efficiency and equalization payments in a federal system of government a synthesis and extensions of recent results this paper investigates the rationale for a system of equalization transfers in a federal system of government the existing sources of inefficiency of resource allocation in economies with more than one level of government are synthesized in the framework of a simple decentralized multiprovince model with mobile factors of production the sources of inefficiency arise first because migrants respond at the margin to incorrect signals owing to the phenomena of rent sharing and fiscal exterality and second because of global rather than local inefficiencies the model is then extended to consider the role of the federal government in providing intergovernmental transfers in the face of such inefficiencies in addition to synthesizing the sources of inefficiency in federal models the equity arguments for equalization are briefly recounted efficacite et paiements de perequation dans un systeme federal de gouvernement synthese et extensions de certains resultats recents ce memoire examine la logique qui soustend un systeme de paiements de perequation dans un systeme fdderal de gouverement les auteurs utilisent un modele simple d un systeme multi provincial decentralise avec des facteurs de production mobiles pour definir les sources d inefficacite dans l allocation des ressources dans les dconomies qui possedent plus d un niveau de gouvernement ces inefficacites proviennent de ce que d abord ceux qui se deplacent le font en reponse a la marge a des signaux incorrects engendres par le partage de la rente sur la base de la residence et par les phenomenes d exteralites fiscales elles sont aussi le resultat d inefficacites globales plutot que locales dans le cadre de ce modele les auteurs analysent le role du gouvernement federal effectuant des transferts inter gouverementaux pour corriger ces inefficacites en plus de presenter une synthese des sources d inefficacite dans les regimes federaux les auteurs font un bref rappel en passant a l ensemble des arguments fondes sur l equite qu on utilise pour rationaliser les paiements de perequation this paper is a linear combination of two papers presented at the may 1982 meetings of the canadian economics association in halifax entitled the case for equalization payments by the authors and recent developments in the theory of regional economic policy in canada by boadway the authors are grateful for comments by the discussants jim johnson and baxter macdonald and by jack mintz brian scarfe gerard belanger david sewell tom courchene and the referees we are especially heavily indebted to dan usher for many stimulating comments and suggestions while the work was in progress some of the above persons will undoubtedly disagree with the emphasis we have chosen to put on various aspects of the analysis for policy purposes support for some of this work has been provided by the economic council of canada and is gratefully acknowledged canadian journal of economics revue canadienne d economique xv no 4 november novembre 1982 printed in canada imprimd au canada 0008 4085 82 0000 0613 01 50 1982 canadian economics association this content downloaded from 207 46 13 127 on wed 12 oct 2016 04 27 47 utc all use subject to http about jstor org terms 614 robin boadway and frank flatters

on strategic community development this paper examines strategic behavior of developers who through offering different congested public good packages and revenue fiscal schemes compete for residents who are differentiated by income there is an endogenous determination of numbers and sizes of communities developers have an incentive to strongly differentiate their public good offerings in terms of pricing strategies developers exhibit sharply contrasting behaviors in low income communities housing consumption is subsidized once lots are priced in high income communities housing consumption is generally taxed

reassessment of the tiebout model abstract the tiebout model has been the reference point for the classical approach to fiscal federalism its emphasis on mobility benefit taxation and the advantages of fiscal competition have informed fiscal federalism since the seminal contributions of musgrave and oates this paper reviews the influence that the tiebout model has had on fiscal federalism and argues that while its insights remain relevant for local government it is far from compelling as a positive description of or a normative prescription for fiscal federalism at the state level some aspects of alternative approaches are presented which lead to different perspectives than tiebout inspired ones

factor mobility and income redistribution in a federation abstract jurisdictions in a federation redistribute income by taxing capital and providing transfers to labor capital and labor move to earn higher returns net of taxes or gross of transfer benefits between jurisdictions in determining its redistributive policy the government for each jurisdiction thus takes into account the effects of its policy on the movement of factors from and to the jurisdiction hence the extent of redistribution depends on the mobility of factors the mobility of capital or labor leads to less redistribution than under autarky however mobility of both capital and labor may lead to more redistribution than if only capital moves as a consequence increased mobility of factors is not necessarily harmful to redistribution

