environmental policy instruments in an international duopoly with feedback investment strategies abstract this paper analyses the effects of the environmental policy instruments taxes and standards on the investment behaviour of firms in the context of an international duopoly two production factors are considered the capital stock and a polluting input the government of each country values high profits for its firm and a good environmental quality through standards on the polluting input firms get commitment on output which is not the case under taxes standards thus seem a better environmental policy instrument because for the same use of the polluting input taxes lead the duopolists to higher investment with lower profits this result was derived in a two stage game model it was confirmed in a differential game model with open loop strategies the paper shows that in a differential game model with feedback strategies an effect occurs that counteracts the first effect the cause of this is that taxes induce substitution between capital and the polluting input the conclusion is that under taxes firms invest more due to the absence of commitment but invest less due to substitution between the inputs the net effect depends on the values of the parameters taxes are better than standards for low rates of depreciation and discount for low investment costs and for high productivity of capital

time series dynamics of us state unemployment rates this paper examines the time series properties of state and national unemployment rates based upon unit root variance ratio and cointegration tests as well as granger causality and error correction model results several important conclusions can be made first forecasting models that include only levels of unemployment rates may produce spurious regression results second in the vast majority of cases there is no long run co movement between the aggregate us unemployment rate and individual state unemployment rates third models that are specified in first differences generally yield reliable insights into state national unemployment relationships

environmental policy adjustment costs and behavior of the firm abstract the effects of environmental policy in the form of emission charges or emission limits on the firm s optimal choices of productive and abatement inputs are analyzed short run and long run impacts on inputs and the properties of static emission function are determined through comparative static analysis comparative dynamics reveal the properties of the cumulative emission function and the cumulative shadow cost of emission limits function

transparency and economic policy we provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary government spending is larger than in a world of perfect observability transfers are partly financed through government debt and the size of the debt is higher in less transparent political systems the model provides an explanation of fiscal churning it also predicts that groups whose transfers are less visible to others receive higher transfers and that imperfect transparency of transfers may lead to underprovision of public goods from the policy perspective the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues we show that the transparency of the political system does not unambiguously improve efficiency transparency of spending is beneficial but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending

transitory shock or structural shift the impact of the early 1980s recession on british regional unemployment this paper examines the impact of the early 1980s recession on regional unemployment in britain more specifically it seeks to evaluate the hypothesis that this recessionary shock was so severe that it caused an upward structural shift in the underlying mean unemployment rates of the regions this proposition is analysed using dickey fuller tests for difference versus trend stationarity and the augmented structural shift and trend break time series models developed by perron the results suggest that the apparent stochastic non stationarity in regional unemployment over the period 1965 95 is in fact due to an upward structural shift in regional mean unemployment rates in 1980 furthermore the nature of this shift appears to have differed as between the northern and southern regions of the country

politicians as experts electoral control and fiscal restraints we propose an argument for fiscal restraints that is based on the premise that the services of politicians are credence goods politicians are experts who specialize in observing the true state of the economy budget maximizing politicians are better informed than the electorate about the level of public spending necessary to manage public affairs voters who are able to observe the size of the budget but not the necessary level of spending affect the government s spending behavior via electoral control a fiscal restraint limits the maximum spending a government can choose we identify conditions under which such a fiscal restraint improves voter welfare and discuss the role of the political opposition as a second expert in situations in which the state of the economy requires a level of spending which exceeds the fiscal restraint

on the determinants of full employment unemployment rates in local labour markets 1987 on the determinants of full employment unemployment rates in local labour markets applied economics vol 19 no 2 pp 191 200

