the environmental kuznets curve environmental protection policy and income distribution abstract the effect of economic growth on pollution emissions differs substantially among high income countries i address this issue by analyzing public environmental policy decisions individual heterogeneity relative income effect and the political framework in which policy decisions are taken determine the emergence of the downward sloping segment of the environmental kuznets curve ekc income inequality produces a gap between the country s ability to pay for environmental protection and a country s willingness to pay i test this result by using oecd data on public r d expenditure for environmental protection the conclusion is that contrary to the ek hypothesis moments of the income distribution function other than the mean may be important for the emergence of a virtuous path of sustainable growth in high income countries

lorenz domination and global tax progressivity a reply the concept of tax progressivity at a point local progressivity is well defined and accepted but the concept of overall progressivity of a tax schedule global progressivity is not as precise and clearly defined even though it is an important concept and is widely used in evaluating the redistributive impact of tax policies public finance economists have been comparing tax schedules and making statements on one as more progressive than another without being very precise about the basis of comparison in my earlier paper in the may 1985 issue of this journal liu 1985 i attempted to unify the two concepts of local and global progressivity two requirements are imposed when a tax schedule is characterized as globally progressive one of which is structural and the other redistributive and hence normative in nature drawing on the earlier work of jakobsson 1976 musgrave thin s measure was shown to satisfy both requirements two recently proposed measures by suits 1977 and kakwani 1976 were shown to be unappealing from both a positive and a normative viewpoint in their comment on my paper formby smith and sykes pointed out an error in a proposition by jakobsson thereby showing that the link between the pointwise concept of residual progression and the global concept of lorenz domination is weaker than indicated by jakobsson and me this reduces the appeal of musgrave thin s global measure as structurally consistent with pointwise progressivity everywhere in the tax schedule the implication is that if we insist on this structural consistency the basis for comparison of tax schedules will be too restrictive since comparison will require one post tax income distribution to lorenz dominate another for all instead of for any pre tax income distributions hence despite my earlier effort the device of a global measure of tax progressivity that is consistent with pointwise

characterization of a class of moral hazard adverse selection games abstract studying a principal agent game in which the agent alone observes the state of the world and reports it but the moral hazard is not reducible shows that if the principal uses all signals then no solution exists i e there is no contract that elicits truth telling and motivates the agent to exert effort when the principal does not use signals on the state of the world that seem irrelevant a solution exists in which some of the ex post signals on outcome are not used even though they obey the informativeness condition of holmstrom bell journal of economics 1979 10 74 91

welfare dominance an application to commodity taxation in this paper the authors propose a method to identify commodity tax changes that will be favored by all individuals who can agree on certain weak assumptions with regard to the social welfare function the method is based on an extension of the criterion of second degree stochastic dominance and is illustrated using data from israel copyright 1991 by american economic association

precautionary savings and self selection evidence from the german reunification experiment in the absence of complete insurance expected future income shocks lead prudent individuals to build up precautionary savings in order to avoid wide fluctuations in the consumption path the reaction of savings to expected future shocks is stronger the more risk averse an individual is risk aversion might influence not only the savings behavior of an individual facing a stochastic income path but it can also affect occupational choice in the first place in particular risk averse individuals might choose occupations that are associated with less risky income paths while less risk averse individuals might prefer occupations with higher income risk assessing the importance of self selection of individuals into occupations according to their risk aversion is difficult since risk aversion is usually unobserved yet failing to control for unobserved risk aversion in regressions of wealth on measures of labor income risk will lead to a bias if selfselection takes place since measures of labor income risk will be negatively correlated with the error term that is capturing the unobserved risk aversion this could lead to a rejection of the theory of precautionary savings even if individuals act according to the theory

inequality reduction through the income tax income taxation typically has an inequality reducing impact this would be explained by theory were it the case that all income units were taxed according to a common progressive schedule but this is not so we lack a theoretical explanation for the observed finding this paper explains how income taxes that take nonincome attributes such as marital status into account can act to reduce overall income inequality copyright 1993 by the london school of economics and political science

comparing optima do simplifying assumptions affect conclusions consider a family of maximization models in which the optimum trades off beneficial and costly effects then comparative statics derived under many kinds of simplifying assumptions about the benefits technology are also true for general convex and nonconvex technologies for example any comparative statics conclusion about investment by a risk averse decision maker under uncertainty that holds when expected returns are described by a general linear function also holds for an arbitrary nonlinear expected return function

representative democracy and marginal rate progressive income taxation abstract this paper develops a political economy model that is consistent with the fact that democracies have a preference for increasing marginal tax rates on income we present a model in which there is an exogenous set of political parties with preferences over the set of admissible tax schedules this set contains virtually any increasing and piecewise linear continuous function each party decides whether or not to present a candidate for election there is a fixed cost of running the elected candidate implements one of her preferred tax policies our main results provide conditions under which a strong nash equilibrium exists and a tax schedule with increasing marginal tax rates is implemented in some nash equilibria and in any strong nash equilibrium

income distribution police expenditures and crime a political economy perspective in this paper i present a structural approach to investigate empirically the relation between income distribution police expenditures and crime the approach is based on the estimation of an equilibrium model where heterogeneous individuals choose whether to engage in criminal activities and expenditures on police to apprehend criminals are determined endogenously through majority voting i discuss the identification and estimation of the parameters of the structural model using data for the united states jel d72 d78 k42