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

inefficiencies from metropolitan political and fiscal decentralization failures of tiebout competition we examine the welfare effects of provision of local public goods in an empirically relevant setting using a multi community model with mobile and heterogeneous households and with flexible housing supplies we characterize the first best allocation and show efficiency can be implemented with decentralization using head taxes we calibrate the model and compare welfare in property tax equilibria both decentralized and centralized to the efficient allocation inefficiencies with decentralization and property taxation are large dissipating most if not all the potential welfare gains that efficient decentralization could achieve in property tax equilibrium centralization is frequently more efficient an externality in community choice underlies the failure to achieve efficiency with decentralization and property taxes poorer households crowd richer communities and free ride by consuming relatively little housing thereby avoiding taxes copyright oxford university press

fiscal externality rent sharing and equalisation transfers in japan this article describes a quantitative analysis of japanese equalisation transfers based on the fiscal externality models of hartwick boadway and flatters in particular it examines whether the actual level of equalisation transfers matches the theoretically optimal level from the efficiency point of view although the purpose of interregional fiscal transfer is not necessarily in the pursuit of an efficient allocation of resources equalisation transfer surely affects it it is often said in japan that the equalisation transfer may distort efficiency too much and that it is one of the causes of serious fiscal conflict between the metropolitan area and local rural prefectures the quantitative results show that the actual amount of transfers from resource rich to resource poor prefectures was below the optimal level in the 1980s however the resource poor prefectures have received an excessive transfer after 1990 specifically the direction of the optimal transfer might change in the second half of t

a quick algorithm for pricing european average options an algorithm is described that prices european average options the algorithm is tested against monte carlo estimates and is shown to be accurate the speed of the algorithm is comparable to the black scholes algorithm a closed form solution is derived for european geometric average options

pricing european average rate currency options abstract this paper develops a simple methodology that yields closed form analytical approximations for valuing european option claims involving the arithmetic average of future foreign exchange rates the main advantage of the approach is that it avoids the need to adopt time consuming numerical procedures the precision of the resulting formula and the distributional assumption that underlies it is examined by way of monte carlo simulations jel f31

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

ex post redistribution in a federation implications for corrective policy abstract this paper analyzes whether changes in the timing of equalizing transfers to state governments necessitate an adjustment in federal corrective policy according to the existing literature assuming an ex ante choice of transfers the corrective grant is equal to the marginal damage benefit inflicted by externality generation when the federal government accommodates state finances ex post the grant differs in formula from existing prescription allocative federal policy corrects state policy incentives twofold it entails a correction for the distortion in the marginal benefit of state spending as in earlier literature and for the distortion in the marginal cost of public funds induced by the ex post provision of transfers the required grant rule is generically disproportionate to the equilibrium externality even with lump sum taxation furthermore the ex post provision of transfers is critical for the nature of the equilibrium inefficiency equalizing transfers at least partly internalize consumption spill overs but simultaneously establishes a new source of inefficiency as a final result the existing prescription for allocative federal policy continues to apply if the public good is pure

incentive equivalence with fixed migration costs abstract if migration between communities is costless and if policy makers in each community anticipate the migration response to policy changes then the interests of the two communities are perfectly aligned decentralization is efficient this incentive equivalence is well known however the first order approach used in virtually all the literature may obscure the fact that no convexity assumptions need be made about technology or tastes this fact underscores the relevance of incentive equivalence even when there are scale economies in the public sector here the consequences of positive migration costs for this incentive equivalence are considered in contrast with much of the literature migration costs are assumed the same for everyone this formulation differs from the more common attachment to home assumption of heterogeneous migration costs conditional on the direction of migration interests of different communities are still perfectly aligned but natives of different communities may prefer different directions of migration weakening incentive equivalence if local policy makers have the power to induce large changes in migration flows however incentive equivalence fails only if economies of scale in population are important so that communities may be under populated

on price taking equilibria in club economies with nonanonymous crowding abstract competitive equilibrium in a coalition production economy or a club economy typically does not exist when there is free entry for two reasons first there may be an integer problem as is familiar from club theory with anonymous crowding second optimal groups may have different compositions from the population and then even if there is no integer problem it may be impossible to partition the population into optimal groups i define a notion of approximate equilibrium and show that such an equilibrium always exists in a sufficiently large economy i focus on the optimal size of the economy rather than of clubs

pricing american style derivatives with european call options we present a new approach to pricing american style derivatives that is applicable to any markovian setting i e not limited to geometric brownian motion for which european call option prices are readily available by approximating the value function with an appropriately chosen interpolation function the pricing of an american style derivative with arbitrary payoff function is converted to the pricing of a portfolio of european call options leading to analytical expressions for those cases where analytical european call prices are available e g the merton jump diffusion process furthermore in many settings the approach yields upper and lower analytical bounds that provably converge to the true option price we provide computational results to illustrate the convergence and accuracy of the resulting estimators

