gradual rather than abrupt as it turned out to be this abruptness as well as its timing makes the dramatic macroeconomic disturbances around i972 4 a prime suspect when looking for the villain behind the productivity growth slowdown indeed it is a basic hypothesis of the paper that these macroeconomic disturbances were not only by themselves strongly unfavourable for productivity growth but that they also revealed and accentuated the gradual deterioration of the

optimal intertemporal allocation mechanisms and decentralization of decisions abstract problems of achieving an efficient or optimal allocation of resources through a system of decentralized decision making when the planning horizon is unbounded and the number of agents is infinite have been repeatedly raised but have not been explored in a formal manner the objective of this paper is to suggest some points of departure for a systematic investigation of such questions the main analytical results indicate the impossibility of attaining optimality through intertemporally decentralized mechanisms

a volatility based theory of fiscal union desirability abstract heterogeneous countries may rationally choose to form a currency union first and a fiscal union later we find and illustrate empirically for the emu countries reasonable volatility conditions under which this sequencing in the deepening process is indeed rationalizable changes in the distribution of expected income shocks require a reassignment of political weights to restore unanimous support for an added fiscal dimension the bargaining space depends on countries relative income size and cross correlation of shocks

redistribution within and across the regions of a federation the authors reconsider the literature on redistribution within a federation with mobile agents they conclude that redistribution is a function best assigned to the national government local governments with diverse preferences for redistribution distort individual migration decisions the authors also examine the fiscal externality literature which has made an efficiency argument for interregional transfers they show that if local governments have the same preferences for redistribution the nash equilibrium is efficient if preferences are diverse the authors show that nationally imposed interregional transfers do not address the source of the inefficiency nevertheless interregional transfers are shown to be a part of decentralized behavior

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

the consequences of overlapping tax bases for redistribution and public spending in a federation tax and expenditure policies are studied in a federation with imperfectly mobile households states implement a linear progressive tax and supply a public good a vertical fiscal externality reflecting the effect of state policies on federal revenues provides an incentive for state taxes to be too progressive a horizontal fiscal externality causes nonoptimal state taxes and expenditures because of the migration effect the federal government implements its own linear progressive tax and makes transfers to the states the federal government can nullify both externalities by appropriate fiscal policies and redistributive taxation can be decentralized to the states c 1998 elsevier science s a

tax transfer policies and the voluntary provision of public goods abstract the purpose of this paper is twofold first it extends previous models of non cooperative private funding of pure public goods by allowing both for distortionary taxation of private goods and for subsidies based on contributions to the public goods second it clarifies the type of behavioral and informational assumptions which are needed to insure neutrality of both lump sum and distortionary policies the analysis is developed in the context of fiscal federalism

poverty alleviation in federal systems the case of mexico the function of poverty relief has been the subject of debate in terms of the tier of government that should perform it on the one hand some of the literature in the economics and political science fields argues that this function should be federal because of factor mobility on the other hand because of the distance factor which makes citizens more sensitive to poverty others argue that it should a subnational responsibility finally others in both fields argue that it is more accurate to view the recent trends witnessed in developing countries as delegation of service delivery by the central government to different sets of agents the fact is that the different levels of government across countries intervene in this government obligation this paper employs the case of mexico to test the different implications of the theories this country is studied because it decentralized this activity in 1998 and thus it is subject to evaluation the results suggest that decentralizing the poverty relief function has not delivered results thus they suggest that this task should be a national one however the reason for this is the lack of political accountability at the subnational level and not mobility that is when accountability is introduced a subnational government may in fact perform well

local decentralization and local economic growth a cross sectional examination of us metropolitan areas this paper builds on the growing empirical literature that explores the relationship between government structure and economic growth it uses a new data set of 314 us metropolitan areas to examine the relationship between local decentralization and local economic growth the results indicate a negative relationship between the central city share of metro area population and economic growth and a positive relationship between both the number of municipalities per 100 000 residents and the number of counties per 100 000 residents and economic growth those findings provide support for the hypothesis that decentralization enhances economic growth

