euro depreciation and trade asymmetries between germany and italy versus the us industry level estimates abstractsince april 2014 to march 2015 the european central bank expansionary monetary policy instigates a huge depreciation of the euro in terms of dollar according to the mainstream monetary theory these dynamics should make the exports cheaper and at the same time make the imports more expensive has real depreciation of the euro helped in the improvement of european countries trade balances following the main methodologies in the recent literature our study analyses the effects of this depreciation both for italy and germany towards the us we use industry level data at monthly frequency the results are different from each bilateral relationship we find that 11 industries register a long run improvement 8 for italy and 3 for germany the j curve effect is proven just in six cases always for italy the inverted j curve effect is proven in eight cases four for germany and four for italy these results seem to be an indirect demonstration of the structural asymmetries between german and ital

women and budget deficits if women have different economic preferences than men then female economic and political empowerment is likely to change economic policy and in turn perhaps macroeconomic outcomes in this paper we narrow the focus to fiscal policy and we investigate whether female enfranchisement affects government budget deficits in a difference in differences regression for swiss cantonal panel data we find that the inclusion of women in the electorate has reduced deficits by a statistically significant amount

compulsory voting turnout and government spending evidence from austria abstract we study a unique quasi experiment in austria where compulsory voting laws are changed across austria s nine states at different times analyzing state and national elections from 1949 to 2010 we show that compulsory voting laws with weakly enforced fines increase turnout by roughly 10 percentage points however we find no evidence that this change in turnout affected government spending patterns in levels or composition or electoral outcomes individual level data on turnout and political preferences suggest that these results occur because the impacts of compulsory voting on turnout are larger among those who are non partisan who have low interest in politics and who are uninformed

inequality in democracies testing the classic democratic theory of redistribution the classic democratic theory of redistribution claims that an increase in the mean to median mm income ratio causes a majority coalition in the electorate to collectively demand more redistribution the functional dependence of redistribution on the mm income ratio is tested in parametric and nonparametric regression frameworks using an oecd panel dataset while the parametric regression model is found to be misspecified rendering subsequent inference invalid the robust nonparametric regression model fails to uncover evidence that the mm income ratio is relevant for predicting redistribution

do elites benefit from democracy and foreign aid in developing countries abstract a popular argument for the absence of any beneficial effects of foreign aid is that it is skimmed by political elites in recipient countries however studies also suggest that aid may be more effective in relatively democratic developing countries by exploring data on income quintiles derived from the world income inequality database for 88 developing countries a set of results indicate that foreign aid and democracy in conjunction are associated with a higher share of income held by the upper quintile it thus appears that foreign aid contrary to popular beliefs leads to a more skewed income distribution in democratic developing countries while the effects are negligible in autocratic countries the paper closes with a discussion of potential mechanisms generating this perverse effect

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

tests of a rational theory of the size of government in many countries the political party holding power changes more frequently than the trend growth rates in government spending and taxes shifts of political power are often preceded by rhetoric about meeting needs or cutting taxes which post election performances rarely match yet changes in the size of government up and down occur on average the size of government measured by the share of taxes or spending to output has increased in many countries during the past century but changes in size occur at diffrent rates and at times the relative size of government declines

who gains from nominal devaluation an empirical assessment of euro area exports and imports in early 2013 rumours about the euro appreciation gained momentum which may lead to decreases in exports and increases in imports of the member states therefore we investigate the impact of changes in the nominal euro exchange rate vis a vis major currencies on export and import performance of nine different euro area countries to disentangle the true equilibrium elasticities sure system error correction models ssecm are estimated for nominal exchange rate changes versus the rest of the world or other major currencies to differentiate between price level changes and changes of the nominal exchange rate a country s export and import equation is estimated using separately the nominal rate and the relative price unit labour cost as regressors results of wald tests indicate that assuming both variables to have the same influence on exports and imports is misleading whether the relative price unit labour costs elasticities are high or low depends crucially on which indicator is chosen while the effect of nominal exchange rate changes can be estimated robustly for all countries in the sample in particular france and spain are hit by a euro appreciation since their exports are highly exchange rate elastic however for france this effect is at least partly offset by an also negative exchange rate elasticity of imports