a dynamic programming procedure for pricing american style asian options pricing european style asian options based on the arithmetic average under the black and scholes model involves estimating an integral a mathematical expectation for which no easily computable analytical solution is available pricing their american style counterparts which provide early exercise opportunities poses the additional difficulty of solving a dynamic optimization problem to determine the optimal exercise strategy a procedure for pricing american style asian options of the bermudan flavor based on dynamic programming combined with finite element piecewise polynomial approximation of the value function is developed here a convergence proof is provided numerical experiments illustrate the consistency and efficiency of the procedure theoretical properties of the value function and of the optimal exercise strategy are also established

transboundary pollution and household mobility are they equivalent abstract recent research has shown that perfect household mobility can serve as a disciplinary mechanism inducing national policy makers to internalize interregional externalities caused by transboundary pollution this paper develops a differential game to illustrate that the result is not necessarily robust when migration costs and explicit dynamics are introduced the paper shows that if governments constantly reoptimize imperfect household mobility leads to a tragedy of the commons and individual countries overemit even when pollution is purely local moreover these dynamic externalities get worse as the degree of household mobility increases and there is a qualitative difference between almost perfect and perfect mobilty that is a discontinuity at zero migration costs

monte carlo methods for security pricing the monte carlo approach has proved to be a valuable and flexible computational tool in modern finance this paper discusses some of the recent applications of the monte carlo method to security pricing problems with emphasis on improvements in efficiency we first review some variance reduction methods that have proved useful in finance then we describe the use of deterministic low discrepancy sequences also known as quasi monte carlo methods for the valuation of complex derivative securities we summarize some recent applications of the monte carlo method to the estimation of partial derivatives or risk sensitivities and to the valuation of american options we conclude by mentioning other applications

inter regional transfers and the induced under taxation of economic rents abstractinter regional transfers and the induced under taxation of economic rents regional studies this paper shows that if taxes on economic rent are assigned to anticipatory first moving regions and inter regional transfers are mandated centrally rents are under taxed relative to optimal levels this provides a possible explanation for low rent capture observed in australia and canada two resource rich federal economies that also have fiscal equalization transfers between regions

competitive equilibrium and the core in club economies with anonymous crowding in club economies with anonymous crowding competitive equilibrium states of the economy are efficient and coincide with the core when there is only one private good anonymous admission prices permit consumers with different tastes to share facilities consumers might do so when their demands for facility size and crowding coincide in which case sharing is efficient thus similarity of demands is the relevant consideration for efficiently grouping consumers with different tastes

technological disemployment and economic growth abstract very little early technical advance effects export expansion or import substitution because technological disemployment that much misunderstood process accompanies it that advance increases aggregate income little but merely concentrates it in fewer hands without continuing exogenous increase in aggregate demand there will be little growth this thesis is believed basic to understanding of economic growth corollaries relate to export led growth population growth and the trend during growth in the distribution of income

pricing american style securities using simulation abstract we develop a simulation algorithm for estimating the prices of american style securities i e securities with opportunities for early exercise our algorithm provides both point estimates and error bounds for the true security price it generates two estimates one biased high and one biased low both asymptotically unbiased and converging to the true price combining the two estimators yields a confidence interval for the true price the proposed algorithm is especially attractive compared with lattice and finite difference methods when there are multiple state variables and a small number of exercise opportunities preliminary computational evidence is given

redistribution within and across the regions of a federation the authors reconsider the literature on redistribution within a federation with mobile agents they conclude that redistribution is a function best assigned to the national government local governments with diverse preferences for redistribution distort individual migration decisions the authors also examine the fiscal externality literature which has made an efficiency argument for interregional transfers they show that if local governments have the same preferences for redistribution the nash equilibrium is efficient if preferences are diverse the authors show that nationally imposed interregional transfers do not address the source of the inefficiency nevertheless interregional transfers are shown to be a part of decentralized behavior

optimality free mobility and the regional authority in a federation abstract this paper examines the efficiency properties of a federation characterized by strategically competing regions and freely mobile homogeneous individuals analyses of this economy have concluded that achieving a pareto optimal will require intervention by a national authority this paper makes one basic point the nash equilibrium of regional authority behavior is pareto optimal the implication is that there is no role for a national authority in either providing interregional transfers or correcting for decentralized provision of public goods the nash equilibrium involves samuelson public goods provision and regions purchasing preferred population distributions with optimal interregional transfers