revealed political power this paper adopts a revealed preference approach to the question of what can be inferred about bias in a political system we examine a dynamic environment in which individuals dier by income each period long run preference profiles are unobserved to an outside observer but are known to belong to a well behaved class in which individual preferences are ordered by income in each state policy data is summarized by a markov policy rule the observer makes inferences about the underlying distribution of political power as if political power were derived from a wealth weighted voting system with weights that can vary across states the weights determine the nature and magnitude of the wealth bias positive weights on relative income in any period indicate an elitist bias in the political system whereas negative weights indicate a populist one we ask what class of weighted systems can rationalize a given policy rule as a weightedmajority outcome each period our first result shows that without further knowledge all forms of bias are possible any markov policy rule can be shown to be rationalized by any system of wealth weighted voting an additional single crossing restriction on preferences can however rule out certain weighting systems we then augment policy data with polling data and show that the set of rationalizing wealth weights are bounded above and below in some cases polls can provide information about the change in political inequality across time

the impossibility of a progressive tax structure abstract when households are identical in all respects other than income a non decreasing average tax rate is both necessary and sufficient for post tax incomes to be always at least as equal as pre tax incomes this paper investigates whether this well known result can be extended to households with different needs a tax structure which never increases inequality in the lorenz sense is shown to be unable to discriminate between household types if in addition the tax structure never reduces the relative income of the poorest member of the neediest group of households then the same proportional tax must be applied to all households and redistribution is impossible either within or between groups of households with differing needs a similar conclusion is reached using conventional equivalence scale arguments and also applies when the parameters of the tax schedules are determined endogenously we discuss the significance of this impossibility result and its implications for tax design

tax evasion across italy rational noncompliance or inadequate civic concern the paper suggests anexplanation for the geographical dimensionof tax evasion that focuses on thestructure of territorial government taxesadministered by the central government arenot differentiated by regions poor areasmay prefer a combination of lower taxes andlower levels of public services at both thecentral and the local level this isespecially true when income and wealthlevels differ among the areas and thedemand for publicly provided goods iscorrelated to these levels but the use ofnationally uniform tax schedules imposes awelfare burden on poorer areas while thetax rates of local taxes can be adjusted tolocal preferences tax evasion may betacitly accepted as a compensation for thewelfare loss deriving from too highcentrally set tax rates

the intragenerationally redistributive effects of the retirement insurance scheme in turkey before and after the 1999 reform the paper analyses the intragenerational redistribution generated by the retirement insurance scheme in turkey before and after the 1999 reform previous research shows that when a pension scheme s contribution and benefit schedules are proportional the existence of an intergenerational redistribution is a precondition for the existence of an intragenerational redistribution but that otherwise redistribution within a generation is possible without intergenerational redistribution the main finding of this work is that the existence of the intergenerational redistribution is still a precondition for the old pension scheme despite its disproportional benefit schedule under the assumptions used both of the schemes redistribute from high wage earners to low wage earners among women but redistribute differently among men among men the old scheme generates indeterminable transfers although the new scheme redistributes from low wage earners to high wage earners the analysis takes into account a hypoth

staunching emigration from east germany age and the determinants of migration following the unification of germany in 1990 eastern wages and unemployment both rose rapidly i demonstrate that rising wages reduced eastern emigration greatly while rising unemployment had little effect this reflects the behavior of the young who are very sensitive to source region wages and relatively insensitive to source unemployment i show that most of the effect of source unemployment comes from the contemporaneous effect on those laid off who are more likely to be older i find that compared to stayers young emigrants are much more skilled older emigrants are slightly more skilled and commuters are not more skilled as measured by education and pre move wages my conclusions are based on a comparison of results from aggregate inter state migration data and individual data from the eastern sample of the german socio economic panel for 1990 2000 jel j61 p23

single crossing conditions in comparisons of tax progressivity statements to the effect that one tax is more progressive than another are frequently made but seldom explained starting from a criterion of lorenz domination this paper shows how an intuitively appealing single crossing condition on appropriately normalized tax schedules may be used in progressivity comparisons this condition is closely related to and illuminates the necessary and sufficient condition derived by jakobsson 1976 for the distributional implications of alternative taxes to be inferred from their schedules alone

on the faustian dynamics of policy and political power this paper examines the faustian dynamics of policy and power we posit a general class of dy namic games in which current policies affect the future distribution of political power resulting in the following faustian trade off if the current ruler chooses his preferred policy he then sacrifices future political power yet if he wants to preserve his future power he must sacrifice his present policy objec tives the trade off comes from the fact that the current political ruler pivotal voter cannot uncouple the direct effect of his policy from its indirect effect on future power a policy endogenous pe equilibrium describes this endogenous transfer of power and the resulting evolution of policy and political power over time we show that the faustian trade off in a pe equilibrium is decomposed into two basic rationales the political preservation effect induces more tempered policy choices than if one s policy choice did not affect one s political fortunes however the reformation effect induces more aggressive policies in order to exploit the productivity gains from policies chosen by even more aggressive successors we distinguish between political systems that give rise to monotone faustian dynamics political power that progressively evolves towards more fiscally liberal types of leaders and cyclical faustian dynamics political power that oscillates between liberal and conservative types of leaders in each case we show that the faustian trade off moderates the choices of each type of leader

