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

inflation and asset returns in a monetary economy postwar u s data are characterized by negative correlations between real equity returns and inflation and by positive correlations between real equity returns and money growth these patterns are closely matched quantitatively by an equilibrium monetary asset pricing model the model also implies negative correlations between expected asset returns and expected inflation and it predicts that the inflationasset return correlation will be more strongly negative when inflation is generated by fluctuations in real economic activity than when it is generated by monetary fluctuations the co movements of real asset returns inflation and money growth have been studied extensively over the past fifteen years table i displays some of the statistical properties of these series using quarterly u s data from 1959 to 1990 note first the significantly negative correlation between real equity returns and inflation note also the negative correlation between inflation and the ex post real return to nominally riskless bonds while this fact is not particularly surprising numerous studies conclude that the correlations between ex ante real asset returns and expected inflation are also negative 2 in contrast to these patterns the correlation between money growth and real equity returns is weakly positive in the data while the correlation between money growth and the real bond return is virtually zero initially these empirical patterns were viewed as anomalies negative correlations between inflation and ex post real stock returns contradict the traditional view that equities ought to act as an inflation hedge 3 negative correlations between expected inflation and ex ante real returns violate the

stock market returns and inflation evidence from other countries this paper investigates the relation between common stock returns and inflation in twenty six countries for the postwar period our results do not support the fisher hypothesis which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one to one correspondence with expected inflation there is a consistent lack of positive relation between stock returns and inflation in most of the countries

on the stability of u s politics post sample forecasts and refinements of the congleton shughart models of social security and medicare benefit levels an important issue associated with empirical research is the extent to which statistical results continue to hold in the post sample period although many tests of robustness within the period of a given study are routinely reported relatively little attention is paid to model performance in the post sample period this paper examines the post sample performance of the congleton and shughart econ inq 28 1 109 132 1990 estimates of three public choice models of social security benefit levels the social security program is the single largest line item in the federal budget so examining the post sample performance of the congleton shughart estimates also sheds light on the long run stability of political processes in the united states in general we find that the three public choice models perform well in the post sample period although there are several caveats to that conclusion the results of our post sample study also suggest that the political processes of the united states with respect to major fiscal policies are more stable and robust than news reports suggest

the growth of social security electoral push or political pull the growth of social security electoral push or political pull i introduction during the post world war ii period the social security program was among the fastest growing programs in the federal budget surpassing defense spending as the largest category of expenditures in the mid seventies the program which disbursed only 132 million dollars in 1942 disbursed more than 156 billion dollars forty years late a thousand fold increase as a consequence of this growth and the program s recent financial problems a number of economists have turned their attention to the economics of social security recent examples include kahn 1988 boskin et al 1987 and veall 1986 yet only weaver 1982 and turner 1984 attempt to analyze the growth of the social security program weaver s legislative history of the program suggests that special interest groups had a major impact on social security programs turner argues that program benefit levels are affected by demographic changes which affect the cost of intergenerational redistribution in this paper we use the public choice approach to explain increases in benefit levels from 1946 1980 we develop and test three alternative public choice models of the politics of retirement benefit levels our analysis thus sheds light on an important question neglected by previous research have social security expenditures grown because special interest groups have effectively captured the congress or is congress simply responding to demands placed on it by the electorate the answer to this question is relevant to normative analysis of existing programs and to alternative proposals for reform in addition our study of the principal determinants of the growth of program benefit levels serves as an event study for assessing the merits of alternative theories of political decision making borcherding 1985 discusses two public choice explanations for the growth of public expenditures first public programs may expand as a result of the voting rules which underlie the political process when decisions are made by majority rule an increase in the median voter s demand for public services tends to increase public service levels because prospective candidates will revise their policy positions in order to be elected the wagner 1958 hypothesis for example maintains that increases in real income cause individuals to prefer both absolutely and relatively larger public expenditures borcherding notes that about 40 percent of the rate at which public sector spending has replaced private sector spending over the past eighty years can be explained with a median voter approach such an approach does better in what borcherding calls traditional areas of public expenditure where a median voter model can account for about 73 percent of the rate at which public expenditures excluding transfers have displaced private expenditures the median voter might favor public transfers to the elderly for two reasons first he may have an interdependent utility function in which the plight of the elderly poor arouses a charitable response while the redistribution from young to old does not simply target the old poor as a group the elderly do seem to be relatively less wealthy than the middle aged and the yound if one considers the average capitalized value of future income receipts from labor and capital second to the extent that the social security program offers a connection between reductions in current consumption and increases in future consumption it is a rather complex savings and insurance program the median voter s motivation for transferring monies to today s elderly may be a vehicle for ensuring future transfers to himself while this explanation is difficult to motivate at the individual level since a savings program for future retirement need not pay anything to today s elderly a continuing program of tax funded transfers is plausible method of establishing the moral constitution necessary to ensure that future transfers do in fact take place

