democracy comes to europe franchise extension and fiscal outcomes 1830 1938 abstract this paper examines the relation between public spending and the spread of democracy in western europe during the period 1830 1938 our data set includes measures of the size of the electorate the election rule and electoral participation as well as measures of the size and composition of central government expenditures for 12 countries we estimate panel regressions and find that 1 the gradual lifting of socio economic restrictions on the voting franchise contributed to growth in government spending mainly by increasing spending on infrastructure and internal security 2 the female suffrage had a weak positive effect through spending on health education and welfare 3 the change from majority to proportional rule which took place in 10 of the countries did not contribute to growth in government spending and held back spending on health education and welfare 4 there exists weak complementarity between economic development and the spread of democracy

micro estimates of public spending demand functions and tests of the tiebout and median voter hypotheses responses to questions given to a random sample of michigan households are used to estimate public spending demand functions while income and price elasticities are similar to those obtained from aggregate data positive income elasticities appear to arise because public services are distributed in a prorich manner a relatively small variance in spending demands among urban and suburban communities in metropolitan areas with substantial public service variety suggests that the tiebout mechanism works this interpretation is supported by the fact that actual spending conforms substantially to desired levels in urban areas but less so in rural areas with little public sector choice

which median voter under the median voter model the demand for local government spending is a function of the median voter income and median tax price of spending in the jurisdiction the theory provides a convenient framework for analytically aggregating the individuals public spending demands into a community public demand function it does not however provide guidance when selecting the proper definition of median income and tax share variables in empirical models data availability often dictates the selection of empirical proxies in applications but the question nonetheless remains is the appropriate empirical proxy median family income median household income or some other median income measure this paper addresses this and related questions concerning the specification of empirical expenditure functions for local governments the median voter model has proved to be an enduring device in public economics but even while it continues to be widely used in both theoretical and empirical studies of local government spending behavior the median voter model itself has become the focus of study although various specifications and modifications have been examined and compared in the literture the question of the appropriate median definition in empirical models has been overlooked thus far the usual methods of testing competing specifications in the local public spending literature is to evaluate prediction errors or the sign of key parameters in an estimated expenditure function 4 6 9 11 14 19 the nature of our question however requires a different type of test one capable of evaluating competing hypotheses that entail mutually exclusive functional forms or sets of regressors the cox test represents an appropriate procedure for evaluating the competing median definitions and related functional form questions in this paper this test based on theoretical results by cox 2 3 has several advantages in our application first the test is tractable and the statistics have well defined properties the asymptotic distribution of the calculated statistics are known thereby avoiding the use of bootstrap or other simulation methods in our evaluation second the test allows for bilateral rejection so that we

price and income distortions under separate spending and taxing decisions abstract this paper analyzes the extent to which intergovernmental grants create a discrepancy between the local voter s actual and perceived budget constraints the model is innovative in that it introduces grant illusion due to income misperceptions theoretically distinguishes illusion caused by income distortions from illusion caused by price distortions and separately tests for the magnitude of each empirical analysis identifies both price and income misperceptions as significant determinants of voter behavior these unbiased estimates reveal that previous research has misspecified the budget constraint resulting in overestimation of the stimulative effects of intergovernmental grants on local expenditure

fiscal illusion uncertainty and the flypaper effect abstract the flypaper effect is the empirical observation that increases in intergovernmental aid stimulate greater local government expenditure than do increases in voter income fiscal illusion provides a widely accepted explanation for this asymmetry models of voter behavior under fiscal illusion typically assume that taxpayers consistently misperceive nonstochastic average for marginal tax prices this paper develops an alternative framework in which rational voters recognize marginal tax prices but must make tax and expenditure plans under imperfect information or uncertainty various sources of uncertainty are analyzed and related to the flypaper effect and implications for public expenditure demand theory are discussed

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

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

two sided uncertainty in the monopoly agenda setter model we extend the romer rosenthal model of representative democracy to a signaling environment in which i only the representatives knows the status quo outcome resulting if her take it or leave it policy proposal is rejected by the voters while ii only the voters know their true preferences over policies a separating sequential equilibrium is shown to exist and to uniquely satisfy a common equilibrium refinement furthermore this equilibrium has the property that relative to the environment where the status quo is known to the voter there is a downward bias in the setter s proposal and an associated upward bias in the probability of the proposal s acceptance by the voter