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

transitions in the german labor market structure and crisis abstract since the so called hartz iv reforms around 2005 and during the global crisis of 2008 2009 the german labor market featured mainly declining unemployment rates we develop a search and matching model with heterogeneous skills to explore the role of structural and cyclical policies for this performance calibrating unemployment benefits to approximate legislation before and after the reforms we find a large reduction in unemployment and its duration with the transition concluding after about three years during the crisis the extended use of short time labor subsidies that prevent jobs from being destroyed is likely to have prevented strong increases in unemployment

majority voting with single crossing preferences we clarify and extend a number of sufficient conditions for the existence of a majority voting equilibrium on one dimensional choice domains these conditions variously stated in the previous literature all impose order restrictions on voter preferences for instance monotone marginal rates of substitution which we show to imply or be equivalent to a general ordinal version of the single crossing condition this simple property is economically intuitive and easily checked in applications this ease of application is demonstrated through an examination of voting models of redistributive income taxation and trade union bargaining behaviour

does less inequality among households mean less inequality among individuals abstract consider an income distribution among households of the same size in which individuals equally needy from the point of view of an ethical observer are treated unfairly individuals are split into two types those who receive more than one half of the family budget and those who receive less than one half we look for conditions under which welfare and inequality quasi orders established at the household level still hold at the individual one a necessary and sufficient condition for the generalized lorenz test is that the income of dominated individuals is a concave function of the household income individuals of poor households have to stand more together than individuals of rich households this property also proves to be crucial for the preservation of the relative and absolute lorenz criteria when the more egalitarian distribution is the poorest extensions to individuals heterogeneous in needs and more than two types are also provided

equivalence scale relativities and the extent of inequality and poverty most inequality and poverty theory analyzes equivalent income distributions for homogeneous populations incomes are assumed to be deflated by an equivalence scale that accounts for differences in needs between households yet in practice there is no consensus about what the appropriate equivalence scale is the authors analyze how the choice of equivalence scale affects inequality and poverty measures and show that there is a systematic relationship between equivalence scale generosity and the extent of inequality and poverty they consider most of the measures in common use and provide some empirical illustrations copyright 1992 by royal economic society

consistent income tax structures when households are heterogeneous the paper examines the redistributive impact of income taxation for heterogeneous populations an equivalent income function is introduced in order to adjust the incomes of different types of households and the redistributive performance of the tax system is evaluated by comparing the lorenz curves of the distributions of before and after tax equivalent incomes inequality reduction after tax imposes mild consistency conditions which are met by most current tax systems if the inequality reducing effect of taxation is required to be independent of the reference household type then the structure of the equivalent income function is fully determined by the inequality concept journal of economic literature classification numbers d31 d63 h24

income redistribution and local tax progressivity a reconsideration this paper investigates and clarifies the relation between global tax progressivity as measured by musgrave and thin s effective progression and pointwise local progression as measured by the elasticity of after tax income with respect to pre tax income residual progression liu s 1985 vigorous defence of the global measure of effective progression is shown to rest upon an erroneous proposition of jakobsson 1976 a counter example is presented demonstrating that the link between residual progression and lorenz domination is much weaker than the work of liu and jakobsson suggests redistribution des revenus et mesure ponctuelle de la progressivite de l imp6t un re examen ce memoire examine et clarifie les rapports entre la progressivite globale de l impot telle que mesuree par l indice de progression effective de musgrave et thin et la progressivite ponctuelle de l imp6t telle que mesuree par l elasticite du revenu apres impot par rapport au revenu avant impot la progression residuelle on montre que la vigoureuse defense de liu 1985 de la mesure globale de progression effective est batie sur une proposition erronnee de jakobsson 1976 un exemple montre bien que le lien entre la progression residuelle et la domination au sens de lorenz est bien plus faible que ne le suggerent les travaux de liu et jakobsson

lorenz dominating income tax functions this paper examines the rest rictions imposed upon income tax functions by the criterion of lorenz domination under alternative tax revenue raising regimes both neces sary and sufficient conditions are derived the necessary conditions are weaker than those already existing in the literature while the a nalysis uncovers the multitude of sufficient conditions that are poss ible copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

ranking income distributions a large variety of policy questions involve choices between social states and a consequent ordering of the feasible alternatives when these social states are related to the levels of welfare experienced by individuals or households two central issues stand out in determining the relative desirability of different social outcomes one of these is the essentially positive exercise of achieving comparability between households with different characteristics such as composition or preferences operating in different environments for example facing different price structures the other concerns the normative judgments implicit in the evaluation of alternative allocations of resourcesthe emphasis placed on inequality between households and the extent to which greater inequality can be compensated by higher average living standards this paper focuses on the second of these issues and in doing so we abstract from the problem of household comparability by considering a population of n households identical in all respects except for their incomes the question of ordering social states then becomes one of ranking income distributions over a group of anonymous households or individuals borrowing the usual assumptions imposed on consumer preferences we may suppose that a social ordering of income distributions can be represented by a welfare function 2

the design of direct taxation and family benefits abstract the subject of this paper is the design of the personal income tax and social security benefits that vary with the size of the family it is concerned with the analytical problems of policy design that arise from constraints on the instruments which may be used from differences in social judgements about the desirability of redistribution and from differences of view about the disincentive effects of taxation the paper considers these issues in the context of the french tax benefit system and the implications of the french system being harmonised towards certain features of the british system