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

economic integration and fiscal devolution abstract in this paper we investigate how economic integration influences the political decision of integration and separation of jurisdictions in a model with imperfect capital mobility we consider that not only the redistributive policy itself but also the level of policy centralization is decided by a majority vote we find that the net benefit from integration is not monotonic with the level of world capital market integration and present a case where integration of two regions occurs only for intermediate levels of mobility this conclusion relies on the comparison of the regional majorities utility under the various regimes the benefits from integration arise from the elimination of tax competition across jurisdictions which allows for more income redistribution whereas the costs are linked to the diversity of preferences across regions namely that of the decisive voters we also show that a federal regime is better than complete centralization in keeping a nation united

decentralized income redistribution and immigration abstract we analyze the welfare and other effects of immigration on a system of jurisdictions with a common labor market mobile capital and redistributive tax transfer policies comparative statics analysis of a model of nash non cooperative equilibria in tax transfer policies shows that the welfare effect of immigration depends on whether immigrants are net fiscal contributors or burdens any one jurisdiction s redistribution and immigration policies generate fiscal externalities for others in the system which a central government can internalize by appropriate taxes and subsidies

why do rich countries prefer free trade over free migration the role of the modern welfare state abstract according to traditional trade theory heckscher ohlin free trade and free migration are equivalent measures of economic integration leading both to an equalization of factor prices this prediction is in sharp opposition to the observed preference of rich countries for free trade over free migration we provide an explanation for this inconsistency the redistribution policies in the countries social welfare in countries with a relatively small number of low skilled native workers is higher with free trade than with free migration due to redistribution of income towards immigrating workers

competing in taxes and investment under fiscal equalization the paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital regions choices determine allocation of capital across the regions and their revenues under a tax sharing scheme this framework allows for the examination of different approaches to fiscal equalization schemes boadway r flatters f 1982 efficiency and equalization payments in a federal system of government a synthesis and extension of recent results canadian journal of economics 15 613 633 weingast b r 2006 second generation fiscal federalism implication for decentralized democratic governance and economic development working paper hoover institution stanford university we show that tax competition distorts downwards public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes however the equalization schemes remain beneficial not only for the federation and under a low degree of regional asymmetry also for each region c 2008 elsevier b v all rights reserved

on the determinants of fiscal centralization theory and evidence abstract this paper presents a simple model that unifies most of the results of the literature on fiscal federalism the model describes an economy characterized by two levels of government one public good and a private good the predictions of the model are tested by using a new set of measures of fiscal centralization the main findings are that country size income per capita ethnic fractionalization and level of democracy are negatively correlated with the degree of fiscal centralization the model is tested using ols tobit and semi parametric estimators the paper also shows that the variables included in the regression are helpful in the prediction of changes in the level of centralization

gerontocracy revisited unilateral transfer to the young may benefit the middle aged according to conventional wisdom intergenerational transfers can survive in the absence of altruism only if the old are net recipients i prove that this need not hold in an overlapping generations model with a fixed factor for example the middle aged owning land may gain by providing public education even when they cannot tax the young and when the young face no credit market constraints this requires that labor is not mobile furthermore establishing public education may benefit only the generation which pays for education twice first for itself and then for the next generation

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

inequality and growth in the united states evidence from a new state level panel of income inequality measures i introduction rising income inequality in the united states over the past quarter century is well documented see e g gottschalk 1997 krueger 2003 levy and murnane 1992 piketty and saez 2003 whether and by how much this change in inequality is associated with a change in economic performance is an important question yet recent empirical work has been largely inconclusive positive relationships between income inequality and economic growth have been found by partridge 1997 2005 using a panel of states and by forbes 2000 using a panel of countries empirical work by panizza 2002 and quah 2001 however has found little or no stable relationship between inequality and growth the results appear to be extremely sensitive to the econometric specification additionally barro 2000 has found evidence that the relationship is nonlinear with inequality being positively related to growth among wealthier countries like the united states but negatively related to growth among low income countries much of this recent empirical literature was initiated by the important work of deininger and squire 1996 who constructed a large cross national panel of inequality measures containing several time series observations for each nation spaced over multiple decades a parallel empirical literature also emerged using u s state level data with income inequality measures typically spaced at 10 yr intervals see e g panizza 2002 partridge 1997 2005 both the state level and the cross national empirical literatures benefited by exploiting the more advanced panel data econometrics afforded by the large n small t panel dimensions in this paper we offer a new more comprehensive panel of state level income inequality measures and use this panel to reevaluate the empirical inequality growth relationship 1 this panel has the unique feature of being large in both n and t with annual observations of the 48 contiguous states for the entirety of the postwar period 1945 2004 for nearly all the states in the panel the share of income held by the top decile experienced a prolonged period of stability after world war ii followed by a substantial increase during the 1980s and 1990s these state level trends appear to closely replicate the overall trends in aggregate u s inequality found by piketty and saez 2003 exploiting the large and balanced size of our inequality panel we explore the long run relationship between inequality and growth via three alternative dynamic panel error correction estimators the fixed effects fe estimator the mean group mg estimator of pesaran and smith 1995 and the pooled mg estimator of pesaran shin and smith 1999 the greater homogeneity of state level data helps mitigate the difficulty in adequately capturing structural differences across international panels of earlier studies such as forbes 2000 and barro 2000 corruption levels labor market flexibility tax neutrality tradition of entrepreneurship and many other factors are only poorly measured if at all barro 2000 1011 and these sources of heterogeneity are much more likely to contribute to omitted variable bias across countries than across states the results from our analysis indicate that the long run relationship between the top decile share of income and economic growth is positive in nature moreover an evaluation of several alternative income inequality measures suggests that this positive relationship is driven primarily by the concentration of income in the upper end of the income distribution the structure of the paper is as follows section ii presents the new panel of annual state level inequality measures and includes an important discussion of its key limitations section iii then offers an empirical investigation on the impact of income inequality on the growth rate of real income per capita finally section iv offers a brief set of conclusions

