inequality and the dynamics of public opinion the self reinforcing link between economic inequality and mass preferences this article assesses the influence of income inequality on the public s policy mood recent work has produced divergent perspectives on the relationship between inequality public opinion and government redistribution one group of scholars suggests that unequal representation of different income groups reproduces inequality as politicians respond to the preferences of the rich another group of scholars pays relatively little attention to distributional outcomes but shows that government is generally just as responsive to the poor as to the rich utilizing theoretical insights from comparative political economy and time series data from 1952 to 2006 supplemented with cross sectional analysis where appropriate we show that economic inequality is in fact self reinforcing but that this is fully consistent with the idea that government tends to respond equally to rich and poor in its policy enactments

why are taxes so high in egalitarian societies in an analysis of the relative income or relative consumption hypothesis it is shown that if the ratio of agent i s consumption to agent j s consumption enters into the utility function a tax on labor income may increase welfare for all agents if pretax wage inequality is low all agents will unanimously be in favor of such a tax thus there will be a tendency for taxes to be high in societies where pretax wage inequality is low copyright 1995 by the editors of the scandinavian journal of economics

the power of parties evidence from close municipal elections in norway we show that small shifts in representation can affect policy in proportional election systems using data from norway we find that a larger left wing party leads to more property taxation higher child care spending and less elderly care spending while local public goods appear to be a non partisan issue these effects are partly due to shifts in bloc majorities and partly due to changes in the left right position of the council keeping the majority constant the estimates on spending allocations are rather imprecise but they are consistent with evidence on politicians fiscal preferences and patterns in media attention this article is protected by copyright all rights reserved

redistributional aspects of tax evasion most empirical studies of income distribution use official tax data based on reported income in the presence of tax evasion or a large irregular economy such data give an incorrect picture of the actual income distribution in this paper a model of tax evasion originally due to allingham and sandmo 1972 is developed to analyze the relation between the actual and the officially reported income distribution it is shown that within the framework of this model the distribution of total income which also takes income from the hidden sector into account is generally more uneven than the distribution of officially reported disposable income it is also concluded that in the presence of tax evasion government policy aimed at reducing the degree of inequality can sometimes be counterproductive policy measures which seem egalitarian in the sense that they make the distribution of officially reported disposable income more even might very well make total income less evenly distributed

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

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

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

nash equilibria in models of fiscal competition abstract this paper analyzes nash equilibria in a simple model of an economy with jurisdictions engaging in fiscal competition small number nash equilibria in which tax rates are the strategic variables are shown not to coincide with nash equilibria in which public expenditure levels are the strategic variables

do external grants to district governments discourage own revenue generation a look at local public finance dynamics in ghana summary using rich panel data on all of ghana s districts local public finances over 11 years this paper investigates the way that intergovernmental and other transfers to local governments affect local governments incentives to collect internally generated revenues and funds igf we find that despite an incentive scheme built into one of the major intergovernmental grants the flow of all grants taken together discourages rather than encourages igf this is reflected both in the depressing effect of transfers on igf levels as well as on igf growth

tax policy and aggregate demand management under catching up with the joneses this paper examines the role for tax policies in productivity shock driven economies with catching up with the joneses utility functions the optimal tax policy is shown to affect the economy countercyclically via procyclical taxes i e cooling down the economy with higher taxes when it is overheating in booms and stimulating the economy with lower taxes in recessions to keep consumption up thus models with catching up with the joneses utility functions call for traditional keynesian demand management policies but for rather unorthodox reasons

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

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

altruism jealousy and the theory of optimal non linear taxation abstract this paper studies optimal non linear taxes in a world in which there is altruism and jealousy a formula for optimal marginal tax rates is derived which turns out to be a simple and intuitively appealing extension of a result due to mirrlees the paper shows that in this sort of economy all of optimal tax theory s general results either no longer hold or need not hold and it sets out appropriate modifications to standard tax rules

inequality redistribution and growth a challenge to the conventional political economy approach abstract this paper reconsiders the conventional political economy view that 1 1 more unequal societies tend to make more redistribution and 2 2 more redistribution is harmful to growth we present a number of theoretical arguments suggesting that the two previous implications are not necessarily true and that the empirically observed negative correlation between inequality and growth might just come from the fact that more unequal societies tend to redistribute less which in turn is actually detrimental to growth

