corruption and the composition of government expenditure abstract this paper asks whether predatory behavior by corrupt politicians distorts the composition of government expenditure corruption is found to reduce government spending on education in a cross section of countries

the provision of public goods under alternative electoral incentives politicians who care about the spoils of office may underprovide a public good because its benefits cannot be targeted to voters as easily as pork barrel spending we compare a winner take all system where all the spoils go to the winner to a proportional system where the spoils of office are split among candidates proportionally to their share of the vote in a winner take all system the public good is provided less often than in a proportional system when the public good is particularly desirable we then consider the electoral college system and show that it is particularly subject to this inefficiency

public good provision under dictatorship and democracy the allocation of a government budget between a public good and transfers is modeled under different systems of government the relatively even distribution of political power among groups in a democracy favors spending on nonexclusive public goods the more concentrated pattern of political power in a dictatorship favors spending on transfers targeted to powerful groups the hypothesis on public good provision is examined using cross country data on public good provision and empirical indicators of political regime dictatorial governments are found to provide public schooling roads safe water public sanitation and pollution control at levels far below democracies

sheepskin effects in the returns to education some previous discussions have dismissed screening theories of education partly on the ground that diploma years of education do not confer especially large earnings gains similarly most empirical research on earnings functions has assumed an absence of sheepskin effects we report evidence however of substantial and statistically significant sheepskin effects although this suggests that the previous dismissals of the screening hypothesis were premature our evidence of sheepskin effects is amenable to nonscreening interpretations also according to screening theories of education individuals with more schooling tend to earn more not because or at least not solely because schooling makes them more productive but rather because it credentiates them as more productive a frequently cited article by layard and psacharopoulos 1974 however dismissed the importance of the screening hypothesis on the grounds that several of its refutable predictions were not supported by available evidence one of these was the sheepskin prediction that wages will rise faster with extra years of education when the extra year also conveys a certificate after surveying a number of studies layard and psacharopoulous henceforth lp concluded that rates of return to dropouts are as high as to those who complete a course which refutes the sheepskin version of the screening hypothesis since publication of the lp paper an undergraduate labor economics textbook has cited lp s analysis of sheepskin effects as telling criticism of the screening hypothesis a prominent proponent of the screening hypothesis riley 1979 has accepted lp s summary of the empirical evidence but responded that some versions of the screening hypothesis do not imply sheepskin effects in the meantime the ongoing flood of empirical research on earnings functions typically has continued to treat the natural logarithm of the wage rate as a linear or occasionally quadratic function of years of education with no allowance for discontinuities in diploma years 2 the estimated rates of return used by lp were based on data that did not disaggregate dropouts earnings by how many years of school they had completed lp acknowledged we would have preferred to show the earnings gain associated with each year of the course including the year when it was successfully completed this note presents a reanalysis of sheepskin effects based on the type of data lp wished they had the results contain very strong evidence of sheepskin effects after all the next section describes our analysis and the following section summarizes and discusses our

districting and government overspending theories of government spending driven by a common pool problem in the fiscal revenues pool predict that greater districting of a political jurisdiction raises the scale of government this paper presents evidence on this and related predictions from a cross section of city governments in the united states the main finding is that when other plausible determinants of government spending are controlled for greater districting leads to a considerably greater scale of government activity the results also show that at large electoral systems do not and forms of government that concentrate powers in the office of the executive do break this relationship

optimal currency risk hedging abstract this paper investigates the optimal hedging strategy of a domestic expected utility maximizer endowed with a temporarily non traded position in a foreign investment the domestic and foreign yield curves the exchange rate between the two involved currencies and the foreign investment value are stochastic and obey fairly general diffusion processes we compare the hedger s optimal strategies using either exchange rate forward contracts or futures contracts for both strategies the optimal number of contracts held can be broken down into several components having clear economic interpretations however while futures contracts are known in such a context to be more difficult to price than their forward counterparts the optimal strategy using them is simpler this is due to the fact that when forward contracts are used incurred profits or losses that accrue to the investor s wealth at each instant are locked in in the forward position up to the contract maturity thus discounting these gains or losses back at the current date brings about an interest rate risk therefore the investor s hedging strategy itself generates an additional risk which in turn induces the need for additional hedging the magnitude of the difference between the two hedge ratios may be significant under a set of plausible assumptions since in general financial markets are not complete the additional interest rate risk cannot be perfectly hedged hence the marking to market mechanism that characterizes futures contracts and allows for the complete elimination of this risk is valuable for risk averse agents