can a liberalization of capital outflows increase net capital inflows abstract facing massive capital inflows that put downward pressure on the real exchange rate some policymakers and analysts have recommended a liberalization of capital outflows empirically however the removal of capital outflow controls has apparently stimulated a net inflow of capital in several experiences such as britain since 1979 italy new zealand and spain in the mid to late 1980s and colombia egypt and mexico in the 1990s numerous measures to liberalize capital outflows in chile during the 1990s have not had a noticeable effect in offseting a surge of net capital inflows how can we explain the apparent paradox that reducing controls on capital outflows can actually increase net capital inflows our theoretical model provides one such explanation a liberalization of capital outflows understood here as a reduction in the minimum capital repatriation period for foreign investment reduces the degree of irreversibility of the decision to invest in a given country this in turn lowers the option value of waiting until uncertainty about a possible change in the rules of the game that affect investment in domestic assets is resolved because in this event foreigners investing at home will be stuck with the low return asset for a shorter period of time thus a reduction in the minimum repatriation period is likely to increase not decrease net capital inflows this result has an important policy implication liberalizing capital outflows may have significant benefits on its own but it may not be the appropriate policy to defend the real exchange rate in the presence of massive capital inflows because it is likely to strengthen those very capital inflows

inequality and the politics of social policy implementation gender age and chile s 2004 health reforms summary regarding scholarship on the political determinants of inequality little attention has been paid to policy implementation we examine the 2004 chilean health reforms that sought to regulate private insurers and measure their effects on gender and age inequality we find that reforms intended to decrease these inequalities largely failed analysis of this failure demonstrates the importance of the politics of implementation when reforms threaten profits private providers may act to undermine reforms in the implementation process given the widespread emergence of private providers in social policy systems understanding their stakes in implementation is key to more effective equality enhancing reforms

income inequality size of government and tax progressivity a positive theory abstract i investigate the relationship between income inequality and the composition of public spending in redistributive policies i extend the meltzer richard model of voting over redistribution allowing voters to choose not only the amount of a uniform lump sum transfer but also the level of provision of a public good the governmental budget is balanced thus these two choices determine the tax rate on labor income the multidimensionality of the policy space implies that there is no condorcet winner i adopt a citizen candidate model of electoral competition to tackle this problem i show that the progressivity of the tax system is increasing in the mean to median income ratio while the size of the government need not be this means that higher income inequality implies a more progressive tax system but in contrast with the traditional analysis it may also result in a smaller size of government such results are consistent with the most recent findings in the empirical literature

a theory of political transitions we develop a theory of political transitions inspired by the experiences of western europe and latin america nondemocratic societies are controlled by a rich elite the initially disenfranchised poor can contest power by threatening revolution especially when the opportunity cost is low for example during recessions the threat of revolution may force the elite to democratize democracy may not consolidate because it is redistributive and so gives the elite an incentive to mount a coup highly unequal societies are less likely to consolidate democracy and may end up oscillating between regimes and suffer substantial fiscal volatility

inequality democracy and institutions a critical review of recent research this paper surveys the theoretical and empirical literature on the effect of economic and political inequality on institutions the current understanding suggests that unequal societies develop exploitative and inefficient institutions empirical research which is scant and has mainly concentrated at cross national level supports to some extent the existence of an inverse relationship between inequality and institutions but more analysis is needed future empirical research should undertake country state and micro level analysis which are a necessary complement to aggregate level studies the effect of inequality could also take place indirectly through the influence of inequality on democratization