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

local inequality and project choice theory and evidence from ecuador this paper provides evidence consistent with elite capture of social fund investment projects in ecuador exploiting a unique combination of data sets on village level income distributions social fund project administration and province level electoral results we test a simple model of project choice when local political power is unequally distributed in accordance with the predictions of the model poorer villages are more likely to receive projects that provide excludable private goods to the poor such as latrines controlling for poverty more unequal communities are less likely to receive such projects consistent with the hypothesis of elite capture these results are sensitive to the specific measures of inequality and elite power used in the empirical analysis and are strongest for expenditure shares at the top of the distribution

inequality reducing properties of composite taxation abstract on the one hand we know that the more progressive a tax schedule the more equally distributed the after tax incomes u jakobsson j public econ 5 1976 161 168 on the other hand most tax systems involve a complex procedure where individual incomes are successively subjected to different rounds of taxation we study in the paper the inequality reducing properties of the composition of different taxation schemes and we identify necessary and sufficient conditions for after tax inequality to decrease when the degree of progressivity of one element or more of the tax system is increased for the sake of generality we assimilate the set of income distributions with the space of probability measures over an interval of the real line and any function that associates after tax incomes to before tax incomes is viewed as a taxation scheme this general approach proves to be particularly powerful when investigating the restrictions the egalitarian principle imposes on the set of admissible taxation schemes journal of economic literature classification numbers d31 d63 h24

a necessary and sufficient condition for greater conditional progressivity conditional progressivity is defined in terms of a weakly lorenz dominating posttax income distribution conditional upon a given pretax income distribution this paper derives a condition that is both necessary and sufficient for one income tax to be conditionally more progressive than another it involves the odd number crossing of normalized posttax income functions together with certain integral or summation conditions single crossing as a special case is sufficient if the posttax income functions are at least piecewise differentiable an average rate progressivity condition is sufficient for the residual progressivity condition which in turn is sufficient for single crossing

flat rate taxes and inequality measurement abstract tax flattening exercises which include an increase in personal allowances have been pervasive over the past two decades such changes which typically benefit both the poor and the rich at the expense of the middle class have complex redistributive effects which are not obviously equalizing or disequalizing we develop a systematic approach to comparing the relative inequality of flat rate tax schemes to conventional graduated rate taxes we provide an illustrative example using 1993 u s taxfiler data

the political economy of sin taxes we analyse the determination of taxes on harmful goods when consumers have self control problems we show that under reasonable assumptions the socially optimal corrective tax exceeds the average distortion caused by self control problems further we analyse how individuals with self control problems would vote on taxes on the consumption of harmful goods and show that the equilibrium tax is typically below the socially optimal level when the redistributive effects of sin taxes are taken into account the difference between the social optimum and equilibrium is small at low levels of harm but becomes more pronounced when consumption is more harmful

dynamic stability and reform of political institutions abstract this paper examines endogenous institutional change in a class of dynamic political games the political aggregation rules used at date t 1 are instrumental choices under rules at date t effectively rules are players who can strategically delegate future policy making authority to different rules a political rule is stable if it selects itself a reform occurs when an alternative rule is selected the stability of a political rule is shown to depend on whether its choices are dynamically consistent for instance simple majority rules can be shown to be dynamically consistent in many common environments where wealth weighted voting rules are not the result extends to political rules that incorporate private activities such as extra legal protests threats or private investment the approach is one way of understanding various explanations of institutional change proposed in the literature a parametric model of public goods provision gives an illustration

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

ends against the middle determining public service provision when there are private alternatives abstract public provision of a service coexists with private market provision the quality of public provision is determined by majority vote preferences are not single peaked owing to the presence of private alternatives we identify two cases in one majority voting equilibrium always exists and the median income voter is pivotal in the other a necessary condition for equilibrium indentifies the pivotal voter who must have income below the median when equilibrium exists a coalition of middle income households who consume the public alternative will be opposed by a coalition of rich and poor households with the rich choosing private consumption

distributive justice in taxation abstract a classical criterion for apportioning taxes is that all should sacrifice equally in loss of utility suppose that a method of apportioning taxes is continuous and has the following four properties i the way that taxpayers split a given tax total depends only on their own taxable incomes ii an increase in the tax total implies that everyone pays more iii every incremental increase in tax is apportioned according to taxpayers current after tax incomes iv the ordering of taxpayers by pre tax income and after tax income is the same then there exists a utility function relative to which all sacrifice equally

tax progressivity income distribution and tax non compliance this article examines the determinants of tax non compliance when we recognise the existence of an imperfectly competitive tax advice industry supplying schemes which help taxpayers reduce their tax liability we apply a traditional industrial organisation framework to model the behaviour of this industry this tells us that an important factor determining the equilibrium price and hence the level of noncompliance is the convexity of the demand schedule we show that in this context this convexity is affected by the distribution of pre tax income the progressivity of the tax schedule and the way in which monitoring and penalties vary with income it is shown that lower pre tax income inequality as well as a less progressive tax code may cause more tax minimisation activities therefore the frequently advocated policy of reducing the highest tax rate may fail as a policy directed at improving tax discipline one way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of the penalty and monitoring functions