community composition and voter support for tax limitations evidence from home rule elections complaints about high taxes have stimulated taxpayer demands for explicit statutory or constitutional constraints on the taxing and spending powers of state and local governments although fiscal controls have long been a part of our system of government in the united states the recent tax revolt movement commonly is thought to have its roots in the late 1970s with the approval of proposition 13 in california voter discontent has produced a large number of new controls enacted during the last two decades why do voters need to impose explicit tax and expenditure constraints on the actions of their elected officials a major objective of this paper is to evaluate in a new setting the rationale for the existence of tax limitations direct evidence regarding the determinants of voter support for fiscal limitations is sparse despite the persistent clamoring for additional fiscal controls there have been few empirical studies that address the question of why voters desire tax and spend limits most of the existing studies were conducted over a decade ago citrin 6 courant gramlich and rubinfeld 8 and ladd and wilson 23 examined micro based survey data to identify factors that led taxpayers to support state imposed limitations on local governments although these three studies analyzed survey responses about tax limitation efforts in different states the common findings indicate that support for the constraints comes from individuals who want reduced taxes but prefer the existing level of spending the responses suggest that limitation supporters either are seeking increased municipal efficiency or as suggested by courant et al are suffering from free lunch illusion

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

interpreting income distributions in a welfare state the case of sweden abstract it is shown in this paper that the distribution of purchasing power and hence probably also economic well being in a welfare state like sweden is not tightly connected with the contribution of households in the production system moreover economic inequality is drastically exaggerated when income statistics are not adjusted for differences in working time and in the time profile of income over life however it is also shown that some important inequalities are not removed even by the very ambitious tax and welfare state system in sweden and that some new inequalities are in fact introduced the paper also tries to highlight the wide wedges which in an advanced welfare state are necessarily driven between factor costs for firms and factor rewards for households all this holds in particular for annual income

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

the effect of welfare and wage levels on the location decisions of female headed households abstract this paper develops and estimates a model designed to calculate the impact of welfare benefit levels wages and tax rates on the location choices of female headed households the empirical model assumes that women simultaneously choose both where they will live and whether or not they will participate in the welfare system based on their expected income and expected hours of work for each location participation possibility these income and hours expectations depend in turn on the welfare benefits wage and tax rates facing each household in each location it is found that both regional welfare levels and wage rates have a significant effect on the location decisions of this population the probability of a typical female headed household with little outside income leaving an area with low welfare payments and low wages can be as much as 12 points higher over a 4 year period than the probability of leaving a high welfare high wage area

optimal income tax in the presence of status effects abstract the existence of distortions from individuals competing to attain social status by using consumption signals justifies some measure of income tax as a counter acting distortion the question posed here is whether it also constitutes a reason for a more progressive income tax schedule the answer is found to be broadly negative if progressiveness is interpreted as a more convex tax schedule unless the rich are more concerned with status seeking than the poor on the other hand status seeking makes the optimal tax schedule steeper so that redistribution is increased essentially the analysis of status seeking based on a signaling approach confirms and strengthens the existing view of an optimal tax schedule and can be incorporated into the diamond american economic review 88 1998 83 95 approach

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

do states play welfare games abstract this paper uses a panel of state level annual data from 1983 to 1994 for each of the contiguous united states and the district of columbia to explore the degree to which states simultaneously set welfare benefits using instrumental variables estimation we find substantial empirical evidence that is supportive of the notion of welfare competition furthermore we find that state responses to neighbor benefit decreases tend to be significantly larger in magnitude as their responses to neighbor benefit increases our results therefore have potential implications for public policy in the wake of the increased decentralization of welfare policy associated with the welfare reform of 1996

social comparisons in oligopsony abstract a large body of evidence suggests that social comparisons matter for workers valuation of the wage they receive the consequences of social comparisons in imperfectly competitive labor markets are less well understood we analyze an oligopsonistic model of the labor market where workers derive dis utility from comparing their own wage with wages paid at other firms as social comparisons become more prevalent all workers are paid higher wages the wage distribution becomes more equal and employment shifts to high productivity firms moreover the total wage bill and output increase while aggregate profits decline overall welfare rises our theoretical results have implications for estimating the elasticity of the labor supply curve facing a firm

the efficient side of progressive income taxation abstract this paper examines allocative properties of progressive income taxation when individuals care about their relative income it shows that introducing a progressive income tax can yield a pareto improvement if pre tax income is evenly distributed implementing undistorted choices of working hours requires a progressive tax schedule and the optimal degree of progressivity decreases with pre tax income inequality