second best taxation for a polluting monopoly with abatement investment abstract this paper characterizes the optimal tax rule to regulate a polluting monopoly when the firm has the possibility of investing in an abatement technology and the environmental damages are caused by a stock pollutant the optimal policy is given by the stagewise feedback stackelberg equilibrium of a dynamic policy game between a regulator and a monopolist the regulator playing as the leader chooses an emission tax to maximize net social welfare and the monopolist acting as the follower selects the output and the investment in abatement technology to maximize profits we find that the optimal tax has two components the first component is negative and equal to the gap between the marginal revenue and the price caused by the firm market power the second component is given by the difference between the social and private shadow prices of the pollution stock considering a linear quadratic model we show that if marginal environmental damages are constant the difference between social and private shadow prices is positive and the optimal policy consists of taxing emissions at a constant rate if the marginal damages are large enough however if the marginal environmental damages are increasing the numerical exercises carried out show that this difference is negative at the steady state and the optimal policy gives the firm a subsidy when approaching the steady state regardless of the importance of the environmental damages this result is explained by the negative effect that abatement technology accumulation has on the tax finally it can be pointed out that although both models yield different predictions about the sign of the optimal policy the dynamics is globally stable for both cases

government spending cycles ideological or opportunistic this paper examines whether partisan and opportunistic motives affect government expenditure growth in the netherlands the time series analysis covering the period 1953 1993 allows for different types of government spending in general spending is inspired by ideological and opportunistic motives all government expenditure categories show an upward drift during election times and the partisan motives behind government spending are clearly revealed left wing cabinets attach greater importance to social security and health care than right wing cabinets and right wing cabinets value expenditure on infrastructure and defense more than left wing parties

testing limits to policy reversal evidence from indian privatizations abstract we examine the effect of regime change on privatization in the 2004 indian election the pro reform bjp was unexpectedly defeated by a less reformist coalition stock prices of government controlled companies that had been slated for privatization by the bjp dropped 3 5 relative to private firms government controlled companies that were under study for possible privatization fell 7 5 relative to private firms this is consistent with investor belief of a point of no return where advanced reforms are more difficult to reverse further analysis suggests that layoffs combined with the privatization announcement served as a credible commitment to privatize

spatial variations in the unemployment rate a case study of north west england taylor j and bradley s 1983 spatial variations in the unemployment rate a case study of north west england reg studies 17 113 124 this paper extends earlier work on the categorization of unemployment by exploring the reasons for spatial variations in cyclical unemployment and non cyclical unemployment regression analysis is used to divide total unemployment into a cyclical category and a non cyclical category in twenty eight travel to work areas in north west england during 1969 80 the spatial patterns of these two categories of unemployment are examined and an attemptis made to explain them the main conclusions are that spatial variations in the unemployment rate have been severely exacerbated by national recessions that the spatial patterns of cyclical unemployment and non cyclical unemployment are not random and that there is considerable scope for public policy in rectifying the persistent structural weaknesses in certain groups of travel to work areas in the nw region

the sensitivity of regional unemployment rates to the national trade cycle forrest d and naisbitt b 1988 the sensitivity of regional unemployment rates to the national trade cycle reg studies 22 149 153 this paper provides recent estimates for the uk of a model of regional unemployment rate variability due to thirlwall the principal findings are that regional industrial structure has continued to play a major role in determining regional unemployment variability and that the pattern of industrial variability appears to have changed little in the post war period however there remains a degree of regional specific variability which warrants further study forrest d et naisbitt b 1988 la sensibilite des taux de chomage regionaux au cycle economique national reg studies 22 149 153 cet article fournit des estimations recentes pour le royaume uni d un modele de la variation du chomage regional d apres thirlwall a partir des resultats principaux il s avere que la structure industrialo regionale ne cesse de jouer un role cle dans la determination de la variation du