population mobility and transboundary environmental problems abstract a standard result in the literature on environmental economics is that efficient environmental policies regulating transboundary pollution will be adopted only if there is interjurisdictional coordination efficient policies can be adopted as a result of interregional treaties or mandated by a central authority the present paper demonstrates that if there is perfect population mobility between the regions affected by the transboundary pollution the efficient outcome is a nash equilibrium of the policy game between regional authorities this is true independently of what policies are available to the regional authorities however there may be more than one nash equilibrium so that policy coordination may be necessary in order to achieve the best equilibrium

decentralized and efficient control of transboundary pollution in federal systems abstract decentralized control of transboundary pollution in federal systems can be efficient when population crowding is socially costly in this paper an upstream region abates pollution or makes an interregional income transfer to the downstream region with the sole intent of deterring immigration because either instrument abatement expenditure or interregional income transfer alone implements an efficient population distribution between the regions interregional income transfers are unnecessary for efficiency without explicit income transfers each region provides the efficient portion of the aggregate level of pollution abatement in the nash equilibrium

taxation and the tiebout model the differential effects of head taxes taxes on land rents and property taxes on the theory of state and local public finance is the seminal paper by charles tiebout 1956 tiebout constructed a multijurisdictional model in which independent local governments offer a wide variety of expenditure and tax policies and perfectly mobile consumers reveal their preferences for local public goods through their choice of residential community he argued that under such circumstances local public service provision would be efficient the tiebout model has formed the basis of a vast number of subsequent articles in the state and local public finance literature and has also been very influential in urban and regional economics the efficiency properties of various tiebout type models of local public good provision have been examined and the role of politics in these models has been debated at length in this literature of more direct relevance to this paper however is the fact that although tiebout had little to say directly about taxation simply assuming the existence of head taxes subsequent analyses have used adaptations of this model to examine the effects of local head taxes land taxes and property taxes it is the literature on the efficiency and distributional effects of alternative local taxes that is the subject of this survey 1

should land and capital be taxed at a uniform rate if jurisdictions are allowed to tax land and capital separately they tax only land because capital taxation distorts the allocation of mobile capital to exploit absentee owners however jurisdictions tax land beyond the efficient level as absentee ownership increases throughout the economy land taxation results in greater inefficiency to alleviate the inefficiency of overtaxing land the higher level government intervenes to require jurisdictions to tax both capital and land at a uniform rate because the desire to attract capital lowers the tax rate uniform taxation of land and capital or property taxation thus may be more efficient than separate taxation jel classification h21 h71 est ce que la terre et le capital devraient etre taxes d une maniere uniforme si on permettait aux diverses juridictions de taxer capital et terre separement elles taxeraient seulement la terre parce que la fiscalite imposee au capital cree des distorsions dans l allocation du capital mobile mais pour exploiter les proprietaires absents les diverses juridictions imposent un fardeau fiscal sur la terre qui va au dela de ce que l efficacite commande a proportion que la propriete absente se developpe dans l economie la fiscalite imposee a la terre devient source de plus en plus grande inefficacite pour reduire cette inefficacite attribuable a la sur taxation de la terre le niveau senior de gouvernement intervient pour forcer les juridictions juniors a taxer capital et terre au meme taux parce que le desir d attirer le capital reduit le taux de taxation il se peut donc que la taxation uniforme de la terre et du capital ou de la taxation sur la propriete soit plus efficace que des taux d imposition differents

risk sharing in a federation with population mobility and long horizons in this paper risk sharing among individuals within and across regions in a federation with population mobility and infinite horizons is considered it is shown that the regional authorities will not fully exploit gains from interregional risk sharing when population mobility is imperfect in the nash equilibrium there is complete risk sharing among the individuals within each region however which corresponds to the policies of the central authority regional authorities who care about their reputation may be able to commit to an efficient allocation it is possible that improvements in the degree of mobility will make such commitments less likely jel classification h77 e61 and f36 le partage du risque dans une federation ou la population est mobile et l horizon temporel long ce memoire examine le partage du risque entre personnes a l interieur des regions et entre regions dans une federation ou il y a mobilite de la population et horizon temporel infini on montre que les autorites regionales n exploiteront pas pleinement les gains en provenance d un partage inter regional du risque quand la mobilite de la population est imparfaite cependant dans un equilibre a la nash il y a partage complet du risque entre les individus de chaque region ce qui correspond aux politiques des autorites centrales les autorites regionales qui tiennent a leur reputation peuvent etre capables de s engager a une allocation efficace il est possible que les ameliorations dans le degre de mobilite rendent ces engagements moins probables