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

a tale of two collectives sulphur versus nitrogen oxides emission reduction in europe a theoretical model of emission reductions is specified that accounts for voluntary and non voluntary behaviour regarding the adherence to the helsinki and sofia protocols which mandated emission reductions for sulphur s and nitrogen oxides nox respectively from this model we derive an econometric specification for the demand for emission reductions that adjusts for the spatial dispersion of the pollutant when tested for 25 european nations the model performs well for sulphur cutbacks less satisfying results are obtained for nox because the model s assumption of a unitary actor at the national level is less descriptive collective action considerations indicate that sulphur emissions are easier to control than those of nox

why did the elites extend the suffrage democracy and the scope of government with an application to britain s age of reform a new rationale is presented for why an elite may want to expand the franchise even in the absence of threats to the established order expanding the franchise can turn politicians away from particularistic politics based on ad personam redistribution within the elite and foster competition based on programs with diffuse benefits if these programs are valuable a majority of the elite votes in favor of an extension of the franchise despite the absence of a threat from the disenfranchised we argue that the evolution of public spending and of political competition in nineteenth century britain is consistent with our model i introduction at the beginning of the nineteenth century in most countries narrow elites had a disproportionate influence on public affairs even in england where parliament was an influential institution suffrage was mostly the privilege of the wealthy and some members of parliament were elected in boroughs with as few as 100 voters while cities such as manchester did not have any representative a century later most western countries had universal male suffrage with female suffrage to arrive shortly thereafter what brought about this democratic revolution in many cases the elites were forced out of power after violent revolutions however there are important examples such as england where democratization took the form of gradual extensions of the suffrage and these were accompanied by little overt violence it is the peculiar pride of england that the record of social and political reform is to be found on the statute book not in the annals of revolution cheyney 1931 p vii such peaceful democratizations are difficult to rationalize within the benchmark political economic models in those models extending the franchise dilutes the elite s power to influence policy and results

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

a note on the antipoverty effectiveness of child support among mother only families the current population survey is used to examine the antipoverty effectiveness of child support social insurance and welfare among motheronly families in 1995 child support brought about 6 7 percent of pretransfer poor mother only families over the poverty line an effect similar to that of social insurance and welfare a brief trend analysis shows that child support s antipoverty effectiveness has been growing some potential reasons why child support s effect is still so small in the face of substantial changes in child support policy are hypothesized

the distribution and anti poverty effectiveness of u s transfers 1992 in 1992 federal state and local governments spent almost 1 3 trillion for social welfare programs this paper examines program participation and the anti poverty effectiveness of nine selected social welfare programs the results suggest that the benefits from these programs are fairly well targeted with the elderly disabled and those with poor labor market prospects receiving most of the benefits

constitutions and economic policy at the rare moments in history when a nation debates constitutional reform the key issues often concern how the reforms might affect economic policy and economic performance for example italy abandoned a system of pure proportional representation where legislators were elected according to the proportions of the popular national vote received by their parties and moved toward including ingredients of plurality rule where legislators are elected in each district according to who receives the highest number of votes key italian political leaders are now considering proposals to introduce elements of presidentialism where the head of government is elected by direct popular vote rather than the current parliamentary regime a common argument in italy was that the electoral reform would help stifle political corruption and reduce the propensity of italian governments to run budget deficits in the 1990s constitutional reforms have been debated and implemented in a number of other countries too for instance new zealand moved away from a pure system of plurality rule in single member districts to a system mixing elements of proportional representation japan also renounced its special form of plurality rule the so called single nontransferable vote in favor of a system that mixes elements of proportional and plurality representation similar proposals have been debated in the united kingdom in latin america questions have been raised as to whether the poor and volatile economic performance of many countries can be traced to their presidential form of government

ownership risk investment and the use of natural resources the effect of insecure ownership on ordinary investment and natural resource use is examined insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability the political determinants of economy wide investment are estimated from cross country data and the results are used to form an index of ownership security when introduced into empirical models of natural resource use this index has a significant and quantitatively important effect on the use of forests and petroleum contrary to conventional wisdom ownership risk slows resource use in some circumstances

filling the poverty gap multiple transfer program participation ata from the 1979 income survey development program are used to describe multiple transfer program participation and its effect on the poverty rate and the poverty gap of 87 1 million u s families and unrelated individuals 40 percent received some government transfer in april 1979 further more than 80 percent of pretransfer poor families received some transfer the benefits received by the elderly succeeded in reducing their poverty rate from 68 to 10 percent and reducing their poverty gap by 96 percent in contrast government transfers reduced the poverty rate for single parent families from a pretransfer rate of 48 percent to a posttransfer rate of 30 percent an examination of target efficiency indicates that 82 percent of all income conditioned transfers go to the pretransfer poor

did women s suffrage change the size and scope of government this paper examines the growth of government during this century as a result of giving women the right to vote using cross sectional time series data for 1870 1940 we examine state government expenditures and revenue as well as voting by u s house and senate state delegations and the passage of a wide range of different state laws suffrage coincided with immediate increases in state government expenditures and revenue and more liberal voting patterns for federal representatives and these effects continued growing over time as more women took advantage of the franchise contrary to many recent suggestions the gender gap is not something that has arisen since the 1970s and it helps explain why american government started growing when it did

political institutions and pollution control this paper models the selection of environmental policies under authoritarian and democratic regimes and tests the hypothesis that political institutions systematically affect the enactment of environmental regulations the results support the contention that political institutional arrangements rather than resource endowments largely determine policies concerning environmental regulation copyright 1992 by mit press