inequality segregation and redistribution abstract mainstream economic theory predicts that countries with large inequalities in pre tax income distribution will be more redistributive than countries which are more equal in this respect empirical studies however offer no strong support for this theoretical prediction in fact a number of studies indicate that the opposite may be true namely that countries which are more equal in terms of pre tax income distribution are more redistributive than less egalitarian societies the present paper offers an explanation to this puzzle in a model of endogenous choice of location and endogenous aversion against inequality we argue that large pre tax differences in income may lead to a residential segregation of rich and poor such segregation may reduce the social attachment between groups in society and reduce the willingness of the rich to make transfers to the poor conversely societies with small pre tax differences in income may be characterized by larger transfers and a less segregated population structure

the distributional effects of new jersey s tax and expenditure limitation when state governments issue general rules that dictate the spending or tax policies of varied local municipalities they distort local government outcomes one example of this is state limitations on local government authority to levy taxes and make expenditures although state imposed tax and expenditure limits tels have been used throughout much of the united states s history they have recently stimulated attention in both the mass media and the academic press in practice tels can be divided into limitations on the authority of local governments to 1 make expenditures and 2 collect property taxes according to a 1981 tabulation of the advisory commission on intergovernmental relations acir reprinted in gold 1983 p 112 46 states had some kind of limitation on local county municipal or school governments ability to collect property taxes and 6 states imposed general expenditure limitations on local governments many of these controls are quite recent in origin in fact all but 18 of the 46 states with property tax limits enacted them after 1970 though some may have had earlier laws restricting the use of the property tax and all of the general expenditure limits were enacted after 1970 a particularly rapid wave of tels followed california s approval of proposition 13 which reduced property taxes there to one percent of assessed value in june 1978 in november 1978 just five months after proposition 13 was approved voters in alabama michigan nevada and texas approved legislation or constitutional amendments that reduced the authority of local governments to raise taxes 2 while many tels set maximum property tax rates and expenditure limits that do not appea to have much effect on the behavior of l cal governments others such as those in california massachusetts and new jersey do a pear to be binding on many localities several r cent studies have attempted to empirically measure the effects of tels 3 the most well known of these studies is a 1977 acir study that used a dummy variable indicating the pres nce or absence of property tax rate and or levy limits along with other independent variables to explain total per capita local own source government expenditures in each of the 50 states primarily because the estimated parameters of these dummy variables were negative and significantly different from zero the acir concluded that tels have reduced government spending further analyses showed the average tel reduced spending 6 to 8 percent inman s 1979b paper which used fiscal year 1966 67 data also employed dummy variables to indicate the presence or absence of various kinds of tax rate limits but used data disaggregated at the city level inman found a positive and insignificant coefficient on all dummy variables and concluded that efforts to regulate local taxation in 1967 through

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

local choice of property taxation evidence from norway fiscal competition may influence the design of tax systems the tax competition literature has concentrated on mobility of tax base and tax levels while we turn the attention to the political decision making system and the determination of tax structure in the norwegian setting local governments make a discrete choice whether to have property tax the local choice is investigated in an econometric model allowing for yardstick competition our results indicate that yardstick competition explains the distinct geographic pattern in local property taxation observed grants have no effect on the propensity to have property taxation consistent with the flypaper effect the main methodological challenge handled concerns spatial interaction with discrete choice

comment lucas on involuntary unemployment keynes distinguishes three concepts voluntary frictional and keynesian involuntary unemployment frictional unemployment is a classical form of involuntary unemployment not voluntary as lucas suggests and reflects the marshallian rather than walrasian treatment of time and equilibrium lucas contradicts both keynes and pigou in asserting that there are always immediate vacancies for unskilled labour and abstracts from the very problem that keynes seeks to address if voluntary unemployment is re defined appropriately as de vroey helpfully suggests elsewhere the prefix involuntary is dispensable not because all unemployment is voluntary as lucas would have it but because it is all involuntary copyright 2006 oxford university press