a median voter model of economic regulation a basic median voter model is developed and extended to analyze issues of economic regulation and public policy outcomes the model is used to generate comparative static results relating changes in public policy outcomes to changes in relative group sizes total population information costs and population heterogeneity the model is also used to explore the issue of optimal group size the size of the special interest group that maximizes the group s per capita public policy gains comparative static analysis reveals how optimal group size and gains per capita are affected by changes in population heterogeneity the size of the total population and relative knowledge levels

the effect of the expansion of the voting franchise on the size of government this paper examines the claim that expansion of the voting franchise has been an important factor in the growth of government state government spending and state and local spending are explained using a panel of 46 states for 1950 88 elimination of poll taxes and literacy tests led to higher turnout particularly among the poor and a poorer pivotal voter as predicted we find that these changes a fall in the income of voters relative to state income and the ouster of republicans from state government led to a sharp rise in welfare spending but no change in other spending

democracy economic development and income inequality most cross national tests of inverse association between democracy and inequality have operationalized the concept of democracy by measuring its level at a single point in time more compelling theoretical arguments can be made for causal relationships that operate over time between 1 a country s years of democratic experience and income inequality and 2 income inequality and the stability of democracy continuous and qualitative measures of years of democratic experience are estimated to have a significant negative impact on income inequality independent of economic development and other control variables for a sample of 55 countries a very strong inverse correlation is also observed between income inequality and regime stability for a sample of 33 democracies this association holds independent of economic development which is found to have no direct effect on democratic stability after controlling for income inequality

income taxation and the diversity of consumer goods a political economy approach after tax income inequality has risen since the mid 1990s as increases in market income inequality have not been offset by greater fiscal redistribution we argue that the substantial increase in the diversity of consumer goods has mitigated mounting political pressures for redistribution within a probabilistic voting framework we demonstrate that if the share of diversified goods in the consumption bundle increases sufficiently with income then an increase in goods diversity can reduce the political equilibrium tax rate focusing on oecd countries we find empirical support for both the model s micro political foundations and the implied relation between goods diversity and fiscal policy outcomes

does economic globalisation affect income inequality a meta analysis a large volume of econometric literature has studied the impact of economic globalisation on income inequality around the world however reported econometric estimates vary substantially which makes it difficult to draw valid conclusions this paper presents a quantitative summary and analysis of existing estimates regarding the globalisation inequality relationship we use a new data set consisting of 1 254 observations from 123 primary studies by applying meta analysis and meta regression methods we obtain several main findings first globalisation has a small to moderate inequality increasing effect second while the effect of trade globalisation is small financial globalisation shows a more sizeable and significantly stronger inequality increasing impact third we find an average inequality increasing impact of globalisation in both advanced and developing countries fourth education and technology moderate the impact of globalisation on income inequality

large scale privatization in transition economies to explain the slow progress of mass privatization programs in eastern europe the authors present a model based on a positive spillover between aggregate privatization and the individual expected return to privatization derived from a potential populist backlash if costly reforms do not bring forth sufficient aggregate privatization the model allows for the simultaneous existence of a pessimistic zero privatization trap and an optimistic full privatization equilibrium defined by a critical mass of expected privatization while both privatization subsidies and minimum income guarantees can by themselves secure coordination on the optimistic equilibrium the financing constraint may offset the direct effect copyright 1993 by american economic association

budget spillovers and fiscal policy interdependence evidence from the states abstract this paper formalizes and tests the notion that states expenditures depend on the spending of similarly situated states we find that even after allowing for fixed state effects year effects and common random shocks among neighbors a state government s level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors ceteris paribus a one dollar increase in a state s neighbors expenditures increases its own expenditure by over 70 cents

does the median voter model explain the size of government evidence from the states despite an attempt by its own authors it is difficult to argue that the influential model of the size of government developed by meltzer and richard 1981 has had convincing empirical backing in this paper we adapt that model to a model of state government size the main testable hypothesis is that as income inequality grows government size as measured by the percentage of income devoted to government redistribution grows we test the model using panel data from the us states from 1979 1991 in contrast to the results found by meltzer and richard 1983 we find little evidence to support the model the results are robust to several model specifications and estimation techniques