labor union objectives and collective bargaining we consider a model oflabor union behavior in which workers make decisions about wages and employment by simple majority rule we show that under general conditions such a union has a well behaved objective function different from those previously postulated in the literature we then show that the union s majority preferences generally lack a von neumann morgenstern utility representation and thus cannot be inserted into traditional bargaining models we then develop and characterize the solutions to a new bargaining model that is consistent with the structure of union preferences several comparative statics results are presented

economic and social class voting in a model of redistribution with social concerns we investigate how concerns about social status may affect individuals preferences for redistribution in our model agents are heterogeneous across two dimensions productivity and social class and an individual s social status is de ned as his relative standing in terms of a weighted average of these two components the weight on each component depends positively on its standard deviation redistribution thus simultaneously affects labor supply and the weights that determine social status as such taxation not only redistributes resources from the rich to the poor but also becomes a way of preserving or modifying social status thus individuals who have the same productivity but belong to different social classes support different tax rates we characterize the equilibrium of the political game as the solution of a system of non linear equations and identify the interclass coalition of voters who support the equilibrium tax rate

tax reform and progressivity the established theory of tax progressivity cannot handle basic tax reform questions such as whether an increase in personal allowances makes the tau system more progressive because the core results assume that tax liability is never zero this paper generalises the core theory to allow for zero tax payments and applies the new framework to the analysis of allowances income related deductions and tau credits log concavity of the tax schedule a property quite distinct from any existing notion of progressivity emerges as the critical determinant of whether the distribution of die tau burden becomes more progressive as allowances are increased

analyzing redistribution policies a study using austrialian data preface 1 introduction part i conceptual issues in the measurement of income distribution 2 income recipient units and their differing needs 3 income concept in the analysis of income distribution part ii measures of income inequality redistribution and equity 4 on the measurement of income inequality 5 measures of redistribution and equity part iii distribution and redistribution of income 6 distribution of income in australia 7 tax rates and government benefit rates by income ranges 8 effects of taxes and cash benefits on equity 9 redistribution of income within and between socioeconomic and demographic groups 10 progressivity of sales tax on individual expenditure items part iv welfare and poverty 11 distribution of welfare in australia 12 optimal negative income taxation when individuals feel envious 13 the impact of taxes and cash benefits on poverty appendix notes references author index subject index

voting over selfishly optimal nonlinear income tax schedules abstract majority voting over selfishly optimal nonlinear income tax schedules proposed by a continuum of individuals who have quasilinear in consumption preferences is considered roell 2012 has shown that individual preferences over these schedules are single peaked in this article a complete characterization of selfishly optimal schedules is provided each selfishly optimal schedule has a bunching region in a neighborhood of the proposer s skill type coincides with the maxi max schedule below this region and coincides with the maxi min schedule above it using techniques introduced by vincent and mason 1967 the bunching region is identified by solving an unconstrained optimization problem information about the optimal schedules is used to provide a relatively simple proof of single peakedness the condorcet winning tax schedule features marginal tax rates that are negative resp positive on the maxi max resp maxi min part of the schedule except at the endpoints of the skill distribution where they are zero

media as watchdogs the role of news media in electoral competition abstract we develop an equilibrium model to analyze the role of the media in electoral competition when policy payoffs are state dependent party policies do not converge to the median voter s ideal policy if the media report only party policies news analysis about the state though possibly biased can discipline off equilibrium deviations and make the parties adopt more centrist policies since voters are rational the party favored by the media need not win with a higher probability instead media bias may reduce the effectiveness of electoral competition and lead to more polarized policies

international environmental agreements and strategic voting two anonymous referees have provided very valuable comments and suggestions we have also benefited from discussions at seminars at the universities of bonn dortmund and dresden and at the conferences of euresco the european economic association and the verein fur socialpolitik this paper was partly written while haupt was visiting the economics department at the university of colorado at boulder he is very grateful to the members of the department particularly to eckhard janeba for their hospitality and for stimulating discussions and to the fritz thyssen stiftung for funding his research visit we also thank the deutsche forschungsgemeinschaft dfg for financial support

over incarceration and disenfranchisement this article presents a model wherein law enforcers propose sentences to maximize their likelihood of reelection and shows that elections typically generate over incarceration i e longer than optimal sentences it then studies the effects of disenfranchisement laws which prohibit convicted felons from voting the removal of ex convicts from the pool of eligible voters reduces the pressure politicians may otherwise face to protect the interests of this group and thereby causes the political process to push the sentences for criminal offenses upwards therefore disenfranchisement further widens the gap between the optimal sentence and the equilibrium sentence and thereby exacerbates the problem of over incarceration moreover this result is valid even when voter turnout is negatively correlated with people s criminal tendencies i e when criminals vote less frequently than non criminals

uniform progressivity residual progression and single crossing abstract the relationship between lower residual progression and single crossing conditions as necessary and sufficient conditions for one tax system to be conditionally more progressive or uniformly more progressive than another are clarified

social security and family support this paper shows how the role of the market the state and the family in providing financial support at old age has evolved over time with changes in factors such as the reliability and the effectiveness of family support the rate of interest the cost of public funds and earning inequality we model a society in which agents with different productivity are asked to vote over the existence of a beveridgian pension system we show that when children assistance is certain and large agents may rely exclusively on family to finance old age consumption and prefer to vote for a zero tax rate only if income inequalities are very large a majority will be in favor of a pension system however when the size and the likelihood of family generosity decreases a pension system is more likely to emerge in that case agents supplement children assistance with pension benefits a pension system is also more likely to emerge when the cost of public fund is small and the return from private savings is high