are more resources always the answer a supply and demand analysis for public health services in brazilian municipalities abstract the aim of this paper is to determine whether it is necessary to increase available resources to local governments or if better use of these funds is sufficient the paper contributes to the literature by looking both at the supply and demand for public health services if the demand is estimated correctly one can compare its expected value to actual health expenditures even if actual expenditures are lower than the estimated demand it is not certain that additional spending is necessary if the efficiency scores supply side indicate that local governments can simply save resources to make up for the difference then it is possible to reduce or bring to zero new resources only by requiring local governments to efficiently manage their expenditures since municipalities in brazil are very heterogeneous we estimate their efficiency using the metafrontier approach o donnell et al 2008 while we estimate the demand through an equation derived from the median voter theorem model using 2010 data we find evidence that efficient management of spending is sufficient to meet excess demand for goods and services in the health sector

energy policy and energy market performance the argentinean case in the early 1990s argentina liberalized and privatized the energy system trending to a total market oriented system and abandoning the use of energy policy since 2004 as a result of a boom in energy demand and constrains in energy supply argentina has gone through an energy problem mainly related to natural gas and electricity which derived in energy shutdowns in this frame this study explores the role of energy policy and institutions in argentina with the aim of discussing whether it has been properly used to contrast the observed lack of coordination between fossil energy reserves management and the demand of fuels in power generation the results of the analysis enhance the relevance of regulatory and control authorities as well as the active use of long run energy policy for the energy system performance in order to avoid coordination failures between subsectors of the system the relevance of energy consumption for the development process and the particular characteristics of energy systems require a wide planning perspective

the implications of first order risk aversion for asset market risk premiums abstract in an effort to explain simultaneously the excess return predictability observed in equity bond and foreign exchange markets we incorporate preferences exhibiting first order risk aversion into a general equilibrium two country monetary model when we calibrate the model to us and japanese data we find that first order risk aversion substantially increases excess return predictability however this increased predictability is insufficient to match the data we conclude that the observed patterns of excess return predictability are unlikely to be explained purely by time varying risk premiums generated by highly risk averse agents in a complete markets economy

the causes of government expenditure growth a survey of the u s evidence abstract the growth of government budgets can be broken down into a institutional and institutional components the former component the familiar substitution income and population public goods tax sharing effects is estimated to contribute about two fifths of the growth of u s government spending the latter component rent seeking political redistributions bureaucracy and perceptual informational impedimentia is important too but an exact imputation cannot be asserted given the state of the art in empirical public choice theory the cross effects on spending of the growth of regulation and tax preferences or tax expenditures though interesting is not pursued

ideological conviction and persuasion in the rent seeking society abstract the paper develops a model of rent seeking in a democratic political context where voting as well as rent seeking matters in this context the paper demonstrates that voter ideology is a constraint on the rent seeking game as well as a possible avenue of rent seeking in a setting where there are both rent seeking and ideological interest groups rent seekers can free ride on the efforts of ideologues which tends to reduce rent seeking effort in a setting where complementary economic and ideological interest groups coordinate their efforts both rent seeking and ideological conflict tend to increase

the political economy of unfunded public pension liabilities this paper applies a public choice approach to the problem of unfunded pension liabilities and adopts the methodology of congleton and shughart 1990 to model underfunding of state level public pension plans using the median voter theorem along with the theory of capture by special interest groups and a combined model of the two with panel data from 2001 to 2009 the paper finds that the combined model provides the strongest explanation for the current levels of unfunded liabilities hence both median voter preferences and special interest group influence are affecting political outcomes the special interest group model slightly outperforms the median voter model in direct comparisons

demand for locally provided public services within the median voter s framework the case of the brazilian municipalities in this paper we estimated the demand for local public spending for the brazilian municipalities within a median voter s framework the rationale for applying that framework came from the fact that in federal systems voters preferences are more likely to be reflected at the local level as the consumers of public services have a better knowledge of the benefits and costs of the local public expenditures results obtained are consistent with the theoretical background thus suggesting that this hypothesis might be useful to describe the demand for local public goods in brazil in particular the use of quantile regression permitted us to investigate the impacts of the conditioning variables on local public expenses across different expenditures classes thus allowing for heterogeneity across municipalities our results also suggest that the impact of the city size on the quality of club goods shows crowding effects as is between zero and one however in the estimated models marginal congestion slightly d