taxation and democracy swedish british and american approaches to financing the modern state taxation and democracy is the first book to examine the structure politics and historic development of taxation policies in several countries comparing three quite different political democracies sweden britain and the united states the book provides a powerful account of the ways these democracies have managed to finance their welfare programs despite widespread public resistance to taxes sven steinmo argues that the different political structures of these countries produce varying tax systems and by extension differing social policy regimes according to steinmo all democracies face a basic dilemma how government can be both autonomous and responsive to public wishes this dilemma is a crucial factor in explaining their different tax systems in the united states for example the system of multiple checks and balances and fragmented political authority has led to a tax system that is complex inefficient and has a low revenue yield sweden s corporatist model of government is less responsive to the will of the masses and so the country has a surprisingly regressive tax system that is stable efficient and has a high revenue yield its working class basically agrees to accept a heavy tax burden in exchange for heavy social welfare spending the british government which is dominated by strong parties can virtually dictate tax policy preferences to the parliament and so its tax system is highly unstable as is the distribution of tax burdens among classes steinmo demonstrates that the new institutionalism can account for both historic continuities and political change that common economic and political forces confronting these countries in the twentieth century were shaped by each country s changing political institutions his study thus makes an important contribution to comparative political theory as well as to our understanding of the development of the modern welfare state

the effect of implicit contracts on the movement of wages over the business cycle evidence from micro data in this paper we address the question of whether wages are affected by labor market conditions in a manner more consistent with a contract approach than with a standard spot market model from a simple implicit contract model we derive implications about the links between wages and past labor market conditions using individual data from the current population survey and the panel study of income dynamics we find that an implicit contract model with costless mobility describes these links better than either a simple spot market model or an implicit contract model with costly mobility

the effects of implicit contracts on wages evidence from the japanese labor market abstract this paper tests whether wages in japan s labor market are determined by current or past labor market conditions the empirical results are consistent with a model suggesting that labor market mobility may be limited and costly in japan for men

income instability and fiscal progression we construct the ratio of the post fisc transitory income variance to the pre fisc transitory income variance of family incomes as a measure of fiscal progressivity in canada between 1993 and 2008 this ratio can be interpreted as measuring the extent to which the fiscal system attenuates personal income instability we find that the tax and transfer system has been less eective in stabilizing market incomes after 1998 compared to the previous years this is attributable to the provincial and federal tax reforms from 1999 2001 which particularly aected families headed by individuals with less than high school education while the reforms reduced the eective marginal tax rates faced across all educational groups the reduction is relatively larger among families with highly educated main earners moreover the group with less than high school education is distinct in that the average eective tax burden in this group increased changes to social assistance also appear to have played a role

wages implicit contracts and the business cyle evidence from canadian micro data evidence of macroeconomic conditions impacting the earnings of men in canada in a manner consistent with an implicit contracting framework is found using data from eleven cross sectional surveys spanning the years 1981 1992 the estimates are similar to those found by beaudry and dinardo 1991 using u s data their analysis is extended to incestigate whether the effects of macroeconomic conditions differ by age evidence is found that the wages of young men and men near retirement are most sensitive to changes in the macroeconomic conditions over their job tenure this abstract was borrowed from another version of this item

the flypaper effect and other anomalies abstract i develop a model in which income both in its own right and as a proxy for other socioeconomic characteristics is an input in the production function for local public services the most obvious example is education though there are other applications as well the comparative statics results from this model yield the following results 1 the observed flypaper effect the tendency for local government to spend a higher fraction of unrestricted grants than income of residents may be due at least in part to the fact that own income but not grants is a substitute for purchased inputs in the technology hence the propensity to spend on purchased inputs out of own income is lower than out of grants 2 the income elasticity of demand for public sector output may be higher than the observed income elasticity of demand for purchased inputs 3 equalization of educational opportunity via wealth neutrality as suggested by feldstein requires major changes in education finance once we recognice the distinction between purchased inputs and output

fiscal illusion and the grantor government empirical studies indicate that unconditional intergovernmental grants have a flypaper effect several authors have modeled recipient government spending under fiscal illusion to explain this phenomenon in short grants reduce the perceived marginal cost of recipient government output this paper develops a more general model of illusion that incorporates the grantor government thereby eliminating inconsistencies encountered in previous models the more general model implies that grant finance increases the perceived marginal cost of grantor government output thus grant induced illusion should have two effects an increase in recipient output and a decrease in grantor output the empirical work supports this hypothesis

how progressive is the u s federal tax system a historical and international perspective this paper provides estimates of federal tax rates by income groups in the united states since 1960 with special emphasis on very top income groups we include individual and corporate income taxes payroll taxes and estate and gift taxes the progressivity of the u s federal tax system at the top of the income distribution has declined dramatically since the 1960s this dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labor income the sharp drop in statutory top marginal individual income tax rates has contributed only moderately to the decline in tax progressivity international comparisons confirm that is it critical to take into account other taxes than the individual income tax to properly assess the extent of overall tax progressivity both for time trends and for cross country comparisons the pattern for the united kingdom is similar to the u s pattern france had less progressive taxes than the united states or the united kingdom in 1970 but has experienced an increase in tax progressivity and has now a more progressive tax system than the united states or the united kingdom

