legislative district configurations and fiscal policy in american states in accordance with the median voter theorem the median legislator is decisive in representative democracy if the preferences of the median legislator differ from the preferences of the median voter in the polity fiscal policy choices will predictably diverge from those favored by the median voter this paper seeks to identify the median district and therein the preferences driving the median legislator in american state legislatures using economic characteristics of constituents we find substantial differences between the median district and the statewide median as the income of the median district rises above the median income of the polity government expenditures increase in addition the degree to which income is skewed across legislative districts affects spending for redistribution programs finally we find that direct democracy procedures which allow the statewide median voter to check legislative decisions limit the impact of differences between the district and polity medians

aging and inequality in income and health in our earlier work we used data from the national health interview survey nhis to examine life cycle patterns in health status and in the joint distribution of health status and income deaton and paxson 1998 in this paper we summarize and extend those results and provide new evidence from the panel study of income dynamics psid both surveys contain a measure of household income and collect information on an ordinal measures of self reported health status srhs that ranges from 1 excellent to 5 poor section i concerns problems related to the measurement of inequality in health section ii presents evidence from the two surveys on health and income inequality this abstract was borrowed from another version of this item

supermajority voting requirements for tax increases evidence from the states abstract this paper measures the effect of state level supermajority requirements for tax increases on tax rates unobserved attitudes towards taxation tend to influence both the adoption of supermajority requirements and tax policy consequently one cannot distinguish between the effect of these requirements and their correlation with these unobserved attitudes a model is presented in which legislatures controlled by a pro tax party adopt a supermajority requirement to reduce the majority party agenda control the propensity of pro tax states to adopt supermajority requirements results in an underestimate of the true effect of these requirements on taxes to correct this identification problem the paper first uses fixed effects to control for unobserved attitudes and then employs instruments that measure the difficulty of amending state constitutions the paper concludes that supermajority requirements have significantly reduced taxes

content based agendas and qualified majorities in sequential voting we analyze sequential binary voting schemes in settings where several privately informed agents have single peaked preferences over a finite set of alternatives and we focus on robust equilibria that do not depend on assumptions about the players beliefs about each other our main results identify two intuitive conditions on binary voting trees ensuring that sincere voting at each stage forms an ex post perfect equilibrium in particular we uncover a strong rationale for content based agendas if the outcome should not be sensitive to beliefs about others nor to the deployment of strategic skills the agenda needs to be built from the extremes to the middle so that more extreme alternatives are both more difficult to adopt and are put to vote before other more moderate options an important corollary is that under simple majority the equilibrium outcome of the incomplete information game is always the condorcet winner finally we aim to guide the practical design of schemes that are widely used by legislatures and committees and we illustrate our findings with several case studies

supermajority rule and the law of 1 n this paper investigates the impact of a supermajority rule on the law of 1 n which posits that a larger number of districts increases the size of government our analysis suggests that supermajority rule despite the claim that it restrains excessive spending increases the 1 n effect because qualified majorities require logrolling to attract additional members using data from us states from 1970 to 2007 we find that the adoption of a supermajority rule has a robust worsening effect on the fiscal commons problem identified by the law of 1 n

voting on majority rules political economy models usually take as given the rules which govern the political decision making with the simple majority rule being the most popular model in this paper we develop a simple yet powerful positive model where the majority rule governing future elections is itself chosen in an election we observe a large variety of majority rules governing elections in the real world on the one side referenda are usually decided by a simple majority at the other extreme many international organizations require unanimity in votes among the member states in the european union s council of ministers some proposals require only a simple majority some a supermajority of about 71 62 votes out of 87 and some require unanimous consent 1 explicit supermajorities 2 are required in most countries for a change of the constitution but in some u s states also for a tax raise even more important could be what we might call implicit supermajorities in parliamentary systems with a strong committee organization a legislative proposal usually needs the support of both the respective committee and the house in parliamentary systems with two chambers certain legislative proposals need the support of both chambers 3 previous rationalizations of qualified majority rules focus on the problem of condorcet cycles under simple majority rule in n dimensional elections and on commitment problems see our literature review below our model presents a new rationale for rules requiring qualified majorities in elections we analyse an overlapping generations model of voting on reform opportunities which we model as similar to investment projects at first there is a cost and then there are benefits since voters have a finite lifetime old voters will be less keen on reforms