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

lucas on involuntary unemployment the aim of this paper is to examine critically lucas arguments against keynes s general theory and in particular against keynes s concept of involuntary unemployment it comprises two main parts in the first i question lucas s claim that keynes betrayed the equilibrium discipline by freeing himself from the postulates of optimising behaviour and market clearing in the second i discuss lucas three arguments against the involuntary unemployment concept first that there is no rationale for drawing a distinction between two sorts of unemployment second that every economic outcome features voluntarity and involuntarity jointly and third that alternatives to unemployment are always present

interdependent behavior and the effect of taxes abstract the paper studies the effect of taxes on labor supply in a model with interdependent behavior i e individuals preferences depend on other people s behavior it is found that not taking the interdependency into account can lead to a serious bias in the predicted effects of a tax change it is also shown that interdependent behavior can give rise to spikes in the hours distribution such spikes often have been attributed to quantity constraints

redistributive public employment abstract politicians may use disguised redistributive policies in order to circumvent opposition to explicit tax transfer schemes first we present a theoretical model that formalizes this hypothesis next we provide evidence consistent with the prediction of the model namely that in u s cities politicians use public employment as such a redistributive device we find that city employment is significantly higher in cities where income inequality and ethnic fragmentation are higher

voting for income immiserizing redistribution in the meltzer richard model this paper argues that income received via redistributive transfers unlike labor income requires no direct sacrifice of leisure this makes it attractive to many voters even if it leaves them poorer this point is made within the classic meltzer and richard 1981 model wherein heterogeneous voters evaluate an income redistribution program that finances a lump sum transfer to all via a distorting income tax the politicalequilibrium policy under majority rule is the tax most preferred utility wise by the median voter she and many poorer voters may support income redistribution that ironically leaves them poorer in income terms but with higher utility jel h2 e6 d

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

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

popular support for progressive taxation and the relative income hypothesis abstract we show that a marginal rate progressive tax always defeats a marginal rate regressive tax under pairwise majority voting so long as the latter collects at least as much revenue as the former one irrespective of whether the voters care at all about their relative incomes or not

the spillover effects of biofuel policy on participation in the conservation reserve program abstract this paper studies the spillover effects of rising biofuel production on participation in the conservation reserve program landowner participation decisions are modeled using a real options framework we develop a land use decision model that captures biofuel driven structural changes in market demand and derive threshold conditions that trigger participation in the program we then quantify the impacts of biofuel production on participation at both the national and state levels using monte carlo simulations the model is also used to analyze how changes in the persistence of the biofuel production boom and in the volatility of farming returns affect conservation participation decisions policy implications of the results are discussed

tax arbitrage and labor supply we examine how tax avoidance in the form of trade in well functioning asset markets affects the basic labor supply model we show that tax arbitrage has dramatic implications for positive normative and econometric analysis of how taxes affect work incentives

federal deductibility and local property tax rates abstract recent econometric work has suggested that federal deductibility of state and local taxes has raised the proportion of these taxes especially property taxes in local budgets this paper lends additional support to these earlier findings by showing that one channel through which deductibility leads to higher local property tax revenues is by increasing the rate of local property taxation specifically we find that if deductibility were eliminated the mean property tax rate in our sample would fall by 0 00715 7 15 per 1000 of assessed property or 21 1 of the mean tax rate

