inflation tax rules and the accumulation of residential and nonresidential capital the present paper analyses the effect of the interaction between tax rules and inflation on the size and allocation of the capital stock with particular emphasis on the role of owner occupied housing the analysis is developed in the framework of an economy that is in equilibrium and in which a constant fraction of disposable income is saved in this model i show that with current u s tax laws an increase in the rate of inflation reduces the equilibrium amount of business capital employed in the economy and raises the amount of housing capital the analysis also shows that a higher rate of inflation lowers the real net of tax rate of return to the provider of business capital in a richer model than the current one i e in a model in which the rate of personal saving was an increasing function of the net rate of return a higher inflation rate would therefore lower the rate of saving the present analysis also shows that permitting firms to depreciate investments more rapidly for tax purposes increases the accumulations of business capital but that unless firms are permitted to expense all in vestment immediately an increase in in lat ion continues to depress the accumulation of business capital this abstract was borrowed from another version of this item

taxes housing and capital accumulation in a two sector growing economy abstract it is sometimes argued that the favorable tax treatment afforded to housing may lead to an oversupply of housing at the expense of capital this issue is examined in the context of a growing two sector economy in the basic model where the rate of time preference is constant and labor is instantaneously sectorally mobile the long run response of the capital stock to a tax on housing depends upon the relative capital intensities of the two sectors while the long run relative asset price of housing remains unchanged the robustness of these propositions to changes in the model are considered taxes on capital are also analyzed

median voters or budget maximizers evidence from school expenditure referenda some readers may have found these results of greater interest were we able to confirm the directional hypotheses of the certainty setter model in addition to finding that spending is related to the reversion the much weaker prediction of the uncertainty model yet the failure of the certainty when base elections were optional their infrequent occurrence might be expected under either a median voter or a setter model for those districts that did hold base elections the observations appear consistent with a setter model but are either inexplicable by or inconsistent with a median voter model finally both a the relationship between the number of budget elections and the presence of base elections and b the outcome of mandatory base elections in 1978 provide a set of observations that are challenging to either model a similar challenge was posed by our investigation of budget elections when we called attention to the inadequacy of static full information models rather than resolving the question of the simple setter model against the simple median voter model our results indicate that both may be inappropriate and that endeavors dealing with complexities omitted here are warranted

has the median voter found a ballot box that he can control this paper examines the appropriateness of the median voter hypothesis within an agenda control framework where the alternative to a proposed expenditure level is the existing level evidence from new york state school districts suggests that within this institutional setting the actual level of public service provision does not differ significantly from the median voter s preferred level the evidence also suggests that demand function parameter estimates for educational expenditures are not sensitive to the assumption that the public service output level corresponds to the median voter s private equilibrium

pressure groups and public expenditures the flypaper effect reconsidered a model of government budgeting is developed in which lobbying by interest groups can divert the allocation of funds away from the one preferred by the median voter the model is applied to state and local governments to show that the flypaper effect the tendency for lump sum grants to increase public expenditures by more than an equivalent increase in the community s pretax income can be explained without the customary assumption of voter fiscal illusion furthermore the model predicts variation in the extent of the flypaper effect among expenditure categories as found in previous empirical studies

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

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

inflation capital taxation and housing the long run in a small open economy this paper deals with the consequences of inflation and capital income taxes for the accumulation of wealth in a small open economy with a housing sector particular attention is paid to the incentive and intergenerational redistribution effects stemming from the interaction of inflation and capital income taxation and to portfolio shifts between housing assets and other assets the authors find that the intergenerational distribution effects and the incentive effects on overall savings tend to offset and sometimes even to dominate several of the expected interasset substitution effects of a change in inflation and capital taxes

the duality of a dynamic model of equilibrium and an optimal growth model the heterogeneous capital goods case the equivalence between optimal growth solutions and solutions of decentralized models of intertemporal allocation is explored in a one consumer heterogeneous capital goods framework the decentralized economy follows a perfect foresight path the main result is that the decentralized economy will impose on itself a transversality condition this yields the interpretation of equilibrium prices as prices consistent with a certainty version of the efficient markets hypothesis the results rest on the recent contribution by benveniste and scheinkman providing sufficient conditions for infinite horizon concave programs to exhibit capital value transversality as a necessary condition for optimality