interregional competition spillovers and attachment in a federation abstract we examine decentralized environmental policy making in a federation characterized by decentralized leadership and imperfect labor mobility due to attachment to regions energy consumption generates positive consumption benefits but energy supply generates federal air pollution regional authorities regulate energy supply by controlling supplies of pollution permits energy and pollution permits are traded in interregional markets the center redistributes incomes after it observes regional supplies of pollution permits regions are populated by mobile and immobile households and profits are expatriated we show that the subgame perfect equilibrium for the federal policy game played by regional and central authorities is socially optimal

efficient decentralized fiscal and environmental policy a dual purpose henry george tax abstract one consequence of decentralized responsibility to set tax policy and environmental standards is that local governments might try to attract industry and jobs by underproviding local public goods with lower taxes or lax environmental standards or both but if local authorities exploit fixed property site i e land taxation to fund local public goods affect firm migration and internalize potential local emission rents herein we find decentralized efficiency is supported this result reflects a dual form of the classic henry george theorem previously overlooked

a model of competing jurisdictions with locally polluting environments and mobile populations in this model we consider a federation consisting oftwo geographically separated regional states withlocal taxing authority the residents of thefederation are identical in preferences and haveexplicit tolerance to pollution pollution is local innature and is a by product of production implying amore highly populated region would generate morepollution local authorities in the regions can andwill in the interest of local residents engage ingame theoretical taxation strategies the model isused to illustrate that nash equilibrium can resultwherein the two regions have different levels ofenvironmental quality the resulting nash conditionsimply for instance that residents of the cleanregion will subsidize those in the other region tostay in the more polluted environment in order foreach to accomplish their preferred consumption andenvironmental quality pair

pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility abstract we examine the non cooperative provision of a pure public good by regional governments in a federation similar to the european union where regional governments are stackelberg leaders and the central government is a stackelberg follower a federation with decentralized leadership the center makes interregional income transfers after it observes the contributions to the pure public good imperfectly mobile workers react to regional and central governments policies by establishing residence in their most preferred region despite the degree of labor mobility we show that the pure public good and interregional transfers are generally allocated efficiently in a federation with decentralized leadership

federal fiscal constitutions risk sharing and redistribution the paper studies the political and economic determinants of regional public transfers specifically it focuses on how such transfers are shaped by alternative fiscal constitutions where a constitution is an allocation of fiscal instruments across different levels of governments plus a procedure for the collective choice of these instruments realistic restrictions on fiscal instruments introduce a tradeoff between risk sharing and redistribution different constitutions produce very different results in particular a federal social insurance scheme chosen by voting provides overinsurance whereas an intergovernmental transfer scheme chosen by bargaining provides underinsurance

more on the employment effects of innovation abstract this article argues the lack of relevance to reality of the hall heffernan model specifies a model that makes the issue clear and extends beyond hagen 1982 the discussion of technological disemployment and re employment

redistributive policy with labour mobility across countries it is generally believed that international labour mobility lowers the level of redistribution each country wishes to undertake this paper considers a model with two countries where each government redistributes income between two types of individuals using a general equilibrium model it is shown that there are situations where the level of redistribution in one of the two countries is in fact higher than in the absence of individual mobility this higher level of redistribution is explained by the migration induced changes in the structure of the population in both countries namely by the increase in the proportion of high income individuals in the country that may experience excessive redistribution

vertical versus horizontal tax externalities an empirical test abstract we study taxation externalities in federations of benevolent governments where different hierarchical government levels tax the same base one can observe two types of externalities a horizontal externality working among governments of the same level and leading to tax rates that are too low compared to the social optimum and a vertical externality working between different levels of government and leading to suboptimally high tax rates building on the model of keen and kotsogiannis keen michael j kotsogiannis christos 2002 does federalism lead to excessively high taxes american economic review 92 1 363 370 we derive a discriminating hypothesis to distinguish vertical and horizontal tax externalities based on measurable variables this test is applied to a panel data set on local taxes in a sample of swiss municipalities that feature direct democratic fiscal decision making so as to maximize the correspondence with the benevolent governments of the theory we find that vertical externalities dominate they are thus an observed empirical phenomenon as well as a notable extension to the theory of tax competition