new estimates of quality of life in urban areas implicit markets capture compensation for intraurban and interregional differe nces in amenities and yield differences in housing prices and wages these pecuniary differences become preference based weights in a qual ity of life index hedonic equations are estimated using microdata fr om the 1980 census and assembled county based amenity data on climati c environmental and urban conditions ranking of 253 urban counties reveals substantial variation within as well as among the 185 urba n areas the quality of life differences across counties within one s msa is almost one half of the difference between the top and bottom ranked counties in the nation copyright 1988 by american economic association

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

regional economic disparities and decentralisation the study of the influence of decentralisation on economic growth has received some attention in recent years but very few studies deal with its impact on regional inequalities this paper analyses the impact of both fiscal and political decentralisation on regional inequalities using alternative measures for a sample of 17 oecd countries in order to check for other possible influences the study also includes measures of public sector size and the type of party in government the final section studies the relevance of fiscal decentralisation in the regional convergence process observed by several authors during the past two decades the research reveals a strong negative correlation between decentralisation especially fiscal decentralisation and regional inequalities and also a positive influence of decentralisation on regional convergence

a positive model of overlapping income taxation in a federation of states abstract this paper develops a positive theory of overlapping income taxation in a federation of states the analysis provides a complete characterization of the equilibrium federal and states tax rates as functions of the level of total productivity dispersion between the states the federal rate is increasing in the level of total productivity dispersion between the states even if the income of the decisive voter at the federal level is above the mean income given that the individuals income is endogenously determined there exists a negative trade off between the implemented federal tax rate and the resulting states tax rates regardless of the pre tax income of the decisive voter at the state level thus high levels of productivity dispersion between the states cause a higher than optimal federal tax rate together with low states tax rates it is also shown that a system of overlapping income taxation is not efficient the resulting inefficiency might be exacerbated by the implementation of a federal matching grants program contradicting previous results in the related normative literature

the distribution of public services an exploration of local governmental preferences a local governmental welfare function is specified to explore two of its central characteristics the equity productivity trade off and differential weights across neighborhoods the constrained maximization model is estimated using service outcomes safety in the welfare function as opposed to publicly provided inputs police over neighborhoods the equity productivity trade off is found to be considerable and not all neighborhoods are weighted equally the results show that inequality aversion and unequal concern by local government over service outcomes must be addressed explicitly to understand the observed distribution of publicly provided inputs with important implications for standard analysis of local governmental behavior copyright 1987 by american economic association

multi tier targeting of social assistance the role of intergovernmental transfers albania provides a small amount of social assistance to nearly 20 percent of its population through a system that allows some community discretion in determining distribution this study investigates how well this social assistance program is targeted to the poor relative to other safety net programs in low income countries social assistance in albania is fairly well targeted nevertheless the system is hampered by the absence of a clear objective criterion to determine the size of the grants from the central government to communes as well as limited information that could be used to implement this criterion substantial gains in targeting could be achieved if the central government better allocated transfers to local governments even holding local targeting at base levels

educational expansion and the kuznets effect the objective in this note is to show the change in wage dispersion in response to increases in the relative supply of educated workers in two low income countries we also measure the relative contributions to that change of its two components the effect of the educational expansion on the educational composition of the labor force holding the educational structure of wages constant and the resultant compression of that structure holding composition constant the paper s analysis is based on three precisely comparable surveys of wage employees conducted in tanzania in 1971 and 1980 and in kenya in 1980

social accounting and the public sector this article contributes to the theory of social accounting as such it tries to extend earlier literature on the welfare equivalence of the comprehensive net national product in two main directions both of which refer to the public sector one is by considering welfare measurement problems associated with public good provision and redistributive policy respectively when the public revenues are raised by distortionary taxes the other is by addressing the consequences of a federation like decision structure where independent tax and expenditure decisions are made both by the central government and by lower level governments