scale and skill in active management abstract we empirically analyze the nature of returns to scale in active mutual fund management we find strong evidence of decreasing returns at the industry level as the size of the active mutual fund industry increases a fund s ability to outperform passive benchmarks declines at the fund level all methods considered indicate decreasing returns though estimates that avoid econometric biases are insignificant we also find that the active management industry has become more skilled over time this upward trend in skill coincides with industry growth which precludes the skill improvement from boosting fund performance finally we find that performance deteriorates over a typical fund s lifetime this result can also be explained by industry level decreasing returns to scale

supermajority rule the law of 1 n and government spending a synthesis i develop models in which a minimum winning coalition decides on the level of government spending where the coase theorem holds amongst members of the winning coalition an increase in the supermajority requirement has potentially conflicting effects on spending a higher requirement increases the tax price internalized by the minimum winning coalition but also increases the number of districts included in this coalition i develop separate models in which the spending in question consists of i a nonexcludable good ii a distributive consumption good iii infrastructure spending and iv a transfer payment a supermajority rule has no effect on spending for nonexcludable goods and ambiguous effects on spending for distributive projects and infrastructure spending an increased supermajority requirement does unambiguously reduce transfer spending i also relate the supermajority rule to the law of 1 n if the coase theorem holds and a minimum winning coalition forms an increase in the number of districts n has precisely the same effect on overall expenditure as a decrease in the supermajority requirement thus the ambiguous spending effects stemming from supermajority rule carry over into this version of the law of 1 n

a flow based explanation for return predictability this paper proposes and tests an investment ow based explanation for three empirical ndings on return predictability the persistence of mutual fund performance the smart

social security and the retirement decision the effect of social security and private pensions on individual retirement decisions is modeled relaxing in turn three commonly maintained assumptions perfect capital markets actuarial fairness and certain lifetimes which together imply that there is no effect in each case raising the contribution level can cause systematic changes of either sign in general in individual retirement decisions for social security the effects associated with forced saving and deviations from actuarial fairness probably tend to advance retirement but those effects that arise solely from the insurance aspect of social security and private pensions are ambiguous in sign owing to the presence of a substitution effect that tends to delay retirement because the insurance benefits can be fully realized only by working longer

party politics governors and economic policy in this article we evaluate the role of elections in governors state tax policy making does it matter for state taxes whether the governor is a democrat or republican and whether she is eligible for re election or faces a binding term limit using a regression discontinuity design and a panel of u s states we find that the manner in which governors of different parties implement different tax policies turns crucially on the incumbent s eligibility for re election re electable democratic governors increase income taxes relative to similarly situated republicans yielding divergence between party policy positions however governors facing a binding term limit exhibit the reverse policy difference resulting in a movement of policy back together

differential mortality and social security this paper studies the normative problem of redistribution between individuals who differ in their lifespans we discuss aspects related to the objective function and argue that aversion to multiperiod inequality should be taken into account then we study the properties of the social optimum both with full information and with asymmetric information we highlight the role of aversion to multiperiod inequality and show that it has substantial consequences on the design of social security schemes in particular we show that for a low resp high aversion to multiperiod inequality a negative resp positive implicit tax rate on continued activity is desirable

budget institutions and fiscal policy in the u s states this paper summarizes state balanced budget requirements and the available empirical evidence on the effect of these rules on state fiscal policies existing state rules differ from many current proposals at the federal level they are typically restricted to part of the state budget they frequently permit short term borrowing and they lack formal enforcement mechanisms the paper also surveys previous research on how anti deficit provisions affect state fiscal policy the available evidence indicates that stringent anti deficit provisions lead to more rapid adjustment of state taxes and expenditures when fiscal deficits emerge this suggests that changing the federal budget process has the potential to affect federal fiscal policy this abstract was borrowed from another version of this item