the customs union issue why do we observe so few of them the number of preferential trade agreements has greatly increased over the past two decades yet most existing bilateral arrangements take the form of free trade areas and less than ten percent can be considered to be fully edged customs unions this paper develops a political economy model of trade policy under imperfect competition to provide a positive explanation for the prevalence of free trade areas in a three country setting a representative from each prospective member is elected to determine the tarifis to be applied on imported goods under a customs union the necessity to coordinate tarifis leads voters to strategically delegate power to more protectionist representatives contrary to most of the existing literature we show that strategic delegation may imply that free trade areas increase welfare compared to customs unions moreover the model also indicates that free trade areas are more likely to be politically viable than customs unions

personal income tax progressivity and output volatility evidence from oecd countries this paper investigates empirically the effect of personal income tax progressivity on output volatility using macro data from a sample of oecd countries over the period 1982 2009 our measure of progressivity is based on the difference between the marginal and the average personal income tax rate for the average production worker we find supportive empirical evidence for the hypothesis that higher personal income tax progressivity leads to lower output volatility this effect comes in addition to the stabilizing impact of government size and it is equally important in economic terms all other factors constant countries with more progressive personal income tax systems seem to benefit from stronger automatic stabilizers

household equivalence scales and the measurement of inequality transfers from the poor to the rich could decrease inequality abstract the use of equivalence scales when measuring income inequality can lead to the paradoxical result that transferring money from poor to wealthy households may reduce measured inequality this paper explains this result and restates the pigou dalton transfer axiom in a way that gets around this counterintuitive outcome

inequality and market concentration when shareholding is more skewed than consumption economic theory suggests that monopoly prices hurt consumers but benefit shareholders but in a world where individuals or households can be both consumers and shareholders the impact of market power on inequality depends in part on the relative distribution of consumption and corporate equity ownership across individuals or households the paper calculates this distribution for the united states using data from the survey of consumer finances and the consumer expenditure survey spanning nearly three decades from 1989 to 2016 in 2016 the top 20 per cent consumed approximately as much as the bottom 60 per cent but had 15 times as much corporate equity because ownership is more skewed than consumption increased mark ups increase inequality moreover over time corporate equity has become even more skewed relative to consumption

committees with supermajority voting yield commitment with flexibility abstract a fundamental problem for government is how to combine commitment to certain policies with the flexibility required to adjust them when needed rogoff 1985 rogoff k 1985 the optimal degree of commitment to an intermediate monetary target q j econ 100 4 1169 1189 showed that a way to strike the right balance is to appoint an optimally conservative policy maker in real life however policy makers also have power over decisions where optimal plans are time consistent so delegating to a conservative person could be undesirable a flexible delegation device can be found in a large committee of randomly appointed members voting over policy after observing a shock when facing dynamic inconsistency under a single crossing property there exists a supermajority rule that implements the population median s optimally conservative policy maker with certainty another single crossing property guarantees that if simple majority voting is used to select the voting rule that will govern policy choice the supermajority preferred by the median is chosen for problems where dynamic inconsistency vanishes the committee will choose to make decisions by simple majority implementing median outcomes an application to monetary policy is developed we show that the optimal supermajority is higher when dynamic inconsistency is more severe when preferences are more homogeneous and when the economy is less volatile

redistributive effects of minimal equal sacrifice taxation we examine the circumstances under which minimal equal sacrifice taxation reduces income inequality focusing on absolute sacrifice and relative inequality we show that after tax incomes are more equally distributed than before tax incomes and that after tax inequality decreases with the revenue to be raised if and only if the elasticity of the marginal utility of income is decreasing however other things equal after tax inequality is shown to decline as the utility function becomes more concave we investigate next how these conclusions extend when one takes the absolute inequality view and considers that it is the relative loss in utility that has to be equalized across individuals

pareto efficiency and majority voting why high taxes on the middle class may be desirable in this paper we use a simple median voter model to analyze the effects of tax systems with differing degrees of progressivity we find that relatively high taxes on middle incomes have two important advantages on the one hand they help to ensure that all citizens are better off than they would be in a world without government and on the other hand they reduce the tax level chosen in the election therefore the progression in the middle income range not only ensures that wicksell s requirement of ex post efficiency of the tax system is achieved it may also increase social welfare

lorenz domination and global tax progressivity the paper clarifies the concept of global progressivity as opposed to pointwise progressivity and proposes a summary measure for global progressivity on the basis of lorenz domination as a ranking criterion for income distributions by extending the work of musgrave and thin 1948 and jakobsson 1976 other ad hoc summary measures for global progressivity are evaluated from both a positive and a normative viewpoint domination selon le critere de lorenz et progressivite globale de la fiscalite ce memoire clarifie le concept de progressivite globale par opposition au concept de progressivite ponctuelle et propose une mesure sommaire de progressivite globale fondee sur la domination selon le critere de lorenz ce critere pour la comparaison de distributions de revenus est developpe en prolongeant certains travaux de musgrave et thin 1948 et de jakobsson 1976 l auteur examine aussi de fa on critique d autres mesures sommaires de progressivite globale dans une optique normative et positive