equilibrium and optimality some imprints of david gale abstract the paper is a review of some of the themes to which david gale made lasting contributions it touches upon a number of the fundamental issues in the walrasian equilibrium theory existence uniqueness and stability the overlapping generations model non optimality and indeterminacy of competitive equilibria the von neumann equilibrium as a turnpike and in the theory of decentralized intertemporal allocation through competitive prices efficiency and golden rules duality and existence of optimal programs

economic and social security in the twenty first century with attention to europe a partly heuristic attempt at exploring long run policies aimed at a second best compromise between ex ante risk sharing efficiency and ex post productive efficiency wage subsidies for low skilled workers financed by taxes on high wages are advocated together with improved risk sharing between capital and labour between generations and between the countries belonging to emu the scope of the advocated policies is limited by considerations of moral hazard time consistency and fiscal competition also estimates of some key economic parameters remain very imprecise several avenues of further research are identified

on distinguishing between leviathan and public interest governments in a federal state the purpose of this paper is to derive testable implications for the proposition that provincial governments in a specific federal system are leviathans that is revenue maximizers the leviathan model associated with brennan and buchanan 1980 hypothesizes that governments behave like monopolies who seek to maximize their revenue this model is contrasted with an alternative hypothesis the public interest theory a theoretical model of a federal state based on the canadian system is constructed and testable implications are derived the principal feature of the model is that it is set in the context of a particular game involving the federal government provincial governments and a consumer in attempting to model this situation care has been taken to try to incorporate as many institutional features of the canadian federal system as possible while still allowing the model to be somewhat parsimonious with some modification the model may be applicable to other countries with similar federal systems

pricing optimal distributions to overlapping generations a corollary to efficiency pricing this paper will exploit the structural similarity of the two period overlapping generations model and the dynamic capital accumulation model to provide a pricing characterization of pareto optimal distributions with some very simple structural interpretations the techniques which were developed to characterize efficient capital accumulation apply directly to the overlapping generations model of the most general form where generations consist of heterogenous consumer types of varying lifespans

decentralization and economic growth revisited an empirical note abstract although it is theoretically expected that decentralization leads to efficient provision of local public services and stimulates economic development there is a mixed picture of the decentralization effect on economic growth across earlier empirical studies using the instrument variables iv technique with the latest cross country data for the period from 1997 to 2001 this paper found that fiscal decentralization has a significant positive impact on per capita gdp growth therefore when the focus is placed on the latest information on the economic situation in the latter 1990s decentralization particularly on the fiscal expenditure side is instrumental in economic growth

decentralization in infinite horizon economies an introduction abstract the paper summarizes some issues involved in developing a theory of decentralized resource allocation mechanism in infinite horizon economies even in a classical environment a competitive mechanism may lead to an inefficient or nonoptimal allocation for an infinite horizon economy it remains however to explore whether the usual price quantity messages can be supplemented to design decentralized mechanisms generating optimal outcomes

decentralization and corruption evidence across countries the relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design the theoretical literature makes ambiguous predictions about this relationship and it has remained virtually unexamined by empiricists the authors make a first attempt at examining the issue empirically by looking at the cross country relationship between fiscal decentralization and corruption as measured by a number of different indices their estimates suggest that fiscal decentralization in government spending is significantly associated with lower corruption moreover they find that the origin of a country s legal system for example civil versus common legal code performs extremely well as an instrument for decentralization the estimated relationship between decentralization when so instrumented and corruption is even stronger the evidence suggests a number of interesting areas for future work including investigating whether there are specific services for which decentralized provision has a particularly strong impact on political rent extraction and understanding the channels through which decentralization succeeds in keeping corruption in check

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

decentralized redistribution in a laboratory federation abstract the idea of laboratory federalism provides a strong argument in favor of fiscal decentralization it views autonomous jurisdictions in a federation as laboratories where new policies can be tested at low risk for the entire system if successful these policies will spread out by imitation otherwise they will be discarded studying this idea in a dynamic setting of fiscal competition we show that due to externalities between jurisdictions policies that appear successful and are therefore mimicked do not necessarily enhance welfare and vice versa specifically in the classical framework of decentralized rich to poor income redistribution with labor mobility the long run outcome entails a complete breakdown of redistribution with zero subsidies to the poor everywhere