does direct democracy reduce the size of government new evidence from historical data 1890 2000 using historical data for all swiss cantons from 1890 to 2000 we estimate the causal effect of direct democracy on government spending the main innovation in this paper is that we use fixed effects to control for unobserved heterogeneity and instrumental variables to address the potential endogeneity of institutions we find that the budget referendum and lower costs to launch a voter initiative are effective tools in reducing canton level spending however we find no evidence that the budget referendum results in more decentralized government or a larger local government our instrumental variable estimates suggest that a mandatory budget referendum reduces the size of canton spending between 13 and 19 percent a 1 percent lower signature requirement for the initiative reduces canton spending by up to 2 percent

costly search and mutual fund flows this paper studies the flows of funds into and out of equity mutual funds consumers base their fund purchase decisions on prior performance information but do so asymmetrically investing disproportionately more in funds that performed very well the prior period search costs seem to be an important determinant of fund flows high performance appears to be most salient for funds that exert higher marketing effort as measured by higher fees flows are directly related to the size of the fund s complex as well as the current media attention received by the fund which lower consumers search costs

social security retirement age and optimal income taxation it is often argued that implicit taxation on continued activity of elderly workers is responsible for the widely observed trend towards early retirement in a world of laissez faire or of first best efficiency there would be no such implicit taxation the point of this paper is that when first best redistributive instruments are not available because some variables are not observable the optimal policy does imply a distortion of the retirement decision consequently the inducement of early retirement may be part of the optimal tax transfer policy we consider a model in which individuals differ in their productivity and their capacity to work long and choose both their weekly labor supply and their age of retirement we characterize the optimal non linear tax transfer that maximizes a utilitarian welfare function when weekly earnings and the length of active life are observable while individuals productivity and health status are not observable c 2003 elsevier b v all rights reserved

optimal fiscal limits with overrides abstract this paper studies optimal fiscal limits in the context of a simple political economy model a politician chooses the level of taxation for a representative citizen but is biased in favor of higher taxes a constitutional designer sets a tax limit before the citizen s preferred level of taxation is fully known the politician is allowed to override the limit with the citizen s approval the paper solves for the optimal limit and explains how it is impacted by the possibility of overrides the paper also shows that the citizen s welfare can be enhanced if the designer imposes a limit on the politician s override proposals

credibility and policy convergence in a two party system with rational voters the traditional approach to modeling political parties behavior based upon the contribution of anthony downs 1957 assumes that the parties unique objective is to win elections thus they maximize their popularity the crucial implication of this assumption for a two party system is that if the two parties have the same information about voters preferences full convergence of policies results from electoral competition this is the crucial implication of the median voter theorem more generally it may be argued that different parties are motivated differently because they represent different constituencies parties may not care only about winning elections per se but also about the quality of the policies resulting from an election in this case the candidates of the two parties view winning an election not only as a goal per se but also as a means of implementing a better policy for their respective constituencies this paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected but also about which policy to implement once elected the dynamic inconsistency arises as follows the parties have an incentive to announce convergent platforms to increase their chances of election however if the elected party is not committed to its electoral platform it has an incentive to follow its most preferred policy rather than the policy announced in its platform if voters are rational they account for this incentive thus in general in a one shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible the two parties follow their most preferred policies and the voters rationally expect this outcome full convergence of parties platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election thus these results differ from the existing literature on ideologically motivated politicians for instance donald wittman 1977 1983 randall calvert 1985 which implicitly assumes the possibility of binding commitments to electoral platforms complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game in fact if the candidates have concave objective functions the welfare maximizing policy rule implies a complete convergence of parties policies however this cooperative and agreed upon policy may or may not be sustainable as a subgame perfect equilibrium depending on parameter values in particular it depends on the discount rates of the two parties the degree of polarization of their preferences and the relative popu graduate school of industrial administration carnegie mellon university pittsburgh pa 15213 and national bureau of economic research cambridge ma 02138 this paper is based upon a chapter of my unpublished doctoral dissertation at harvard university i am greatly indebted to jeffrey sachs for directing my attention toward these issues and for many conversations i also wish to thank andrew abel dilip abreu olivier blanchard ramon caminal andrew caplin alex cukierman morris fiorina benjamin friedman herschel grossman howard rosenthal and the referees for very useful comments the responsibilitv af anv n mtnkieis af calrirp nfnlv mine the result of policy convergence in a two party system is more general than the median voter theorem for discussions of convergence results not at the median see john ledyard 1984 peter coughlin 1984 coughlin and shmuel nitzan 1981 melvin hinich 1977 for earlier work on spatial competition see richard mckelvey 1975 hinich ledyard and peter ordeshook 1972 1973 and the references quoted therein the present paper focuses on the result of convergence rather than on the median voter theorem per se