voting on meritocracy abstract this paper considers a setting where a resource such as education budget is to be distributed among agents the latter differ in their ability to make use of the resource and the issue is that of determining the allocation rule whereby the individual shares of the resource may depend on their relative efforts of obtaining it the paper s focus is on endogenous determination through voting of the degree of meritocracy in the resource allocation system which determines the marginal productivity of one s effort it is found that a meritocratic system is expected to be supported by highly productive individuals and opposed by those with low productivity when the decision making becomes less elitist and involves broader participation of population groups the support for meritocracy decreases

valence characteristics costly policy and the median crossing property a diagrammatic exposition voters value valence characteristics such as honesty and competence in this paper we consider the situation where candidates may have more than one valence characteristic of importance to the voters at the same time we introduce a new concept the median crossing property which differs from single peakedness and is less restrictive than the single crossing property if indifference curves satisfy the median crossing property then voting is transitive and the majority s preference rankings coincide with those of the median voter if the indifference curves violate the median crossing property then intransitivity may arise the framework also allows us to consider elections with costly policy

optimal non linear income taxation for reduction of envy abstract this paper examines the optimal non linear income taxation problem based on equitability an allocation is equitable if no agent envies a proportion of the bundle of any other agent we examine the properties of pareto undominated allocations for various equitability requirements when there is one output the marginal income tax rate can increase only if leisure is a luxury in a multi commodity model with commodity taxes the goods preferred by the low skilled agent and or those with high hicksian elasticities are taxed more heavily when preferences exhibit quasi linearity we can show that the introduction of the equitability constraint increases the marginal income tax rates of the entire population

dynamics and stability of constitutions coalitions and clubs a central feature of dynamic collective decision making is that the rules that govern the procedures for future decision making and the distribution of political power across players are determined by current decisions for example current constitutional change must take into account how the new constitution may pave the way for further changes in laws and regulations we develop a general framework for the analysis of this class of dynamic problems under relatively natural acyclicity assumptions we provide a complete characterization of dynamically stable states as functions of the initial state and determine conditions for their uniqueness we show how this framework can be applied in political economy coalition formation and the analysis of the dynamics of clubs the explicit characterization we provide highlights two intuitive features of dynamic collective decision making 1 a social arrangement is made stable by the instability of alternative arrangements that are preferred by sufficiently many members of the society 2 efficiency enhancing changes are often resisted because of further social changes that they will engender

commuting migration housing and labour markets complex interactions commuting migration housing and labour markets are important for the overall economy and for the everyday life of many people commuting makes up a large part of all journeys world wide and many resourcedemanding transport investment projects are initiated to cope with this type of travelling in a range of countries increasing flows of national and international migration are central determinants of demographic developments in industrialised countries the working age population or those aspiring to be part of the economically active population constitute a large proportion of the total population consequently income earned through working represents a major component of total earnings in these economies cahuc and zylberberg 2004 in order to obtain an efficient labour market workers should locate and relocate to where the relevant jobs are to be found from an economic point of view commuting and migration are essential elements for obtaining a well functioning labour market fischer et al 1996 lux and sunega 2012 zabel 2012 finally housing is a basic good and for many people rents or loan repayments make up a relatively large proportion of their overall budget oecd 2011 moreover housing represents a dominating element of homeowners wealth or equity due to its central role during the financial and economic crisis starting around 2007 it has become clear that housing prices are important for the development of the overall economy in many countries for example muellbauer and murphy 2008 zabel 2012 housing and labour markets are linked in many ways when explaining these links it is useful to start with some of the distinguished features of housing markets as already mentioned houses frequently constitute a major part of households wealth moreover earned income from employment is a major

regional labor markets network externalities and migration the case of german reunification fifteen years after german reunification the facts about slow regional convergence have born out the prediction of barro 1991 except that migration out of east germany has not slowed down i document that in particular the 18 29 year old are leaving east germany and that the emigration has accelerated in recent years to understand these patterns i provide an extension of the standard labor search model by allowing for migration and network externalities in that theory two equilibria can result one with a high networking rate high average labor productivity low unemployment and no emigration west germany and one with a low networking rate low average labor productivity high unemployment and a constant rate of emigration east germany the model does not imply any obviously sound policies to move from the weakly networked equilibrium to the highly networked equilibrium this abstract was borrowed from another version of this item

the politics of infrastructure investment the role of product market competition abstract in spatial competition public infrastructure plays a crucial role in determining product market outcomes in our model consideration of infrastructure s impact on the product market drives the preferences of consumers in their dual role as voter taxpayers the spatial heterogeneity of consumers produces conflicting political interests and in many cases inefficient outcomes however across both exogenous and endogenous market environments product market competition consistently leads to higher levels of publicly funded infrastructure than monopoly collusion furthermore competition s boost to the popular support for infrastructure investment is often excessive while monopoly leads to underinvestment