optimal exercise policies and simulation based valuation for american asian options american asian options are average price options that allow early exercise in this paper we derive structural properties for the optimal exercise policy which are then used to develop an efficient numerical algorithm for pricing such options in particular we show that the optimal policy is a threshold policy the option should be exercised as soon as the average asset price reaches a characterized threshold which can be written as a function of the asset price at that time by exploiting this and other structural properties we are able to parameterize the exercise boundary and derive gradient estimators for the option payoff with respect to the parameters of the model these estimators are then incorporated into a simulation based algorithm to price american asian options computational experiments carried out indicate that the algorithm is very competitive with other recently proposed numerical algorithms

efficient tax exporting in a multijurisdiction economy with free mobility of households between communities some portion of any community s tax is incident upon nonresident landowners it is shown that when the objective of a community is taken to be the level of satisfaction of its residents a fully efficient allocation is a nash equilibrium of the decentralized game in general no local tax structure that restricts a community s tax base to residents can attain the optimum thus tax exporting is necessary for independent local government behavior to be consistent with efficiency

interregional spillovers in the presence of perfect and imperfect household mobility abstract when households are immobile across regions the decentralized provision of public goods that generate interregional benefit spillovers is inefficiently low we analyze this problem in an environment of interregional household migration and obtain the following results if households are perfectly mobile across regions then the decentralized provision of public goods generating spillovers is socially efficient there is no need for central government intervention if households are attached to particular regions for cultural or nationalistic reasons however at least one of two regions undersupplies the public good central government intervention can enhance efficiency

ex ante free mobility ex post immobility and time consistency in a federal system abstract this paper examines regional population distribution when there is an interregional transfer policy without commitment we introduce explicitly the following time structure of actions individuals assumed to be identical make decisions on locational choices freely ex ante but are immobile ex post the fiscal policies of the local governments and the central government are implemented after individuals migration decisions the basic result is that locally stable no commitment equilibria are single community equilibria when there is a pure local public good we then illustrate the possibility for the interregional transfer policy to reduce the efficiency of population distribution

what really caused the great recession rhyme and repetition in a theme from the 1930s diagnoses of the 2008 financial crisis have invoked arguments involving real sector developments that though much debated in the 1930s had largely disappeared from the literature in recent decades prompted by these revivals the present study re examines an inter war conviction that the depression had its origins in uneven technological progress and monopolistic competition effectively reversing the induced roundaboutness view of the austrian thesis these writings noted a conflict between the resulting need for monetary accommodation and its potentially destabilising distributional consequences a common framework permits the extent of similarity in inter war and contemporary american experience to be assessed with the comparison drawing attention to the 1990s nasdaq boom and the subsequent financial behaviour of the us corporate sector consistently with the earlier literature but contrary to recent conclusions financial sector excess is seen as an aggravating factor rather than an initiating cause of the recession

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

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

migration with fiscal externalities abstract this paper analyses the distribution of a country s population among regions when migration involves fiscal externalities the main question addressed is whether a decentralized decision making of regional governments can produce an optimal population distribution as recently asserted or a centralized intervention is indispensable as argued before in the literature in analysing this issue it is assumed that migration is costly and accordingly the problem is modelled in a dynamic setup it turns out that while with costless mobility the fiscal externality is fully internalized by voluntary interregional transfers with costly mobility centrally coordinated transfers still remain indispensable for achieving the socially optimal allocation

controlling migration in an open labor market a direct immigration policy is no longer feasiblefor a single region in a common labor market within apolitical economy approach this paper focuses on the question ofwhether migration can be controlled through the composition ofgovernment expenditures taking into account both capital and laborincome it turns out that the median voter s income is u shaped in thenumber of immigrants therefore the government can eitherprovide less of the goods preferred by foreigners in order to minimizeimmigration or carry out an active immigration policy byshifting its expenditures towards those publicly provided goods thepaper identifies the factors that determine the government schoice between the two strategies

decentralization in replicated club economies with multiple private goods abstract we show that exhaustion of blocking opportunities is a sufficient condition such that every allocation in the core of a replicated club economy can be decentralized as a competitive equilibrium and that a related condition efficient scale is necessary and under an assumption on endowments sufficient such that competitive equilibrium exists and the core is nonempty these results do not require the euclidean structure and monotonicity assumed in lindahl equilibrium do not require convexity of preferences or costs and do not require the strong assumption that private goods are essential journal of economic literature classification numbers d46 d50 d61 h40