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

welfare capitalism and the social security act of 1935 a central concern of political theorists has been the relationship between the state and the economy or more specifically how political power gets translated into economic power recent debates have been shaped around critiques of the corporate liberal thesis which contends that class conscious capitalists manipulate the polity so that government comes to pursue policies favorable to capitalism alternative theories suggest that the state is capable of transcending the demands or interests of any particular social group or class the social security act of 1935 which represented the beginning of the welfare state in the united states was a conservative measure that tied social insurance benefits to labor force participation and left administration of its public assistance programs to the states in this paper the social security act is used as a case study to adjudicate between several competing theories of the state the analysis demonstrates that the state functions as a mediating body weighing the priorities of various interest groups with unequal access to power negotiating compromises between class factions and incorporating working class demands into legislation on capitalist terms a central concern of political theorists has been the relationship between the state and the economy or more specifically how economic power gets translated into political power recent debates have been shaped around critiques of the corporate liberal thesis which stresses the strategies of class conscious capitalists to manipulate the polity alternative theories suggest that the state is capable of transcending the demands or interests of any particular social group or class the core agenda of those espousing some variant of corporate liberalism has been to explain how major economic interests manipulated the polity in the twentieth century so that government came to pursue policies favorable to capitalism domhoff 1979 kolko 1963 o connor 1973 useem 1983 according to this perspective capitalists rationally pursued a series of policies designed to allow them control of the political process resulting in a synthesis of politics and economics for example kolko 1963 has argued that the regulatory reforms of the progressive era traditionally explained as a respose to muckraker s criticism were actually desired by large industry as a way not only of controlling

a theory of top income taxation and social insurance the development of the welfare state in the western economies between 1930 and 1990 coincided with a puzzling pattern in the taxation of top incomes eective tax rates at the top increased sharply but then gradually decreased even as social transfers continued rising we propose a new theory of the development of the welfare state to explain these facts our main insight is that social insurance and top income taxation are substitutes for averting social con ict we emphasize the role of the great depres sion as a source of aggregate risk and argue that the rise of the welfare state can be understood as a process of exploiting e ciency gains in response to gradual technolog ical improvements in the provision of social insurance our detailed arguments build on the policy histories of the united states great britain and sweden

empirical studies in institutional change paternalism in agricultural labor contracts in the u s south implications for the growth of the welfare state the authors examine paternalism as an implicit contract in which workers trade faithful service for nonmarket goods paternalism reduced monitoring and turnover costs in cotton cultivation in the u s south until the mechanization of the cotton harvest in the 1950s until then the effectiveness of paternalism was threatened by government programs that could have substituted for paternalism but large southern landowners had the political power to prevent the appearance of such programs in the south with mechanization the economic incentive to provide paternalism disappeared and southern congressmen allowed welfare programs to expand in ways consistent with their interests copyright 1993 by american economic association

the effect of implicit contracts on the movement of wages over the business cycle evidence from the national longitudinal surveys a 1991 study by paul beaudry and john dinardo found evidence of internal labor markets that augment incumbent workers wages when the external labor market is tight when unemployment is low and shield their wages when it is slack current wages they found depend on the tightest labor market conditions observed since a worker was hired not current labor market tightness or labor market tightness at the time of hiring this paper replicates and extends that research using data from six cohorts of the national longitudinal surveys that together span more than three decades as well as an estimation framework more robust than that in the original study the author finds strong support for beaudry and dinardo s key prediction supplementary regressions confirm other implications of the theory as well recently at least the effect of implicit contracting on wages has been similar for men and women

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

the elusive flypaper effect abstract the flypaper effect is the common empirical result that lump sum intergovernmental grants stimulate more local government spending than increases in private income which are theoretically equivalent in this paper four of the best known explanations of the flypaper effect are tested using data from michigan school districts none of these explanations are confirmed by the data the cause of the flypaper effect is likely to be much more deeply rooted in the nature of local decision making than is currently recognized