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

privatization market liberalization and learning in transition economies privatization and market liberalization are widely considered to be complementary reforms in transition economies this article challenges this view and the closely related big bang approach when pursued too vigorously privatization may impede the transition process following liberalization our result is based on an explicit model of market learning compared to a mature market a market in transition is characterized by greater uncertainty regarding market conditions including equilibrium prices and quanti ties economic actors must learn about these conditions through their participation in the market process less than full privatization is optimal if the costs of learning are sufficiently important

privatization technology choice and aggregate outcomes abstract we analyze the macroeconomic consequences of privatization policies in transition economies due to the particular market structure in those economies strategic completnentarities in restructuring of privatized firms occur giving rise to multiple macroeconomic equilibria restructuring and the resulting macroeconomic outcomes crucially depend on how property rights are distributed and which method of privatization is chesen firm sales to single or core investors may easily lead to bad equilibria without restructuring if employees are given profit claims this is so even if the workers give up parts of their wages as a compensation for stocks wage equity swaps contrary to conventional wisdom mass privatization can have favourable influence on micro economic efficiency and may therefore lead to a good aggregate outcome as an additional feature favouring mass privatization we argue that a big bang approach to privatization might lead to a favourable equilibrium

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

political regimes and economic growth arguments that relate regimes to growth focus on property rights pressures for immediate consumption and the autonomy of dictators while everyone seems to agree that secure property rights foster growth it is controversial whether democracies or dictatorships better secure these rights the main mechanism by which democracy is thought to hinder growth is pressure for immediate consumption which reduces investment only states that are institutionally insulated from such pressures can resist them and democratic states are not the main argument against dictatorships is that authoritarian rulers have no interest in maximizing total output these views are summarized in turn

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

education democracy and growth abstract this note presents a model of endogenous growth where redistribution determined by a political equilibrium is in the form of public education it is shown that there need not be a negative relationship between growth and redistribution as public education increases the level of human capital in the conomy and at the same time tends to produce a more even income distribution

one dollar one vote this paper revisits the relationship between inequality and redistribution in a panel of advanced oecd countries using panel data methods that hold constant a variety of determinants of redistributive spending i find a non monotonic relationship between pre tax and transfer distribution of income and redistribution relative to mean income a more affluent rich and middle class are associated with less redistribution and a richer poor class is associated with more redistribution these results are consistent with a one dollar one vote politico economic equilibrium when the income of a group of citizens increases aggregate redistributive policies tilt towards this group s most preferred policies

privatization under political interference evidence from eastern germany abstract can privatization authority be successfully delegated to a privatization agency to address this question we examine the liquidation policy of the german privatization agency the theoretical part develops a dynamic model of optimal liquidation under incomplete political insulation of the privatization agency we explore how external political interference affects its liquidation policy and derive testable implications for the distribution of liquidation decisions and privatization prices the empirical part uses micro data on 1804 privatization contracts and 1097 liquidation decisions to verify the model predictions the data confirm the view that political liquidation constraints are an important determinant of privatization outcomes

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

external imbalances in the eurozone the paper examines the extent to which current account imbalances of euro area countries are related to intra euro area factors and to external trade shocks we argue that the traditional explanations for the rising imbalances are correct but are incomplete we uncover a large impact of declines in export competitiveness and asymmetric trade developments vis a vis the rest of the world x96 in particular vis a vis china central and eastern europe and oil exporters x96 on the external balance of euro area debtor countries while current account imbalances of euro area deficit countries vis a vis the rest of the world increased they were financed mostly by intra euro area capital inflows in particular by the purchase of government and financial institutions securities and cross border interbank lending which permitted external imbalances to grow over time ruo chen gian maria milesi ferretti and thierry tressel