is the median voter decisive evidence from referenda voting patterns abstract this paper examines whether the voter with the median income is decisive in local spending decisions previous tests have relied on cross sectional data while we make use of a pair of california referenda to estimate a first difference specification the referenda proposed to lower the required vote share for passing local educational bonding initiatives from 67 to 50 and 67 to 55 respectively we find that voters rationally consider future public service decisions when deciding how to vote on voting rules however the empirical evidence strongly suggests that an income percentile below the median is decisive for majority voting rules especially in communities that have a large share of high income voters with attributes that suggest low demand for public services based on a model that explicitly recognizes that each community contains voters with both high and low demand for public school spending we also find that an increase in the share of low demand voters is associated with a lower decisive voter income percentile for the high demand group this two type model implies that our low demand types individuals over age 45 with no children have demands that are 45 lower than other voters collectively these findings are consistent with high income voters with weak preferences for public educational services voting with the poor against increases in public spending on education

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

community composition and the provision of local public goods abstract there is considerable evidence suggesting that the composition of the community that is the characteristics of the residents themselves plays a central role in determining levels of important public outputs such as education and public safety this paper explores the normative implications of this evidence we show that optimal community composition involves a trade off between the gains from homogeneity in demands among residents and the gains from heterogeneity in the production of those goods the analysis establishes a role for equalizing intergovernmental grants on efficiency grounds such grants can provide the needed incentives for sustaining heterogeneous communities

economic incentives and political institutions spending and voting in school budget referenda abstract allocation of resources in the local public sector involves economic and political forces in many u s states the bulk of spending on public education is subject to referendum we link spending proposals to referendum outcomes our model makes use of voting data to shed light on the extent to which referenda constrain spending we use data from school budget referenda in 544 new york school districts for the 1975 1976 school year our econometric results and simulations based on them reveal considerable sensitivity of spending to the form of the state grants in aid structure as well as to the referendum requirement in addition large school districts appear to behave more like budget maximizers than do small districts where proposals appear more in line with median voter demands

local politics and the demand for public education this paper expands on the school finance literature by using a political fragmentation index to calculate how political power affects educational spending in virginia usa the methodology allows the comparison of different political voices relative to each other and the consideration of the role of the distribution of political power political fragmentation is considered across several different dimensions including race age income and political parties using a demand for local public goods model it is found that along with traditional demand variables the interest group pressures dominated by the primary beneficiaries teachers and students increase educational spending while higher income and a larger percentage of african americans in the population reduce educational spending

optimal diversification and risk taking a theoretical and empirical analysis among the justifications for capital property income received by private households is that it is a return to risk taking however portfolio diversification provides an obvious means toward the reduction of risk moreover it is widely believed that the wealthier the household the more diversification it practices the larger tends to be the proportion of its total portfolio allocated to publicly traded stock and the larger tends to be the number of individual stock issues included in its portfolio using a simple homogeneous securities model explicit functional forms are obtained for both the optimal proportion of the portfolio allocated to stocks and the optimal number of individual stock issues in the portfolio empirical evaluation of these theoretical results using a dataset derived from the 2004 survey of consumer finances scf lends substantial support to the model applying these empirical results it is found that as household capital wealth increases expected capital income increase

housing taxation and capital accumulation this paper studies the impact of the preferential tax treatment of housing capital in a dynamic general equilibrium life cycle economy populated by heterogeneous individuals the model includes the main housing tax provisions currently in place in the u s and a minimum downpayment requirement upon purchasing non divisible houses the tax code makes the return on housing capital larger than that on business capital which distorts the lifetime profile and composition of individuals savings the wedge between the two rates of return emanates from the failure to tax imputed rents and is amplified by the presence of mortgage interest deductibility simulations show that individuals at all income levels would rather live in a world where imputed rents are taxed or one where mortgage interest payments are not deductible furthermore distributional effects are much smaller than conventionally believed