tales of fiscal adjustment fiscal adjustments why they can be expansionary this paper examines the evidence on fiscal adjustments in oecd countries from the early 1960s to today the results shed light on the recently observed phenomenon of fiscal tightening that produces non keynesian expansionary effects one interpretation is that a serious fiscal tightening increases demand wealth rises when future tax burdens decline and when interest rates decline credibility is restored and inflation or default risks abate both consumption and investment rise for this effect to produce an expansion the tightening must be sizeable and occur after a period of stress when the budget is quickly deteriorating and public debt is building up another interpretation emphasizes the supply side typically a fiscal consolidation based on tax increases is short lived to be long lasting it must include cuts in public employment transfers and government wages to be politically possible such a policy must be supported by trade unions these measures result in more efficient labour markets and boost the supply side based both on statistical evidence and on a detailed analysis of ten cases of major fiscal adjustment this article provides cautious support to the supply side view without denying a more limited role for the demand side channel alberto alesina and silvia ardagna

the dynamics of regional unemployment in the uk 1974 89 this paper investigates the relationship between regional and national unemployment for the uk for the period 1974 1989 this problem is approached by using the time series methods of cointegration and causality tests the main conclusions are that regional and national unemployment are not as closely related as might have been supposed although any causation may as previously assumed run from the national to the regional level some regions are seen to be changing their position in the hierarchy of relative regional unemployment while most retain their relative status

the commons and the optimal number of firms the problem of the commons is a frequently cited example of market failure in which exploiters pursuit of profits does not lead to the attainment of a social or pareto optimum in particular a free access equilibrium induces an unrestricted number of exploiters or firms to equate the variable input s average product instead of its marginal product to the input s real rental rate hence the rents of the variable input are driven to zero haveman 1973 1 when the number of firms in a commons is unrestricted the scarce factor e g the fishery the hunting ground is not imputed a rent a social optimum can be achieved if a single firm exploits a commons and sells its output in a perfectly competitive market weitzman 1974 the purpose of this note is to derive an expression for the optimal number of firms exploiting a commons when the resulting output is sold in an imperfectly competitive market 2 since demand inelasticity due to monopoly power leads to overconservation while an increase in the number of exploiting firms typically leads to underconservation a finite number of firms for a commons can be found corresponding to a social or pareto optimum in particular the optimum number of firms depends directly on the elasticity of the input productivity and inversely on the price elasticity of market demand

on the multiplicity of efficiency inducing tax rules abstract we derive corrective tax rules for a monopoly whose production processes generate emissions that add to a stock of pollution which evolves over time in our model the monopolist maximizes the discounted sum of its instantaneous profits and the government designs a tax rule that corrects for both the externalities associated with pollution and the market power of the monopolist we show that there exists a continuum of time independent tax rules that guide the monopolist to achieve the socially optimum production path

housing assets and consumer spending a regional analysis carruth a and henley a 1993 housing assets and consumer spending a regional analysis reg studies 27 611 621 this paper is concerned with the relationship between the housing market and consumer spending for the eleven standard regions of the uk pooled regional cross sectional and annual time series data are used to appraise the effect of housing assets on regional consumer spending in the 1980s a fixed effects estimator imposing common slope coefficients across the regions is employed and this assumption is tested using the sure estimator estimates of a dhsy specification of the consumption function and a model augmented with housing assets are compared the fixed effects models perform quite well indicating that the growth in regional housing equity has had a positive impact on regional consumer spending the sure results indicate that the assumption of common regional responses of consumer spending to the explanatory variables is not valid and that the housing wealth effect is strongest in

cournot competition and green innovation an inverted u relationship we examine the relationship between competition and innovation in an industry where production is polluting and r d aims to reduce emissions green innovation we present an n firm oligopoly where firms compete in quantities and decide their investment in green r d when environmental taxation is exogenous aggregate r d investment always increases with the number of firms in the industry next we analyse the case where the emission tax is set endogenously by a regulator committed or time consistent with the aim to maximise social welfare we show that an inverted u relationship exists between aggregate r d and industry size under reasonable conditions and is driven by the presence of r d spillovers