trade reform aggregate investment and capital flight on credibility and the value of information abstract in this paper we demonstrate that uncertainty about future policy reversals coupled with irreversible investment confers an option value to foreign exchange and may lead to capital flight and a fall in aggregate investment after a trade reform the analysis focuses on the value of information and the credibility of the policy reform the conclusion points to a potential role for international institutions to prevent such problems

deviations from constituent interests the role of legislative structure and political parties in the states this paper investigates the determinants of state spending over 1960 1990 recent empirical studies suggest that state government expenditure is greater than the electorate desires our main finding is that expenditure was positively related to the number of seats in a state s legislature this is consistent with the hypothesis that logrolling leads representatives to spend more than their constituents would like we also find that political parties do not have a pronounced effect on overall levels of expenditure but do influence the composition of spending in particular democratic control of state government is associated with higher levels of welfare spending

distributional constraints on the speed of privatization abstract this paper argues that adverse distributional effects may prevent speedy privatization in former command economies an imbalanced structure of the work force combined with a politically motivated subsistence consumption constraint may necessitate gradual privatization this possibility is illustrated by a numerical example and a model of gradual privatization is suggested

women s suffrage and the growth of the welfare state in this paper we test the hypothesis that extensions of the voting franchise to include lower income people lead to growth in government especially growth in redistribution expenditures the empirical analysis takes advantage of the natural experiment provided by switzerland s extension of the franchise to women in 1971 women s suffrage represents an institutional change with potentially significant implications for the positioning of the decisive voter for various reasons the decisive voter is more likely to favor increases in governmental social welfare spending following the enfranchisement of women evidence indicates that this extension of voting rights increased swiss social welfare spending by 28 and increased the overall size of the swiss government

does liberte egalite a survey of the empirical links between democracy and inequality with some evidence on the transition economies the effect of the distribution of political rights on income inequality has been studied both theoretically and empirically the authors review the existing literature and in particular the available empirical evidence the literature suggests that formal exclusion from the political process through restrictions on the voting franchise appears to have caused a high degree of economic inequality and democratization in the form of franchise expansion has typically led to an expansion in redistribution at least in the small sample of episodes studied in a less pronounced way albeit more emphatically compared with the ambiguous results of earlier research recent evidence indicates an inverse relationship between other measures of democracy based on civil liberties and political rights and inequality the transition experience of eastern european countries however seems to some extent go against these conclusions this opens possible new vistas for research namely the need to incorporate the length of democratic experience and the role played by ideology and social values

is democracy good for the poor many scholars claim that democracy improves the welfare of the poor this article uses data on infant and child mortality to challenge this claim cross national studies tend to exclude from their samples nondemocratic states that have performed well this leads to the mistaken inference that nondemocracies have worse records than democracies once these and other flaws are corrected democracy has little or no effect on infant and child mortality rates democracies spend more money on education and health than nondemocracies but these benefits seem to accrue to middle and upper income groups

imperfect information and the meltzer richard hypothesis standard majority voting models predict that redistribution is positively linked to the mean to median income ratio but empirical evidence is mixed this paper shows that the different empirical reactions to rising mean to median income ratios can be rationalized in a simple romer roberts meltzer richard framework with imperfect information in such a model it is important to consider the source of rising mean to median ratios income growth of the poor can lead to less redistribution as more agents perceive themselves to be rich which tends to reduce the support for redistribution an empirical application reveals that the model can explain a substantial part of the first reagan tax cut

why don t voters put the gini back in the bottle inequality and economic preferences for redistribution abstract the classic democratic theory of redistribution claims that an increase in market income inequality causes an increase in the size of government through majority voter support for an offsetting expansion of redistribution i argue that the predicted inequality redistribution relationship can break down when voters face uninsurable idiosyncratic risk with respect to future labor income and a timing differential between tax collections and government outlays this is formalized using an incomplete market heterogeneous agent dsge model with majority voting and time to build policy which suggests the collective demand for redistribution will not necessarily increase with growing income or wealth inequality this result implies that even with equal political power among voters democracies do not have a systematic mechanism to offset rising inequality as contrary to popular belief