the composition of government expenditure economic conditions and preferences i introduction there are substantial variations among countries in their tax and expenditure policies even among developed democracies sharing similar economic and political regimes as discussed by tanzi 2000 and alesina and glaeser 2004 this study examines the question of why expenditure patterns differ among democratic countries using a sample of countries with a high democracy index section ii presents empirical evidence showing that the united states has a low ratio of expenditure on transfer payments to that on public goods despite its high income inequality scandinavian countries typically combine low inequality and much higher expenditure on transfer payments relative to public goods british commonwealth countries have higher income inequality than scandinavian countries and yet a lower ratio of transfer payments to public goods expenditure these findings seem inconsistent with the prediction of a large theoretical literature more basic income inequality leads to a larger extent of redistributive expenditure 1 however the observed partial relationship between the expenditure composition and income inequality is possibly obscured by many other factors reflecting differences in economic and demographic conditions or cultural differences across countries see lind 2005 and alesina and glaeser 2004 in order to attempt to understand the way in which cultural factors and economic conditions may combine to influence the composition of expenditure this paper examines the division of expenditure between public goods and a transfer payment under majority voting in the context of an overlapping generations model by taking a growth context and focusing on the expenditure composition for a given tax rate the model allows for a range of factors which may contribute to cross country variations in expenditure compositions such as income and population growth rates and the discount factor in particular cultural factors are captured by a parameter in the utility function reflecting individuals preference for public goods relative to private goods consumption direct independent evidence regarding preferences for public goods is extremely difficult to obtain in view of well known problems of preference revelation mechanisms a wide range of studies however take such differences as their starting point see for example haufler 1996 the transfer payment in the model is referred to as a pension as it is received in the second period of life 2 however it may be thought of more broadly as a standard type of income transfer as it involves in the present overlapping generations framework a decision regarding income shifting between periods within the life cycle as well as intra and intergenerational redistribution members of each cohort are considered to vote on their desired pension during the retirement period on the understanding that during the working period each cohort finances the expenditure previously agreed by the preceding cohort and voters are aware of the nature of the government budget constraint therefore there is a social contract in which each generation in the retirement period is able to benefit from the income and population growth of the following generation the condition under which the social contract is supported by a majority of the members of any cohort involves extending the condition obtained by aaron 1966 and samuelson 1958 the model yields a closed form solution for the majority choice of the expenditure ratio defined as the ratio of transfer payments to public goods expenditure consistent with previous theoretical literature the model predicts a positive relationship between income inequality and the expenditure ratio a numerical exercise is then implemented to examine the sensitivity of the expenditure ratio to variations in model primitives where baseline parameter values are calibrated to the dataset for a group of democratic countries

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

decentralized welfare will there be underprovision abstract this paper develops an asymmetric nash equilibrium model of welfare provision by states when the benefit payment is a local public good and a fixed population of welfare recipients distributes itself between states with logistic migration function the model shows that state size is an important demand shifter across states because it alters the supply elasticity of recipients the model provides estimates of how the degree of benefit under provision varies with this migration elasticity other demand instruments such as taxpayer resources and generosity likewise generate positive correlation between benefits and recipients while supply shifters generate negative correlation between benefits and recipients the model s predictions are closely matched empirically when examining the reduced form impact of these instruments on the pattern of welfare benefits and recipients across states using these impacts to assign the instruments to either supply or demand sides of the model it is possible to estimate the model s structural elasticities these turn out to be high enough so that simulated solutions to the model generate considerable welfare underprovision and thus raise concern about a race to the bottom with decentralized control over afdc

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

profit sharing and relative consumption mandatory profit sharing can represent a pareto improvement if labour supply is excessive due to relative consumption effects profit sharing reduces wages if the rise in profit income keeps total income constant there will only be a pareto improving substitution effect

relative consumption and tax evasion abstract relative consumption effects or status concerns that feature jealousy in the sense of dupor and liu 2003 boost consumption expenditure if consumption is financed by labour income such status considerations increase labour supply and hence the tax base a higher taxable income in turn can make tax evasion more attractive we show for various specifications of preferences that the tax base effect generally dominates consequently relative consumption effects tend to reduce tax evasion this is true irrespective of whether tax parameters are exogenous guarantee a balanced budget or are set optimally

can fiscal rules constrain the size of government an analysis of the crown jewel of tax and expenditure limitations abstract fiscal rules attempt to alter budget outcomes by constraining policy makers they have been one of the primary responses to the recent string of fiscal crises around the globe we ask if these rules succeed in altering fiscal outcomes by examining what is arguably the most stringent set of fiscal rules in the u s colorado s taxpayer bill of rights tabor as tabor attempts to constrain both taxes and expenditures we develop a novel approach of estimating treatment effects for multiple outcomes simultaneously using the synthetic control methodology of abadie et al 2010 although there will always be a degree of uncertainty over external validity when a policy is enacted in only a single state our results provide no evidence that tabor affected the level of taxes or spending in colorado and are precise enough to rule out large negative effects thus no support is found for the contention that fiscal rules alter budget outcomes instead tabor appears to have been partly evaded by policy makers and voters despite its stringency and partly nothing more than a ratification of the state s preference over the size of its public sector