budget deficits and redistributive politics this paper proposes a new view of the forces in the political process that cause governments to accumulate debt the analysis builds on a model of redistributive politics that contrary to median voter models does not restrict the set of policies that politicians can propose i show that deficits occur even in an environment where voters and periods are homogeneous this is an environment where previous political theories of debt would predict budget balance in the model deficits are a way for candidates to better target promises to voters and are therefore used as tools of redistributive politics the main contribution of the analysis is to show that the same forces that push candidates to redistribute resources across voters to pursue political advantage are forces that generate budget deficits most countries have sizeable national debts indeed thinking of governments as debtors seems so customary that it feels awkward to talk about a national credit this suggests that there are systematic forces pushing governments to regularly borrow to cover the excess of spending over receipts at the same time a significant amount of government spending consists of transfers to special interest groups that are hard to justify on efficiency or equity grounds this paper presents a political economic model that suggests that these two phenomena are connected debt is at least in part caused by the fact that in order to get elected candidates need to appeal to groups of voters with promises of transfers debt allows candidates a finer control over the promises they make to these groups

why is fiscal policy often procyclical many countries especially developing ones follow procyclical fiscal policies namely spending goes up taxes go down in booms and spending goes down taxes go up in recessions we provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less than benevolent government to appropriate rents voters have incentives similar to the starving the leviathan classic argument and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well we test this argument against more traditional explanations based purely on borrowing constraints with a reasonable amount of success

mechanisms for the control of fiscal deficits abstract this paper shows that a simple two stage voting mechanism may implement a constrained optimal state dependent decision about the size of the fiscal deficit i consider a setup with strategic fiscal deficits similar to alesina and tabellini 1990 three groups of voters are informed about the relative desirability of current public spending voters differ in their preferences for public goods and swing voters preferences may change over time the current government decides on the current spending mix and it has an incentive to strategically overspend a simple two stage mechanism under which a deficit requires the approval by a supermajority in parliament approximates a constrained optimal decision and under certain conditions increases social welfare relative to both a strict rule and a laissez faire constitution when the current majority is small political bargaining may further increase social welfare however when the current majority is large a supermajority mechanism with bargaining leads to a biased spending mix and it may reduce welfare whereas the laissez faire mechanism may yield the first best an appropriately adjusted majority threshold can avoid inefficient bargaining whenever necessary

non linear strategies in a linear quadratic differential game abstract we study non linear markov perfect equilibria in a two agent linear quadratic differential game in contrast to the literature owing to tsutsui and mino 1990 nonlinear strategies in dynamic duopolistic competition with sticky prices journal of economic theory 52 136 161 we do not associate endogenous subsets of the state space with candidate solutions instead we use the catching up optimality criterion to address the possibility of infinitely valued value functions applying sufficiency conditions for existence based on those in dockner et al 2000 differential games in economics and management science cambridge university press cambridge yields the familiar linear mpe and a condition under which a continuum of non linear mpes exists these include as their limit a previously unreported piecewise linear mpe the condition relaxes with increasing patience allowing more efficient steady states thus suggesting a folk theorem for differential games as the lower state and control bounds go to the non linear strategies are eliminated

efficiency inducing taxation for polluting oligopolists abstract we show that there exists a time independent tax rule that guides polluting oligopolists to achieve the socially optimum production path the optimal tax is dependent on the current pollution stock and it may be negative when the pollution stock is low a surprising result is that the optimal tax rule may give firms a subsidy for an initial time interval even though under laissez faire their output always exceeds the socially optimal output this subsidy however induces firms to produce less than they would under laissez faire