social conflict and gradual political succession an illustrative model this paper studies the evolution of political institutions in the face of conflict we examine institutional reform in a class of pivotal mechanisms institutions that behave as if the resulting policy were determined by a pivotal decision maker drawn from the potential population of citizens and who holds full policy making authority at the time a rule ofsuccession describes the process by which pivotal decision makers in period t 1 are themselves chosen by pivotal decision makers in period t t wo sources of conflict class conflict arising from differences in wealth and ideological conflict arising from differences in preferences are examined in each case we characterize the unique markov perfect equilibrium of the associated dynamic political game and show that public decision making authority evolves monotonically downward in wealth and upward in ideological predisposition toward the public good we then examine rules of succession when ideology and wealth exhibit correlation

some calculations of lifetime tax incidence this paper reports a set of lifetime tax incidence calculations using a life cycle simulation model for canada due to davies 1979a 1982 a repeatedly stated qualification to annual calculations in the empirical tax incidence literature is that it would be more satisfactory to make calculations on a lifetime basis even though it is acknowledged that lifetime tax incidence could well differ from annual it is widely believed that data and other difficulties make such calculations next to impossible indeed the widespread acceptance of the data problems of lifetime calculations seems also to have inhibited speculation about how lifetime tax incidence might differ from annual as a result redistributive tax policy judgments continue to be based on annual incidence calculations in spite of the reservations many have about their usefulness our paper is intended to reorient discussion towards lifetime tax incidence by providing some initial null hypotheses about the shape of lifetime tax profiles our main finding is that under the standard competitive assumptions common in the incidence literature lifetime and annual incidence calculations both produce mild progression in tax rates across household deciles ignoring the bottom decile in the annual calculation while the income tax is less progressive in lifetime than in annual calculations other taxes are for the most part less regressive also lifetime incidence calculations are much more robust to alternative shifting assumptions than annual calculations in the lifetime context key distributions such as earnings transfer payments and consumption are less heavily concentrated in particular percentiles of the population than is true in annual data as a result changing the allocative series for any particular tax does not have the large effect on incidence results found in annual calculations each component of the tax system is allocated to households grouped by lifetime income using particular distributive series following a procedure similar to that employed in annual incidence calculations for example richard musgrave et al 1974 joseph pechman and benjamin okner 1974 edgar browning and william johnson 1979 w irwin gillespie 1980 in the process we are able to compare lifetime and annual incidence calculations using the same data set in both lifetime and annual calculations we allocate five groups of taxes among households using distributive series which come partly from the 1971 statistics canada survey of consumer finances scf and partly from our life cycle simulation model the scf data are used to construct synthetic longitudinal lifetime profiles of earnings and transfer payments for a sample of 500 households the latter are assigned inheritances by simulating patterns of mortality and bequest these data are then used in the life cycle model to generate lifetime consumption profiles and bequests the earnings transfer and inheritance data plus the model output provide the distributive series on which alternative incidence calculations are based while the incidence calculations presented in this paper use canadian data results would likely be similar for the united states

the collapse and recovery of the capital share in east germany after 1989 after the 1990 unification east germany s capital income share plunged to 15 2 in 1991 then increased to 37 4 by 2015 to account for these large changes in the capital share i model an economy that gains access to a higher productivity technology embodied in new plants as existing low productivity plants decrease production the capital share varies due to the nonconvex production technology plants require a minimum amount of labor to produce output two policies transfers and government mandated wage increases have opposite effects on output growth but contribute to lowering the capital share early in the transition jel e20 e25 o11

the caring hand that cripples the east german labor market after reunification abstract the caring hand that cripples the east german labour market after reunification the east german labour market has hardly made any progress since german reunification despite massive migration flows and support from the west we argue that east germany is in trouble precisely because of the support it has received this paper explores the phenomenon of the caring hand that cripples arising from bargaining by proxy the adoption of the west german welfare system and the associated employment persistence even the steady decrease of labour cost normalized by productivity since the beginning of the 1990s did not help to kick start the east we suggest that labour force participants fell into traps concerning low skills ageing of the workforce labour saving capital and skills capital underutilization and unemployment arising from the decline of the tradeable sector jel classification e24 j3 and p2 keywords german unification labour market traps and labour markets dennis j snower kiel institute for the world economy dusternbrooker weg 120 24105 kiel germany tel 49 431 8814 235 fax 49 431 8814 501 email dennis snower ifw kiel de

measuring income tax discrimination we propose a procedure for measuring the effect of systematic discrimination in the income tax different socioeconomic groups are assumed to face different tax schedules we show that a welfare loss is caused by the group specificity of schedules the dollar value of which is our measure of discrimination defining vertical equity as the dollar value of the tax system s welfare superiority over an equal yield flat tax discrimination equates to a loss in vertical equity the australian income tax is found to discriminate against wage and salary earners causing a roughly 1 loss of social welfare in 1984

some classes of functions that preserve the inequality and welfare orderings of income distributions abstract we identify in the paper those classes of functions that preserve the ranking of distributions according to three welfare criteria introduced recently by a f shorrocks economica 50 1983 3 17 we prove that a necessary and sufficient condition for a function to preserve the generalized lorenz ordering of distributions is that it be increasing and concave requiring welfare improvements to be compatible with more equality we obtain linear resp affine functions when emphasis is placed on relative resp absolute income differentials

progressive taxation redistribution and labor supply the analysis of the effect of progression on labor supply is extended to a model with many consumers the condition for progression to increase labor supply given constant aggregate tax revenue is derived and shown to depend on the income effects resulting from redistribution it is then shown that the optimal linear income tax schedule involves a degree of progression which on the margin does reduce labor supply