do political parties matter evidence from u s cities are cities as politically polarized as states and countries no is the answer from our regression discontinuity design analysis which shows that whether the mayor is a democrat or a republican does not affect the size of city government the allocation of local public spending or crime rates however there is a substantial incumbent effect for mayors we investigate three mechanisms that could account for the striking lack of partisan impact at the local level and find the most support for tiebout competition among localities within metropolitan areas

divided government fiscal institutions and budget deficits evidence from the states does partisan control of american state government have systematic effects on state spending and taxing levels does divided control affect the government s ability to make hard decisions do institutional rules like legal deficit carryover restrictions matter using a formal model of fiscal policy to guide empirical analysis of data covering the american states from 1968 to 1987 we conclude that 1 aggregate state budget totals are driven by different factors under democrats and republicans the net result being that democrats target spending and taxes to higher shares of state level personal income 2 divided government is less able to react to revenue shocks that lead to budget deficits particularly where different parties control each chamber of the legislature and 3 unified party governments with restricted ability to carry deficits into the next fiscal year outside the south have sharper reactions to negative revenue shocks than those without restrictions

fiscal news state budget rules and tax exempt bond yields abstract this paper investigates how state fiscal institutions such as balanced budget rules and restrictions on state debt issuance mediate the bond market reaction to state fiscal news we analyze data on the yields of bonds issued by different states as reported in the chubb relative value survey along with data on state budget forecasts for the period 1988 1998 we find that unexpected deficits are correlated with higher state bond yields this effect is smaller for states with tight antideficit rules than for states without these fiscal rules unexpected deficits have a particularly large effect in raising bond yields of states with tax limits these results suggest that bond market participants view fiscal institutions as relevant in assessing the risk characteristics of tax exempt bonds and that the economic significance of these institutions depends on the state s economic and fiscal circumstances

a downsian spatial model with party activism a unidimensional spatial model is proposed in this article although its formal structure parallels the spatial model of electoral competition this model examines the decisions of individuals as they choose whether or not to become activists in one of two political parties an individual calculus of participation is developed that is similar to the spatial interpretation of the calculus of voting this calculus is then generalized by examining conditions that may hold for aggregate activism probabilities and the relationship between the two forms is investigated some results are then presented which concern the distributions of activists in the two parties these results in general conform to the existence of party cleavages in which there are two stable equilibrium distributions of activists such that the two parties activists are relatively cohesive internally and relatively distinctive externally finally some suggestions are offered about how this model can be combined with the spatial model of candidate competition to provide a more complete model of elections