housing investment in the united states a supply determined model of housing investment is estimated from quarterly data over the 1963 83 period the model is built on dynamic marginal cost pricing considerations and allows short and long run supply elasticities to differ these are estimated as 1 0 and 3 0 respectively but most of the long run response occurs within 1 year rapid adjustment speed and the sizable long run elasticity of supply are important factors in understanding the volatility of housing investment the data also suggest some anomalies in the expected present value theory of asset pricing for housing capital

black white wealth inequality is inheritance the reason i introduction on average black americans have less wealth than white americans previous studies of wealth reveal that blacks hold on average between 10 and 25 of the wealth held by whites as reported in terrell 1971 smith 1975 sobol 1979 blau and graham 1990 and wolff 1992 a number of possible explanations for this gap have been suggested particularly differences in income and various socio economic characteristics between black and white households however the average difference in black white household income is much less than the difference in black white household wealth wolff 1992 reports that black household income averaged 63 of white household income in 1989 a ratio which had persisted over the previous twenty years consequently there must be additional factors which explain the greater racial wealth differential recently economists such as blau and graham 1990 and wolff 1992 have surmised that differences in intergenerational transfers might account for much of the unexplained racial difference in wealth we document the large difference in wealth between blacks and whites and then attempt to account for this difference paying particular attention to the effect of inherited wealth a number of investigators have speculated on the possible importance of inheritances in explaining racial differences in wealth in a comment on smith s 1975 analysis of black white wealth differentials vito natrella 1975 noted that smith only explained 25 of the wealth differential through differences in economic variables natrella conjectured that the really significant determinants not included in smith s analysis were prior income inherited wealth and the propensity to save p 370 wolff 1992 suggested that differences in intergenerational transfers provide a plausible explanation of the black white wealth gap but provided no supporting evidence in a recent article blau and graham 1990 attempted to explain racial differences in wealth at the household level as a result of differences in household income location and demographic factors however they found that three quarters of the racial difference in wealth remained unexplained they speculated that racial differences in inheritance and other intergenerational transfers most likely play an important part p 338 in explaining the remaining black white differences in wealth if true this explanation would have important policy implications e g higher rates of inheritance taxation could reduce wealth differences between races ii data in this paper we attempt to empirically verify the hypothesized importance of inheritances in explaining the differences in black and white household wealth our empirical analysis makes use of two data sets which report both household wealth and household inheritances the 1976 national longitudinal surveys of mature men nls76 and the 1989 survey of consumer finances scf89 the nls76 sample was chosen to be representative of the u s male population aged 45 to 59 years old in 1966 with an oversampling of black households our analysis focuses on the sample of 2 019 respondents who survived through 1976 and reported all variables required for our analysis 1 more information about the nls76 can be obtained from the center for human resource research 1992 the scf89 sample was chosen to provide a comprehensive picture of the financial situation of all u s households in 1989 the scf89 oversampled high income households we make use of the complete sample encompassing the multiple imputation procedure employed by researchers at the board of governors of the federal reserve system more information about these data can be obtained in kennickell and shack marquez 1992 since both data sets employ oversampling of particular population segments all sample statistics reported in this paper are sample weighted in the nls76 respondents were asked to report whether they or their spouse had received any girl inheritance or prize such as a lottery or award greater than 1 000

racial and ethnic differences in wealth in the health and retirement study this paper examines wealth data in the health and retirement study hrs in comparison with asset data in other major surveys the quality of hrs asset data is high missing asset data does remain a problem however to which future hrs analysts must remain sensitive evidence is presented showing that it is no accident that asset data are missing and solutions for imputing missing data are developed finally racial and ethnic wealth disparities are large these minority wealth disparities are due in part to differential inheritances and desired bequests as inequities perpetuate themselves across generations the disparities are also due to lower minority incomes poorer health and an excessively narrow definition of wealth that excludes social security and employer pensions authors