credible communication in dynastic government abstract this paper studies information disclosure in a model of dynastic government when information about past policy choices comes exclusively from the reports of previous administrations each administration has an incentive to choose its suboptimal one shot expenditure policy and then misrepresent its choice to its successor consequently it has been suggested that horizontal accountability i e a system of governance where auditing functions lie outside the executive branch can ensure credible disclosure of a government s activities this paper suggests a cautious approach to that view the baseline model examines the reporting incentives of an external auditor who can independently verify the information each period even with auditing credible disclosure is shown to be problematic various extensions to this baseline model are examined in one extension liberal i e those prefering larger government expenditures and conservative those prefering smaller expenditures regimes and auditors evolve over time it is shown that conservative liberal auditors are not credible when the current regime is also conservative liberal moreover because information transmission stops when the auditor s and the regime s biases coincide effective deterrents even in the good periods when the auditor s and the administration s biases differ are difficult to construct in all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices these constraints are shown to bind away from optimal policies in standard constructions of equilibrium various ways in which auditing protocols can overcome these problems are discussed

optimal taxation of exhaustible resource under monopoly abstract this paper deals with the problem of using taxes or subsidies to correct the inefficient resource allocation under monopoly in this paper the question raised is what would be the optimal tax on resource extraction under monopoly ultimately it is shown that taxes may be devised to generate price and extraction paths under monopoly that are identical to those under the competitive equilibrium tax policy can thus be used as an instrument for changing the distortionary resource allocation generated by the monopolist

the cyclical sensitivity of regional employment and unemployment differentials gordon i r 1985 the cyclical sensitivity of regional employment and unemployment differentials reg studies 19 95 110 this paper examines inter regional variations in the cyclical sensitivity of employment and unemployment in the uk over the past thirty years it shows that the patterns for employment and for unemployment are quite different the cyclical sensitivity of unemployment is greatest in the high unemployment regions while that for employment is greatest in the more industrial regions it is argued that the primary reason for differences in the sensitivity of unemployment is not demand side factors but cyclical variations in labour mobility between regions lower mobility in periods of high unemployment reduces the effectiveness of inter regional supply adjustments and increases the variance of unemployment rates

incentive contracts and elections for politicians with multi task problems abstract we consider a model with a politician facing a multi task problem while in office the reelection mechanism distorts the allocation of effort in favor of tasks whose outcomes can be measured more precisely than others we show that a combination of elections and incentive contracts can alleviate this inefficiency the incentive contract does not require direct information about the performance of the politician and is self financing across terms

optimal taxation of a monopolistic extractor are subsidies necessary abstract this note reconsiders the optimal taxation problem when extraction of an exhaustible resource is monopolistic in a standard model i explicitly characterize and examine all the efficiency inducing paths of taxes subsidies on the resource consistently with the literature there is a family of such optimal paths in contrast with im 2002 it may not be necessary to subsidize the monopoly at any date within the family of optimal paths of taxes subsidies there may exist some paths along which the regulator raises positive revenues at all dates this illustrates how the static trade off between inducing efficiency and raising tax revenues in the presence of market power is relaxed under exhaustibility

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

the optimal number of firms in the commons a dynamic approach we consider a common property resource sold in imperfectly competitive markets there is a dynamic externality current harvests lower future stocks raising future harvest costs and a static crowding externality increasing industry size raises costs but lowers prices thus it has ambiguous welfare effects the optimal industry size typically changes over time so that a first best outcome cannot be obtained with a fixed number of firms single firm exploitation is optimal only under special circumstances the socially optimal open loop steady state industry size corresponds to the static optimum both generally differ from the closed loop steady state optimum

the relationship between regional and national unemployment an important issue in the analysis of regional unemployment is whether movements in regional unemployment rates reflect the impact of region specific shocks or shocks affecting the entire economy previous studies have examined this problem by considering how the regional rates move in relation to the national unemployment rate however it has to be remembered that the national rate is merely a weighted average of the regional rates in this paper we show that misleading correlation or regression results are likely to be generated by such models and that the problem can best be avoided by utilizing available information about the interactions between the regional unemployment rates directly rather than their relationship to the national rate the theoretical arguments are illustrated with simulation experiments and as a practical example we consider the relationship between regional and national unemployment in australia une question cle quant a l analyse du chomage regional c est de savoir si oui ou n