resource windfalls and public debt a political economy perspective abstract can natural resource windfalls increase public debt in democracies adopting a political economy perspective we show that the answer is in the affirmative resource windfalls increase both the government s income and wealth the former mitigates the need to borrow whereas the latter encourages further borrowing as it improves its terms implying an ambiguous pure effect of resource windfalls on debt re election considerations shorten political time horizons and give rise to political myopia we show that higher political myopia induced by more stringent institutional re election restrictions magnifies the wealth effect turning positive the effect of resource windfalls on debt we test the model s predictions using a panel of u s states over the period 1963 2007 our identification strategy rests on constitutionally entrenched differences in gubernatorial term limits that provide plausibly exogenous variation in re election prospects and geographically based cross state differences in natural endowments our baseline estimates indicate that a resource windfall of 1 induces an increase of approximately 20 in the public debt of states with more stringent re election restrictions

adverse selection in the annuity market and the role for social security i study the role of social security in providing insurance when there is adverse selection in the annuity market i calculate welfare gain from mandatory annuitization in the social security system relative to a laissez faire benchmark using a model in which individuals have private information about their mortality i estimate large heterogeneity in mortality using the health and retirement study despite that i find small welfare gain from mandatory annuitization social security has a large effect on annuity prices because it crowds out demand by high mortality individuals welfare gain would have been significantly larger in the absence of this effect

democrats republicans and taxes evidence that political parties matter i estimate the influence of political parties on state tax burdens over a forty year period 1960 2000 holding constant a large number of state and voter characteristic variables i find that i tax burdens are higher when democrats control the state legislature compared to when republicans are in control ii the political party of the governor has little effect after controlling for partisan influences in the state legislature i explain how both findings are consistent with median voter theory my results suggest that after five years of democratic control of the legislature state government would be approximately 3 to 5 percent larger than if republicans controlled the legislature during that same period with the better specifications producing estimates in the higher end of this range

why does the law of one price fail an experiment on index mutual funds we conduct an experiment to evaluate why individuals invest in high fee index funds in our experiments subjects allocate 10 000 across four s p 500 index funds and are rewarded for their portfolio s subsequent return subjects overwhelmingly fail to minimize fees we can reject the hypothesis that subjects buy high fee index funds because of bundled non portfolio services search costs for fees matter but even when we eliminate these costs fees are not minimized instead subjects place high weight on annualized returns since inception fees paid decrease with financial literacy interestingly subjects who choose high fee funds sense they are making a mistake

the limits of tax and expenditure limits tel implementation as a principal agent problem previous scholarship has shown that tax and expenditure limits tels often fail to constrain government growth this paper views the implementation of tels as a principal agent problem agency theory predicts that delegation is affected by the preferences of agents and the costs of monitoring those agents using panel data for the us states from 1970 through 2008 i conduct an empirical test of the validity of the principal agent model for tels i find that state spending limitations are only effective at cutting the growth of state and local spending under the direction of agents who have a preference for limited government additionally state property tax limitations are only effective when monitoring does not require costly coordinated action these findings contradict an alternative theory of tel implementation that looks towards the policy s origin my research suggests that the arrangements of delegation determine when and under what conditions tels effectively reduce government growth

dynamic pivotal politics we analyze a dynamic extension of a parsimonious model of lawmaking in which preferences evolve over time and today s policy becomes tomorrow s status quo unlike in existing models of pivotal politics policy makers voting behavior depends on the institutional environment and on their expectations about future economic and political shocks relative to sincere voting the equilibrium behavior exhibits a strategic polarization effect which increases with the degree of consensus required by the institution the volatility of the policy environment and the expected ideological polarization of the future policy makers the equilibrium behavior also exhibits a strategic policy bias which works against any exogenous policy bias embedded in the voting rule our analysis implies that the existing literature underestimates the inertial effect of checks and balances and overestimates the impact of institutional biases such as fiscally conservative budget procedures

optimal pension systems with simple instruments we analyze optimal pension systems relying on simple policy instruments in a lifecycle environment which admits endogenous decisions of how much to work as well as when to retire the optimality in this context means the highest welfare that can be achieved within a restricted set of instruments while keeping the total cost of the pension system unchanged the policy instruments we consider are the optimized retirement benefit functions modeled after a stylized version of the current us social security

prevention against equality common sense supports prevention policies aimed at improving survival prospects among the population it is also widely acknowledged that an early death is a serious disadvantage and that attention should be paid to the compensation of short lived individuals this paper re examines the compatibility of those two concerns prevention against early death and compensation for early death we show that under mild conditions no social ordering on allocations can satisfy a concern for prevention and a concern for compensation the reason is that if it is socially desirable to raise the number of survivors through prevention it must also be under costly prevention desirable to deteriorate the living standards of the short lived we then explore two approaches to the prevention compensation dilemma and study the associated optimal allocation of resources