the incidence of taxes a dynamic macroeconomic analysis abstract this paper analyzes the incidence of various tax changes using the intertemporal optimizing framework developed by brock and turnovsky the model contains a reasonably complete specification of the corporate sector in which firms have the choice of financial structure it also allows for a range of government financial policies although only one is considered in detail both the short run and the long run effects of changes in the personal income capital gains and corporate profit tax rates are analyzed it is shown that the effects of tax changes a vary between the short and long run b the effects of tax changes depend critically upon the financial structure adopted by forms and c may also depend upon government financial policy

asymmetric information and agenda control the bases of monopoly power in public spending abstract a pervasive empirical finding widely known as the flypaper effect is that lump sum intergovernmental grants generate considerably greater public spending by the recipient jurisdiction than would be predicted by equivalent shifts in personal income in that jurisdiction moreover such observations are inconsistent with standard median voter models of the political process we posit a model in which it is in the interest of suppliers of a collectively provided good not to generate full information to voters about outside aid the empirical results are consistent with flypaper and suggest that voters are very poorly informed about outside grants

incidence and efficiency aspects of differential taxation of residential and industrial capital in a growing economy abstract this paper demonstrates that a compensated tax on income from residential capital would increase the steady state capital intensity in the industrial sector of the economy consequently the wage would rise and the gross of tax rate of return to capital in the industrial sector would fall the price of housing services may change in either direction secondly it is shown that maximization of steady state welfare requires different tax rates on income from residential and non residential capital it is demonstrated that if the gross of tax rate of return to capital in the industrial sector exceeds the population growth rate a compensated tax on residential capital or a compensated subsidy on non residential capital would enhance the steady state level of welfare conversely if the rate of population growth is greater than the gross of tax rate of return to capital in the industrial sector non residential capital should be taxed and residential capital should be subsidized

resource fungibility the flypaper effect and the expenditure impact of grants in aid the typical assumption that intergovernmental grants in aid alter a recipient s budget constraint according to the legal provisions of grant programs was first challenged by mcguire 1975 1978 in a model where local officials are able to convert some fraction of conditional aid into pure fungible resources this paper develops a model of local government expenditure decisions based on mcguire s original work and applies it to data for large u s city governments the results lend strong support to the fungibility hypothesis additionally and importantly the results provide very little evidence in support of the so called flypaper effect of unconditional grants this is due to a more appropriate specification of the unconditional aid variable

political markets property tax referenda and local school spending for better or worse fiscal decisions made through property tax referenda allow local political markets to work demand supply and voting process components of such markets are estimated for those oregon k 12 school districts that held referenda between 1981 and 1986 various attributes of the median voter were related to school spending but supply decisions by school boards and administrators were also important large districts used state aid to substitute for local property tax revenues on nearly a one for one basis while relying on reversion budgets inadequate property tax bases and implicit threats of school closures to extract greater than desired spending levels from the median voter

disentangling the demand function from the production function for local public services the case of public safety abstract in this paper we develop a theoretical framework and an econometric model which allow us to separate the effect of income and other socioeconomic variables on the demand for publicly provided goods from their effect on the price of those goods we apply our approach in a study of expenditures for police protection in a cross section of 73 u s cities and counties our results suggest that studies of public expenditures which fail to incorporate community characteristics in production and cost functions can yield very misleading results

a general equilibrium model of housing taxes and portfolio choice we describe a model in which rental and owner housing are risky assets tenure choice is endogenous and each household is constrained to consume the same amount of owner housing that it has in its investment portfolio at each iteration in the search for an equilibrium we determine the new taxable income for each of 3 578 households from the survey of consumer finances and we use statutory schedules to find the marginal rate and tax paid equilibrium net rates of return are major determinants of the amount of owner housing but a logit model indicates that demographic factors are the main determinants of ownership rates in our simulation taxes on owner housing would raise welfare not only by reallocating capital but also by the government s taking part of the risk from individual properties and diversifying it away measures to disallow property tax or mortgage interest deductions do not help share this risk simulations of the 1986 tax reform indicate a small shift from rental to owner housing and