income and price elasticities for exports of developing countries income and price elasticities for non oil exports of non opec developing countries play an imp ortant role in the development of policy responses to the debt crisis these elasticities are estimated for the major standard internation al trade classification commodity groups based on two stage least sq uares and quarterly data for 1973 to 1984 the income elasticity for non oil exports ranges between 1 4 and 1 9 the analysis also tests t he properties of the error term the dynamic specification and para metric stability the sensitivity of the results is assessed using sh iller s lags and band spectrum estimation copyright 1988 by mit press

the political economy of growth a critical survey of the recent literature this article reviews the recent literature on the political economy of growth focusing on the research that has developed at the intersection of the endogenous growth literature and the new political economy it explores the relationship among four key variables economic growth and capital accumulation political instability political freedom and democratic institutions and income inequality

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

characteristics of privatization evidence from developed less developed and former communist countries a privatization wave has swept the world starting in the u k in the early 1980s and then progressing to other developed and less developed nations this study examines how the country characteristics for the formerly state owned enterprises relate to the nature of the privatization deal and the strategy of the acquiring firm in particular this paper examines how country characteristics affect government privatization policies and in turn firm strategy results indicate that there are differences with respect to the characteristics of privatization and government policies that translate into differences in firm strategy in former communist less developed and developed countries

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

the effect of government size on the unemployment rate recent empirical studies have revealed that the size of government is inversely related to economic growth and technical efficiency evidence is presented linking the size of government to reported unemployment rates for the industrial countries during recent years this finding helps to explain the empirical link between government size and poor macroeconomic performance

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

nominal exchange rate volatility relative price volatility and the real exchange rate abstract we model real exchange rate nominal exchange rate and relative price volatility using real and nominal factors we analyze these volatility measures across developing and industrialized countries we find that the inclusion of nominal factors achieves a sizable reduction in the real exchange rate volatility spread between developing and industrialized countries in addition we find that nominal factors matter to real exchange rate volatility in the short run and the long run and that for developing countries a higher share of real exchange rate volatility stems from relative price volatility

does education reduce income inequality a meta regression analysis this paper reexamines the effects of education on inequality through a comprehensive meta regression analysis of the extant empirical literature we find that education affects the two tails of the distribution of income education reduces the income share of top earners and increases the share of the bottom earners education has been particularly effective in reducing inequality in africa some of the results suggest that secondary schooling appears to have a stronger effect than primary schooling though this finding is not always robust the heterogeneity in reported estimates can be largely explained by differences in the specification of the econometric model and measure of inequality and education

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

political rights and income inequality a cross national test among contemporary nations the relationship between income equality and national wealth exhibits an inverted u shape low among the richest and poorest nations and high for nations with intermediate wealth to examine the reasons for this relationship i hypothesize that both political democracy and educational enrollment are related in a similar way to income inequality two data sets are used in this analysis modified version of muller s set of 62 nations circa 1965 1975 and hoover s data set multiple regression reveals that measures of political democracy and the educational enrollment levels have an inverted u relationship with income inequality national wealth gnp had no consistent direct effect on income inequality a satisfactory specification of national levels of income inequality must include the polynomial functions of political democracy and education

the effect of direct democracy on income redistribution evidence for switzerland there is an intensive dispute in political economics about the impact of institutions on income redistribution while the main focus is on comparison between different forms of representative democracy the influence of direct democracy on redistribution has attracted much less attention according to theoretical arguments and previous empirical results government policies of income redistribution are expected to be more in line with median voter preferences in direct than in representative democracies in this paper we find that institutions of direct democracy are associated with lower public spending and revenue particularly lower welfare spending and broad based income and property wealth tax revenue moreover we estimate a model which explains the determinants of redistribution using panel data provided by the swiss federal tax office from 1981 to 1997 and a cross section of representative individual data from 1992 while our results indicate that less public funds are used to redistribute income and actual redistribution is lower inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution this finding might well indicate the presence of efficiency gains in redistribution policies