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

public spending and the paradox of supermajority rule this article examines the paradox that a supermajority rule in a legislature promotes excessive government spending we propose a simple conjecture if rent seeking coalitions dominate legislative politics and if individual legislators demands for rent seeking activities are price inelastic a change of legislative rules from simple majority to a supermajority will lead to greater public spending other things equal using data from u s state legislatures 1970 to 2007 we find that the adoption of a supermajority rule has a robust positive impact on various types of tax revenues and government expenditures

social security liquidity and early retirement abstract this paper investigates the effect of social security on retirement decisions it argues that it is important to take realistic account of how recipients evaluate potential benefit flows the paper presents a simple retirement model in which liquidity constraints prompt individuals to use higher than market discount rates in evaluating future pension benefits as a consequence even an apparently actuarially fair early retirement benefit could on average discourage continued work using data on individual retirement decisions i find support for the argument that this phenomenon contributes to some of the observed increase in early retirement

reforming our pension system is it a demographic financial or political problem we argue that economic and demographic factors play a relatively small role in the old age crisis political factors are far more important a benevolent social planner can address the problems raised by population ageing and declining productivity growth however in reality social security systems are established and reformed through the political process majority voting and lobbying consequently the outcome is likely not to be socially optimal majority voting typically results in overspending on social security but also in rapidly phasing it out in case of unexpected shocks then the entrenched interests of retirees that oppose drastic cuts in benefits can be socially desirable

salience and mutual fund investor demand for idiosyncratic volatility we find that mutual fund investors are more likely to both purchase and redeem funds with high idiosyncratic volatility iv investors tendency to purchase high iv funds is largely driven by high

legislative term limits and state spending supporters of legislative term limits often claim that they will lower state spending levels using fiscal data from 48 states from 1977 to 2001 this paper finds little support for this assertion instead this analysis finds that states with term limits have higher spending levels than states without term limits these results suggest that term limits give legislators greater incentives to deviate from socially optimal fiscal policy by altering the legislative environment in which such policy is formulated

ideology and the size of us state government this paper theorizes that the impact of ideology on the size of us state governments increases with state income this idea is tested using state level ideology data derived from the voting behavior of state congressional representatives empirically the interaction of ideology and mean income is a key determinant of state government size at 1960s levels of income the impact of ideology is negligible at 1997 levels of income a one standard deviation move towards the left of the ideology spectrum increases state government size by about half a standard deviation estimated income elasticities differentiated by state and time are found to be increasing with ideology and diminishing with income as predicted by the theory