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

does voter turnout influence school bond elections this article investigates the role of voter turnout in school bond election outcomes it is widely believed that turnout is negatively related to bond approval rates conclusions from previous empirical research however may be misleading because many sociodemographic factors and election parameters that influence bond support are also likely to influence voter turnout decisions to account for the endogeneity of turnout we employ an instrumental variable approach we find that the persistent part of voter turnout plays a negligible role in explaining bond approval shares conditioned on election timing past voting behavior and district characteristics using first difference models change in turnout has a negative and significant influence on change in approval share and probability of bond success our results support previous research and suggest that targeted voter mobilization strategies have the potential to influence school bond outcomes

capital income taxation and perfect foresight abstract this paper develops a perfect foresight model of capital income taxation in a representative household neoclassical one sector framework the household sector is based on intertemporal utility maximization the main result is the equivalence of a perfect foresight solution and an artificial central planning solution if there is no tax this is the equivalence of a market equilibrium and social optinum the equivalence result is used to deduce the implications of a partial tax reform policy it is shown that a partial reform increases capital at each time following the initial period of the program

on the determination of the us aggregate health care expenditure per capita real health care expenditure is examined against three major groups of explanatory variables economic demographic and health stock and it is found that the three groups of variables have an impact on real health care spending other subcategories such as real private and government health care pharmaceutical dental home nursing ambulatory personal medical consumption and in patient expenditures have also been examined and have been found to be affected by the explanatory variables for several subcomponents there is evidence of supplier inducement of the demographic group of variables the ageing population had an impact only on the per capita real overall and private health care outlay and pharmaceutical spending also cointegrating relationships were found and consistent estimators of the elasticities found

tax incidence in a two sector growing economy with perfect foresight abstract the purpose of this paper is to re examine the long run incidence of taxation in so doing we shall employ a two sector perfect foresight equilibrium model with either a constant and variable discount rate in the former a change in a personal income tax or any selective tax e g a commodity payroll or profit tax on the investment goods sector affects either the factor price or factor income ratio all selective taxes on the consumption goods sector are neutral in the sense that they do not affect either ratio in the latter only the commodity tax on the consumption goods is still neutral

tiebout bias and the demand for local public schooling institute of university of ii business and california economic research berkeley center for real estate and urban economics working paper series working paper 86 109 tiebout bias and the demand for local public schooling by daniel l rubinfeld perry shipiro judith roberts these papers are preliminary in nature th urpose 39 to stimulate 39 ussion comment therefore they are not t cited or quoted 39 ny p ation wit express permissio the author graduate school of business administration

the impact of congestion on local public good production abstract this paper models local public goods production where allocation of the publicly provided input occurs simultaneously with production of the final service output the framework models local public goods as developed in club theory where congestion is an increasing function of population central to identification of the model is that the quantities of the input police are differentiated from the produced output safety estimation is across neighborhoods within a single city the results show there is a very low elasticity of congestion on average but safety in some neighborhoods in more congested than private goods

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

inflation taxes and housing a theoretical analysis abstract this paper examines the real effects of inflation under a distortionary tax system the presence of a tax subsidy to housing substantially alters the effects of inflation on the capital intensity of production and on the market interest rate the analysis suggests that not taxing the flow of services from housing has caused inflation to reduce capital intensity thereby decreasing u s productivity furthermore this tax subsidy has caused inflation to raise the real interest rate while reducing the after tax real returns to assets

residential mobility and the housing market in a two sector neoclassical growth model the impact of residential mobility and competitive housing markets on long run growth is examined using a two sector general equilibrium overlapping generations model in continuous time there is an infinity of agents with finite lives who adjust their housing consumption by moving which is costly we explore the model s steady state properties first with a free housing market then under rent control when the market clears through restrictions on the frequency of moves rent controls do not just reduce welfare they may increase the steadystate capital labor ratio