a shared sense of responsibility money versus effort contributions in the voluntary provision of public goods a frequently cited argument against the use of market based instruments to provide public goods is that they diminish our sense of responsibility to be good citizens in this paper we report on the results of a laboratory experiment designed to explore the idea that this distrust stems from the ability of some members of society to contribute to the public good with money instead of time or effort even when the level of total contributions is held constant in our experiments subjects complete lab tasks as a contribution to a public good carbon emission reductions we look at how the number of lab tasks completed by subjects changes when their peers take advantage of an offer to buy out i e contribute money in lieu of effort we find that on average subjects reduce the number of completed tasks when their peers buy out however the aggregate result masks significant heterogeneity across individual responses those who choose not to buy out despite its expected profitability have no response to the treatment while those for whom it would not be profitable to buy out register large reductions in effort contributions the magnitude of these responses is increasing in the share of the group that accepts the buyout offer suggesting that it is the act of peers buying out rather than the simple introduction of monetary incentives that is the source of the effect

property taxation as incentive for cost control empirical evidence for utility services in norway recent theoretical research suggests that property taxation has incentive effects that can help control cost problems in the public sector the institutional setting in norway allows this first empirical investigation of the incentive effect of property taxation since we can separate between local governments with and without property tax the raw data of the variation in the unit cost level for utilities show that local governments with property tax have about 20 lower unit cost using both linear regression and propensity score matching we are not able to wash out the difference in unit costs our interpretation is that having a visible and controversial local tax related to property stimulates voter interest in local government activities and thereby may help cost control the incentive effect is of interest for the design of fiscal federalism

tax and expenditure limitations and the fiscal relationships between state and local governments this paper uses comprehensive data on state and local tax and spending limitations for forty nine states between 1976 and 1990 to estimate the effects of these limits on the fiscal relationships between state and local government results indicate that tax and spending limits on local governments are only partially effective in reducing revenues because political agents bypass limitations by transferring revenue reliance to unconstrained revenue sources or because unconstrained levels of government take on additional revenue responsibilities in particular the empirical analysis demonstrates that binding local government fiscal constraints are associated with reductions in local revenues and increases in state aid to local governments in contrast state government limitations are related to reductions in both state and local own source revenues

income distribution and tax structure empirical test of the meltzer richard hypothesis abstract the meltzer richard hypothesis that more unequal income distribution will create a majority for more redistribution has generated much research but little empirical support the empirical literature has concentrated on cross country studies and the size of the public sector and the results broadly do not indicate more redistribution with more inequality this analysis suggests that the hypothesis should be investigated in a more homogenous setting with comparable institutions and with an explicit decision about redistribution here tax structure new data on poll tax and property tax in decentralized government in norway are exploited we show how the multi dimensional decision can be analyzed as majority rule assuming intermediate preferences in the econometric analysis instruments are used to account for endogeneity of income level and income distribution the estimated model supports the understanding that more unequal income distribution implies a shift in the tax burden from poll tax to property taxes and thereby gives more redistribution

loss aversion in politics we study how loss aversion affects the political equilibrium in a simple majority voting model first we show a status quo bias which leads to path dependence second loss aversion implies a moderating effect on the most extreme voters third in a dynamic setting the effect of loss aversion diminishes with the length of the planning horizon of voters however in the presence of a projection bias majorities are partially unable to understand how fast they will adapt to a new policy this makes changes less likely and induces time inconsistency policy changes are timid at the beginning while in later periods they are made progressively more radical fourth in a stochastic environment loss aversion yields a significant distaste for risk but also a smaller attachment to the status quo the application of these results to a model of redistribution leads to empirically plausible implications

keynes lucas and involuntary unemployment a reply to hayes in this response to mark hayes s criticism of his article lucas on involuntary unemployment the author insists on the need to draw a distinction between labour rationing a market outcome and unemployment the activity of job seeking economic theory is mainly concerned with the former yet the issue of the voluntarity versus the involuntarity of unemployment pertains to unemployment as an activity failing to make this distinction cannot but lead to semantic confusion

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

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

an empirical investigation of interstate afdc benefit competition claims that states which offer generous welfare benefits attract the poor and that some states pay low benefits intending to drive the poor away are neither uncommon nor entirely un founded this paper employs a two player state generalized game to model states choice of a benefit level in the aid to families with dependent children afdc program migration by the poor in response to interstate differentials in earnings and welfare opportunities and the subse quent changes in afdc caseloads drive this game estimation of the model using 1979 data suggests that states within approximately 750 miles of each other do engage in a benefit setting game the rival s initial number of poor and preference for non afdc consumption appear to be the more influential rival characteristics these findings while derived from a different methodological approach are consistent with previous studies which indicate that welfare recipients tend to move toward higher benefit states such migration may impede the efficient spatial allocation of labor the results also indicate that states will tend to offer lower benefits given recipient migration than would be the case otherwise state jurisdiction over benefits consequently leads to underprovision of afdc federalization of the afdc program would improve efficiency in terms of the spatial allocation of labor and the provision of afdc