a critique of tiebout s theory of local public expenditures the last section of this paper presents a rigorous version of tiebout s theory of local public goods it is shown that equilibria exist and are pareto optimal this rigorous theory follows closely the more rigorous part of tiebout s work this rigorous theory makes a number of very special assumptions which make local public goods essentially private the body of this paper presents a series of examples which show that if one tries to generalize the rigorous version of tiebout s theory in a number of interesting directions then equilibria may no longer exist or may not be pareto optimal the conclusion is that tiebout s idea does not lead to a satisfactory general theory of local public goods the goal of this paper is to point out that tiebout s notion of equilibrium with local governments does not have the nice properties of general competitive equilibrium except under very restrictive assumptions tiebout 39 suggested that there are competitive forces which tend to make local governments allocate resources in a pareto optimal fashion consumers choose to live in those towns with the mix of taxes and public goods they prefer local governments choose this mix so as to attract inhabitants this idea may seem intriguing for it suggests that the invisible hand solves an important part of samuelson s perplexing public goods problem 32 tiebout in fact makes an argument which is nearly rigorous i give a rigorous version of his argument at the end of the paper however in this rigorous version so many restrictive assumptions are made that public goods become essentially private in the body of the paper i give a series of examples with which i try to convince the reader that one is forced to adopt tiebout s restrictive assumptions the idea is that if one changes any of his assumptions then either equilibria may not exist or may not be pareto optimal my examples are presented in the context of a general class of tiebout models i consider several subclasses one of which is the special case considered by tiebout in each of the subclasses except that considered by tiebout i give a counterexample either to the existence of equilibrium or to its pareto optimality the subclasses are so chosen that the difficulties they reveal would be shared by any reasonable tiebout model which differed from his special case i believe that my examples controvert tiebout s suggestion 39 last paragraph that his theory compares favorably with competitive equilibrium theory most of the examples in this paper have already appeared in the literature i cite related work as i go along what is new here is that i assemble the examples in a unified argument

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

multiyear budgets and fiscal performance panel data evidence abstract in the last two decades more than 120 countries have adopted a multiyear budget process medium term framework or mtf that enables the central government to set multiyear fiscal targets this paper analyzes a newly collected dataset of worldwide mtf adoptions during 1990 2008 it exploits within country variation in adoption in a dynamic panel framework to estimate mtfs impacts on aggregate as well as sectoral measures of fiscal performance we find that on average multiyear budgeting improves budget balance by about 2 percentage points with more advanced mtf phases having a larger impact higher phase mtfs also reduce health spending volatility while only the top phase mtf has a measurable impact on health sector technical efficiency

fair retirement under risky lifetime a premature death unexpectedly brings a life and a career to their end leading to substantial welfare losses we study the retirement decision in an economy with risky lifetime and compare the laissez faire with egalitarian social optima we consider two social objectives 1 the maximin on expected lifetime welfare allowing for a compensation for unequal life expectancies and 2 the maximin on realized lifetime welfare allowing for a compensation for unequal lifetimes the latter optimum involves in general decreasing lifetime consumption profiles as well as raising the retirement age this result is robust to the introduction of unequal life expectancies and unequal productivities

supermajority rule and bicameral bargaining this paper revisits the claim that supermajority rules and bicameral legislative structures restrain excessive government spending and taxation our analysis suggests that the extension effect of a supermajority rule that requires logrolling across additional members increases with the ratio of seats in the house relative to seats in the senate using a panel of us states 1970 2008 we find that the ratio of house to senate seats has a robust positive impact on the tendency of a supermajority rule to inflate the budget our finding implies that a supermajority rule can have a perverse effect on budget outcomes in bicameral legislatures owing to two factors the geographic overlap between chambers and the low price elasticity of demand for public goods

assessing risky social situations this paper reexamines the welfare economics of risk it singles out a class of criteria the expected equally distributed equivalent as the unique class that avoids serious drawbacks of existing approaches such criteria behave like ex post criteria when the final statistical distribution of well being is known ex ante and like ex ante criteria when risk generates no inequality the paper also provides a new result on the tension between inequality aversion and respect of individual ex ante preferences in the vein of harsanyi s aggregation theorem

voting as a lottery supermajorities have their advantage as well as their disadvantage they provide an hedge against being in the minority but they make being in the majority less likely we characterize this trade oand compute the most preferred majority threshold the relevant parameters are voting power risk aversion and pessimism people who feel powerful prefer low thresholds high thresholds are preferred by risk averters or by those who are pessimistic about being in the majority further we study constitutional agreements on the voting rule members of the constituent assembly are heterogeneous in the parameters above we show that weak and minority members succeed in pushing forward on high and protective rules