raising taxes through equalization a simple theory suggests that a common form of federal horizontal equalization grants should cause subnational governments to levy higher tax rates distorting local tax bases and so increasing federal transfers to test this i examine canadian provincial tax policies in the 1972 2002 period consistent with the theory provinces respond to expansions of equalization transfers by increasing their own tax rates i estimate that on average tax rates in grant receiving provinces were substantially and significantly higher as a consequence of the transfer formula jel classification h21 une theorie simple suggere qu une forme usuelle d octrois federaux de perequation horizontale devrait entrainer les gouvernements sub nationaux a imposer de plus hauts taux d imposition modifiant ainsi les bases de fiscalite locale et ce faisant accroissant les transferts federaux pour mettre au test cette hypothese on examine les politiques fiscales des provinces canadiennes pour la periode entre 1972 et 2002 d une maniere qui semble supporter l hypothese les provinces ont repondu a un accroissement des transferts de perequation en accroissant leur propre taux d imposition on estime que les taux moyens d imposition dans les provinces qui recoivent des transferts sont plus eleves de maniere substantielle et significative en raison de la formule de transferts

evaluating the efficiency and equity of federal fiscal equalization abstract theoretically federal transfers that make household location decisions efficient should ignore local cost differences subsidize positive externalities and offset differences in federal tax payments and local taxes levied on non residents but not local tax revenues from residents transfers that redistribute resources equitably across regions will likely target areas with individuals of low earnings potential or low real incomes applying these criteria empirically canadian equalization policy appears neither efficient nor equitable but exacerbates pre existing inefficiencies and underfunds minorities locational inefficiencies cost canada 0 41 of income annually and cause over funded provinces to have populations of 30 beyond their efficient long run levels

on models with an uncongestible public good and a continuum of consumers abstract this short note shows that models with an uncongestible or mildly congestible public good and a non atomic continuum of consumers have an interesting but unfortunate property only an infinite level of public good provision in the continuum economy can be approximated by feasible public good levels in a sequence of economies with finite populations we discuss the theoretical and practical problems this creates for familiar models that employ a continuum of consumers and a finite level of an uncongestible public good

majority choice of tax systems in single and multi jurisdictional economies abstract we examine majority choice of tax instruments in an economy with heterogeneous households in our framework majority voting equilibrium exists despite the multidimensional policy choice set we examine single and multi jurisdictional economies we identify five competing incentives that influence choice of tax instruments equilibria generally entail a mixture of tax types with multiple jurisdictions strong reliance on head taxation in rich communities arises to deter poorer households from immigrating in spite of local incentives to use alternative tax instruments to redistribute wealth if relocation costs preclude inter community mobility the equilibrium tax system is fundamentally affected with redistribution incentives then dominating choice of instruments and tax rates limiting or eliminating head taxation fundamentally alters stratification public good provision levels and tax systems

the timing of regional development abstract consider a country composed of regions of different qualities or endowments of amenities and natural resources for production and consumption initially only the highest quality regions are occupied as national population grows successively lower quality regions are occupied the equilibrium timing of occupation of uninhabited regions differs from the optimal timing typically being too late policies which would result in better timing are analyzed

attachment to home and efficient purchases of population in a fiscal externality economy abstract this paper examines the efficiency properties of an economy characterized by strategically competing regions and individuals with varying degrees of attachment to home in an otherwise standard fiscal externality setting regional authorities may make interregional transfers in purchasing preferred populations however there is a range of distributions of resources over which neither region makes transfers nevertheless all equilibrium allocations resulting from the nash behavior of regional authorities including those that involve no transfers are efficient therefore in contrast to the standard conclusions of the fiscal externality literature there is no efficiency role for a central authority

a simple dynamic decentralized leadership model with private savings and local borrowing regulation abstract this paper considers a simple dynamic decentralized leadership model with local borrowing and regional productivity enhancing investment in this model the central government is benevolent but cannot commit to ex post intergovernmental transfer policies while local governments act strategically after accounting for the ex post motives of the central government we then investigate inefficiency in the subgame perfect equilibrium we analyze the effect of central control on local borrowing and show that central control is of no benefit because ex ante local taxation works to offset it we find the model yields different policy implications that central control is effective when extended to the case of residential mobility