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

redistributive taxation with heterogeneous relative consumption concerns this paper studies the impact of redistributive income taxation in a society where only some individuals are motivated by relative consumption concerns introducing this heterogeneity raises theoretical challenges since i earned income becomes an imperfect indicator of underlying ability and ii relative concerns may be inadmissable in the social objective a new behavioural model is developed in which only relatively concerned individuals choose work effort strategically linear tax transfer systems schemes are then characterized and simulated for a series of welfarist and non welfarist social objectives and for different degrees of preference heterogeneity a key result is that a government which understands the extent of relative consumption concerns but places no social weight on individuals with such preferences nevertheless sets a significantly more progressive tax system than a government which ignores relative consumption motivations altogether ce memoire examine l impact d une imposition redistributrice sur le revenu dans une societe ou certaines personnes sont motivees par des questions de niveaux de consommation relative cette sorte d heterogeneite souleve certains defis theoriques puisque i les gains sont un indicateur imparfait des habiletes sous jacentes et ii ces malaises quant a la consommation relative peuvent etre inadmissibles au plan de l objectif social on developpe un nouveau modele de comportement dans lequel seulement les personnes preoccupees par leur position relative definissent leur effort de travail strategiquement on definit des systemes d imposition et de transferts lineaires et on les soumet a des simulations pour une serie d objectifs sociaux a saveur welfariste et non welfariste et pour differents degres d heterogeneite de preferences un resultat crucial est qu un gouvernement qui comprend l importance des sensibilites aux resultats relatifs mais qui ne donne aucune valence sociale aux personnes qui ont de telles preferences neanmoins met en place une fiscalite plus progressive de maniere significative qu un gouvernement qui ignore completement ces motivations fondees sur la consommation relative

organizational structure and the optimal design of policymaking panels evidence from consensus group commissions revenue forecasts in the american states increasing both the size and diversity of policymaking panels is widely thought to enhance the accuracy of collective policy decisions this study advances the theoretical conditions in which improving collective accuracy necessitates an efficient trade off between a panel s size and its level of organizational diversity this substitution effect between these organizational characteristics is empirically supported with data on official general fund revenue forecasts made by consensus group cg independent commissions in the american states evidence of an asymmetric substitution effect is also uncovered whereby increasing organizational diversity in large cg commissions produces revenue forecasts that reduce collective accuracy by slightly more than three times as much compared to decreasing such diversity in small cg commissions this study underscores the limits of organizational diversity as a mechanism for improving collective judgments when policymaking authority is diffuse among many panel members

immigration and welfare magnets this article investigates if the location choices made by immigrants when they arrive in the united states are influenced by the interstate dispersion in welfare benefits income maximizing behavior implies that foreign born welfare recipients unlike their native born counterparts may be clustered in the states that offer the highest benefits the empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high benefit states than the immigrants who do not receive welfare or than natives as a result the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives

what drives u s immigration policy evidence from congressional roll call votes abstract immigration is today one of the most hotly debated policy issues in the united states despite marked divergence of opinion even within political parties several important reforms have been introduced in the post 1965 era the purpose of this paper is to carry out a systematic analysis of the drivers of the voting behavior of us representatives on immigration policy in the period 1970 2006 and in particular to assess the role of economic factors at the district level our findings suggest that representatives from more skilled labor abundant districts are more likely to support an open immigration policy towards the unskilled whereas the opposite is true for representatives from more unskilled labor abundant districts this evidence is robust to the introduction of an array of additional economic and non economic characteristics of the districts and suggests that a simple factor analysis model can go a long way in explaining voting on immigration policy

the relationship between firm mobility and tax level empirical evidence of fiscal competition between local governments the mobility of the tax base may influence fiscal outcomes the many theoretical contributions about the role of mobility are not matched by empirical evidence existing studies address strategic interaction between governments but have little to say about mobility we introduce a new measure of mobility conditions based on the geographic profit variability of industrial sectors the econometric analysis shows a systematic negative relationship between mobility conditions and tax level among municipalities in norway the analysis takes into account neighborhood effects in a spatial model and the endogeneity of mobility conditions is handled with instrumental variables