the economic case for limits to government in june of 1978 the voters of california approved proposition 13 restricting the rate of local property taxation to no more than 1 percent of 1975 market values in november 1978 the voters of michigan approved the headlee amendment which limited state revenues from own sources to a fixed share of state personal income in november of 1980 massachusetts voters followed the lead of california and required all cities and towns to limit their taxation to a rate of 22 percent of full and fair cash value numerous hypotheses have been advanced and analyzed to explain the emergence of these new restrictions on fiscal choice the results point to two explanations voters feel governments are too big providing more services than what they prefer or governments spend too much on redistributive activities to help the poor and through higher wages to help public employees themselves the response to this perceived failure of government has been to propose and in california michigan and massachusetts to approve absolute limits to government expenditures the question i wish to address here is whether a compelling economic argument can be advanced for such a policy response politics and personalities aside the answer i think is yes but particular preconditions must apply first and perhaps most importantly is the inability of citizens to directly control the provision of public services responsibility for providing public goods is delegated to agents of the voter and these agents be they bureaucrats or elected representatives have their own objectives and an ability to act upon them to the possible disadvantage of the voters second without direct control over public outputs voters must use indirect controls through the manipulation of their appointed agents these indirect controls take two general forms price incentives or quantity restrictions third the choice of either of these indirect controls must take place before the agent acts to provide public goods further voters must often make their choice of a price or quantity control before the benefits or costs of the public service are known to them with certainty agents however can wait to observe true benefits and coststhat is why we use agents and then provide a level of public services in response to costs benefits and the voters chosen control voter uncertainty over benefits and costs can be interpreted as placing the voter within a constitutional perspective where a voter s precise position in society that is his or her benefits and costs are unknown when choosing a control geoffrey brennan and james buchanan ch 1 were the first to really stress this important point fourth if benefit and cost uncertainty is predominantly over the position rather than slope of the marginal benefit and marginal cost schedules and if the marginal benefit schedule is relatively steep loosely an inelastic demand curve while the marginal cost schedule is relatively flat an elastic supply curve then quantity controls on agents behavior through tax or spending limitations will be the preferred control these four preconditions strike me as quite plausible rather than just an emotional reaction to a peculiar configuration of political and economic circumstances proposition 13 the headlee amendment and proposition 24 may be perfectly reasoned responses to a failure in the politi professor university of pennsylvania and research associate the national bureau of economic research inc an alternative hypothesis which has been tested and generally rejected attributes voter approval to a desire to alter the tax mix away from property taxation and towards other taxes what approving voters really want it seems is increased government efficiency and less redistribution see the recent studies by jack citrin paul courant edward gramlich and daniel rubinfeld and helen ladd and julie wilson

redistribution and the new fiscal sociology race and the progressivity of state and local taxes states redistribute wealth through two mechanisms spending and taxation yet studies of the social determinants of redistribution typically focus exclusively on government spending this article explores how one determinant of social spending racial composition influences preferences for and the structure of tax systems first analyses of state and local tax burden data indicate that an increasing proportion of latinos within states is associated with more regressive tax systems second evidence from a nationally representative survey experiment suggests that individual preferences for taxation may be influenced by changes in the racial composition of communities finally analyses reveal that in group solidarity is a key mechanism through which racial threat shapes preferences for taxation in demonstrating a relationship between racial change tax preferences and tax structures this article contributes to our understanding of the determinants of redistribution as well as the broader project of th

do supermajority rules limit or enhance majority tyranny evidence from the us states 1960 1997 buchanan and tullock 1962 demonstrates that supermajority rules can reduce tyranny of majority problems in a democracy however recent theoretical work by dixit grossman and gul 2000 postulates that this static analysis of supermajority rules may be inadequate to explain political decisions in a dynamic setting in fact supermajority rules may increase the incidence of majority tyranny because of rotating political representation using data from us state legislatures we examine the effect of supermajority rules on different categories of government expenditures and tax revenues during the latter half of the 20th century we find supermajority rules have little effect on general government expenditures and tax revenues however supermajority rules are associated with lower public welfare transfers which supports the traditional analysis of the fiscal effects of supermajority rules