bargaining between benevolent jurisdictions or when delegation induces inefficiencies this paper considers the problem of bargaining between benevolent jurisdictions about local public goods and head taxes it is shown that delegation to benevolent jurisdictions will in general induce distortions away from efficiency where efficiency means an efficient provision of local public goods and an efficient distribution of consumers this distortion is caused by 1 the divergence between social and jurisdictional objectives and 2 the impossibility for jurisdictions to realize side payments without modifying either the provision of local public goods or the distribution of consumers

path dependent options extending the monte carlo simulation approach monte carlo simulation has been used to value options since boyle s seminal paper monte carlo simulation however has not been used to its fullest extent for option valuation because of the belief that the method is not feasible for american style options this paper demonstrates how to incorporate optimal early exercise in the monte carlo method of valuing options by linking forward moving simulation and the backward moving recursion of dynamic programming through an iterative search process to demonstrate the potential of this method we use it to value american style options on the average price or asian options the computational experience reveals a flexible valuation technique with potential for application to a range of securities and financial decision problems

transboundary environmental problems with mobile but heterogeneous populations most of the literature on transboundaryenvironmental problems treats population ineach country or region as constant ignoringpopulation mobility we showed previously thatif there is perfect population mobility betweenregions and populations are homogeneous asocially efficient outcome can be supported asa nash equilibrium of the game of uncoordinatedpolicy setting even without any internationalenvironmental agreement in the present paperwe introduce heterogeneous population and showthat when people differ a non cooperativeoutcome is generally inefficient we alsodemonstrate that for a particular set ofobjective functions for the regionalgovernments there is an equilibrium of thegame of uncoordinated policy setting that isefficient finally we give an example wherethe decentralized outcome is efficient whenthere is no population mobility butinefficient when there is population mobility

general properties of option prices when the underlying price process is a one dimensional diffusion as well as in certain restricted stochastic volatility settings a contingent claim s delta is bounded by the infimum and supremum of its delta at maturity further if the claim s payoff is convex concave the claim s price is a convex concave function of the underlying asset s value however when volatility is less specialized or when the underlying process is discontinuous or non markovian a call s price can be a decreasing concave function of the underlying price over some range increasing with the passage of time and decreasing in the level of interest rates much of the financial options literature derives precise option prices when the underlying asset price process is completely specified since it is empirically difficult to ascertain what the true underlying process is another part of that literature is concerned with deriving general properties of option prices when the underlying price process is not fully specified but instead is assumed to belong to some general class of stochastic processes merton 1973 cox and ross 1976 jagannathan 1984 in particular in the absence of arbitrage opportunities and assuming that the risk neutralized stock price follows a proportional stochastic process a risk neutral return distribution independent of price merton 1973 and jagannathan 1984 show that a call option s price is an increasing convex function of the stock price cox and ross 1976

the economics of fiscal decentralization there is no complete overview or discussion of the literature of the economics of federalism and fiscal decentralization even though scholarly interest in the topic has been increasing significantly over recent years this paper provides a general brief but comprehensive overview of the main insights from the literature on fiscal federalism and decentralization in doing so literature on fiscal federalism and decentralization is grouped into two main approaches first generation approach and an emerging second generation approach the discussion generally covers the two notions of fiscal decentralization fiscal autonomy and fiscal importance of subnational governments as the background of the most recently developed index of fiscal decentralization in vo the relevance of this discussion to any further development of a fiscal decentralization index is briefly noted

interregional interactions and population mobility the institutional level at which policies should be determined is an important issue that has been extensively treated in the economics literature in particular the literature has discussed to what extent decentralization of policy decisions give an inefficient outcome with a homogeneous population and perfect population mobility as it conventionally is modeled the following result is derived for a very general class of economies with interregional interactions a socially efficient outcome is a nash equilibrium of the game of decentralized and uncoordinated policy setting however if decisions about migration take a longer time to make than decisions of policy changes the general result above no longer holds with this decision sequence decentralization may give an inefficient outcome also in situations where the decentralized outcome is efficient in the absence of population mobility

debt bailouts and constitutions a demand based theory of sub national debt bailouts is presented it is shown that revenue sharing rs arrangements alter the demand for bailouts among politicians with regional constituencies as a bailout usually implies a shift of taxation to the federal tier automatic rs may lead to the formation of pro bailout coalitions formed by indebted states and states that are net recipients of the rs arrangement also rs can act as a commitment device for compensating payments among state representatives making a bailout politically rational the model shows that the state debt bailouts approved by the brazilian senate prior to the enactment of the fiscal responsibility act were fully consistent with politicians that maximize the proceeds accruing to their constituencies