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

towards an explanation of the productivity slowdown an acceleration deceleration hypothesis after two and a half decades of prosperous post war development western industrialised countries recently experienced a slowdown of economic growth and productivity advance together with an increase in the rates of inflation and unemployment in trying to explain this malaise we are looking at a diagnosis that could help us to identify early indicators of a future turnaround or some policy variables which deserve to be included in a therapeutic programme although we shall focus on what can be measured complying with the standards of the guild we shall not refrain from considering complex relationships which can be grasped only intuitively even if they include phenomena which lie beyond the limits of official statistics 2 the outcome may be soft economics but we find some consolation in the dictum that it is better to be vaguely right than to be precisely wrong

second generation fiscal federalism the implications of fiscal incentives abstract first generation fiscal federalism fgff studies the performance of decentralized systems under the assumption of benevolent social planners second generation fiscal federalism sgff studies performance based on the fiscal and political incentives facing subnational officials the paper focuses on three aspects of sgff first it considers the design of intergovernmental transfers while fgff emphasizes correcting vertical and horizontal equity sgff emphasizes the importance of fiscal incentives for producing local economic prosperity sgff extends fgff approaches by showing how non linear transfer systems can produce both equalization and high marginal fiscal incentives to produce local economic growth second the paper raises the fiscal incentive approach showing how different tax systems produce different fiscal incentives for political officials to choose policies third the paper discusses the interaction of democracy and fiscal federalism

fiscal decentralization and economic growth a cross country study abstract we use a panel data set of 46 countries over the 1970 1989 period to investigate the relationship between fiscal decentralization and economic growth we find a negative relationship between fiscal decentralization and growth in developing countries but none in developed countries several explanations are offered for our findings

exclusionary policies in urban development under servicing migrant households in brazilian cities localities in developed countries often enact regulations to deter low income households from moving in in developing countries such restrictions lead to the emergence of informal housing sectors to deter low income migrants localities in developing countries withhold public services to the informal housing sector using a large sample of brazilian localities we examine migration and exclusion focusing on the public provision of water to small houses where low income migrants are likely to live withholding water connections reduces the locality growth rate particularly of low education households in terms of service provision during dictatorship in brazil we find evidence of strategic exclusion where localities appear to withhold services to deter in migration we also find evidence of strategic interactions among localities within metro areas in their setting of service levels if one locality provides more services to migrant households other localities respond by withholding service

games the states don t play welfare benefits and the theory of fiscal federalism fiscal federalism theory predicts that states will behave strategically in welfare programs because voter demand for welfare is sensitive to tax price while the tax price itself changes because of welfare induced migration this paper tests these propositions on afdc in the united states for a panel from 1982 88 using new models for the determination of the recipiency ratio the tax price and composite neighbors the data do not support any substantial tax price elasticity of demand for welfare estimates of migration effects on tax price are found to be sensitive to specification copyright 1995 by mit press

the scope for taxation and public expenditure in an open economy in this survey of some central issues of tax and expenditure policy in an open economy we consider the implications for policy of free although not necessarily perfect international mobility of commodities capital and labour we examine the issues both from a positive and a normative point of view trying to identify both the incidence and welfare effects of international mobility one general conclusion is that tax distortions may increase in magnitude in comparison with a closed economy but they may also increase in kind as when otherwise neutral taxes become distortionary because of factor mobility

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

interregional redistribution and mobility in federations a positive approach the paper studies the effects and the determinants of interregional redistribution in a model of residential and political choice we find that paradoxical consequences of inter jurisdictional transfers arise if people are mobile while self sufficient regions are nec essarily identical with respect to policies and average incomes in our model interregional redistribution always leads to the divergence of regional policies and per capita incomes thus interregional redistribution prevents interregional equality at the same time however transfers may allow for more interpersonal equality among the inhabitants of each region the voting population may therefore in a decision over the fiscal constitution deliberately implement such a transfer scheme to foster regional divergence empirical evidence from panel data from oecd countries and candian provinces is consistent with the theory

a political economic analysis of labor migration and income redistribution we present a two country political economic model of income redistribution with internationally mobile labor migration can be exogenous and or endogenous i e determined by labor income differentials political influence is determined by the size and homogeneity of the groups where the latter can be affected by immigration we show that immigration can increase the transfers to and the income of the mobile group we also investigate the possibility of migration regulation tax transfer policy competition and coordination and finally coordination of regulation policies it is shown that the selection of any of those regimes will depend on the particular distribution of political influence among the relevant social groups in the two countries

ageing migration and endogenous public pensions abstract this paper analyses migration behaviour of mobile workers in reaction to population ageing we show that the conventional wisdom that a decrease in fertility will lead to a rise in wages and thus to an inflow of immigrants that mitigates the adverse effects of ageing on public pensions may not hold if labour is heterogeneous moreover we demonstrate that if public pensions are endogenous i e if ageing leads the elderly to successfully lobby for higher taxes it may take several generations before a steady state is reached and the initial migration flow may be opposite to the steady state migration