global corporations and local politics income redistribution vs fdi subsidies abstract income inequality has been used empirically to explain the mixed performance of developing countries in attracting fdi this paper sets up a theoretical model that links the skewness of the income distribution to a host government s willingness to subsidize fdi large skewness makes government subsidies less likely because the median income person prefers redistribution little skewness however does not guarantee fdi in addition host governments may switch from positive to no subsidies if a shift in economic variables changes how the policymaker trades off the fdi benefits and income redistribution thereby offering an alternative to the conventional hold up story

explaining international and intertemporal variations in income inequality this paper explores the propositions that income inequality is relatively stable within countries and that it varies significantly among countries a new and expanded data set provides broad support for both propositions drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality the empirical analysis shows that the predicted variables associated with the first argument a measure of civil liberties and the initial level of secondary schooling and the second argument a measure of financial depth and the initial distribution of land are indeed important determinants of inequality this paper explores two propositions regarding income inequality they are first income inequality is relatively stable within countries and second it varies significantly across countries to illustrate note that the gini coefficient in india remained almost constant for forty years 1951 92 with mean 32 6 and standard deviation 2 0 2 in contrast the variation in gini coefficients across countries is large 61 9 in honduras in 1968 compared with 17 8 in bulgaria in 1976 if substantiated these propositions have potentially significant implications for poverty the significance of the first is obvious barring any fundamental socio political change poverty reduction will depend crucially on the rate of economic growth given this the significance of the second is that in inegalitarian economies the poor will enjoy a smaller share of any national increment in income than in more egalitarian ones drawing on a new and expanded data set on inequality deininger and squire 1996a the first of the paper s three sections conducts standard statistical tests of the two propositions the sample comprises 573 observations on the most common measure of inequality the gini coefficient for 49 developed and developing countries covering the period 1947 94 the results broadly confirm our two propositions specifically analysis of variance anova shows that about 90 of the total variance in the gini coefficients

female voting power the contribution of women s suffrage to the growth of social spending in western europe 1869 1960 women s suffrage was a major event in the history of democratization in western europe and elsewhere public choice theory predicts that the demand for publicly funded social spending is systematically higher where women have and use the right to vote using historical data from six western european countries for the period 1869 1960 we provide evidence that social spending out of gdp increased by 0 6 1 2 in the short run as a consequence of women s suffrage while the long run effect is three to eight times larger we also explore a number of other public finance implications of the gender gap

path shifting of the welfare state electoral competition and the expansion of work family policies in western europe what explains the surprising growth of work family policies in several west european countries much research on the welfare state emphasizes its institutional stickiness and immunity to major change yet over the past two decades governments in germany the netherlands and the united kingdom have introduced important reforms to their welfare regimes enacting paid leave schemes expanded rights to part time work and greater investments in child care a comparison of these countries reveals a similar sequence of political and policy change faced with growing electoral instability and the decline of core constituencies party leaders sought to attract dealigning voter groups such as women this led them to introduce feminizing reforms of their party structures and adopt policies to support mothers employment in all three cases women working within the parties played an important role in hatching or lobbying for these reforms after comparing three countries that moved in a path shifting direction this article engages in a brief traveling exercise examining whether a similar set of dynamics are lacking in two countries austria and italy that have moved more slowly in reforming these policies against the prevailing scholarly literature that emphasizes path dependence and slow moving change this article reveals the continued power of electoral politics in shaping redistributive policies

capital repartriation and the waiting game abstract a stylized fact on post stabilization economies is that getting the fundamentals right even though necessary is not sufficient to ensure a prompt and costless resumption of growth uncertainty whether stabilization can in fact be sustained confers an option value to postponing investment in domestic real assets