the rise of the modern welfare state ideology institutions and income security analysis and evidence in the 25 year period between 1960 and 1985 there was a great expansion of welfare state programs throughout the west the fraction of gdp accounted for by social expenditures doubled in much of europe and grew by 40 50 in many other oecd nations after 1985 growth in social insurance programs slowed relative to other parts of the economy this paper explores the extent to which institutions and ideological shifts may have accounted for the period of rapid growth for differences in the extent of that growth and for the subsequent reduction in the growth rates of social insurance programs

the rhetoric and reality of redistribution it is customary when giving a presidential address to begin by remarking on how happy you feel i have an even stronger reason for being happy than most presidents it will at long last permit me to break into the southern economic journal up to this point referees of that august institution have always rejected everything that i sent them finally however i am privileged to put an unrefereed paper in the journal and hence do not have to worry about this one being rejected the audience may feel that although it is nice for me it is hard on the journal but under the sacred traditions of the southern economic association the editors and referees can do nothing about it the blame if there is any has to be laid on me and not on the management of the journal in a way the fact that i will not face referees is important because in this paper i propose to violate a number of implicit taboos in the discussion of income redistribution indeed i propose to argue that most of the current discussion of income redistribution is drastically defective this will not only include rawls it will include what most members of the economic profession normally say on the subject and presumably what the potential referees of this paper would have thought let me very briefly survey the existing economic as opposed to the philosophic literature on the redistribution of income firstly a good many economists have said simply that economics can say nothing about the subject because somebody gains and somebody loses but we can t say whether this is a good or a bad thing with our apparatus hochman and rodgers 9 have started another tradition of dealing with income redistribution in which the government is seen as simply organizing what is essentially a voluntary transfer from the better off american citizens to the less well off american citizens why the government should be used as an instrumentality for this kind of transfer was interestingly enough first explained by milton friedman 6 191 92 such redistribution has the interesting characteristic that it does not actually involve redistribution because the people who make the gift are maximizing their own utility and hence are better off it is a case in which human preferences are so arranged that a given dollar of income benefits two people a full dollar s worth the donor gains a dollar from expending money at its best use to him i e making a gift to the poor and the poor gain the dollar in a somewhat metaphysical sense it can be said here

political institutions and pollution control this paper models the selection of environmental policies under authoritarian and democratic regimes and tests the hypothesis that political institutions systematically affect the enactment of environmental regulations the results support the contention that political institutional arrangements rather than resource endowments largely determine policies concerning environmental regulation copyright 1992 by mit press

determinants of local school spending some consistent estimates the traditional median voter model predicts that median income and taxprice are the primary determinants of local school spending levels it further implies that lump sum grants wills be utilized like private income and thus income and grant coefficients should be the same our comprehensive search technique shows that excluding equalized assessed value these predictions hold up quite well over 2048 specifications income and taxprice elasticities are reasonable and tightly distributed with income and blockgrant effects of the same general size as note above any hint of flypaper effect is completely dependent on the inclusion of equalized assessed value in the regression equation since the state of new york has annual district level tax levy elections it would be hard to rationalize bureaucratic power or agenda control as capable of producing flypaper type effects so this absence is not surprising future research should 1 investigate the specification sensitivity of flypaper effects with other datasets and wealth variables and 2 examine election and tax rules for the possibility of budget maximizing actions by school officials finally the consistently positive effects of private schooling nonwhite and in poverty suggest that future work should attempt to model non linear income effects

social security liquidity and early retirement abstract this paper investigates the effect of social security on retirement decisions it argues that it is important to take realistic account of how recipients evaluate potential benefit flows the paper presents a simple retirement model in which liquidity constraints prompt individuals to use higher than market discount rates in evaluating future pension benefits as a consequence even an apparently actuarially fair early retirement benefit could on average discourage continued work using data on individual retirement decisions i find support for the argument that this phenomenon contributes to some of the observed increase in early retirement

inflation real returns and capital investment we find evidence for the hypothesis of mundell 1963 and tobin 1965 that the expected real return component of interest rates is negatively related to the expected inflation component in the mundell tobin model the variation in expected real returns is caused by the variation in expected inflation our evidence suggests however that the variation in expected real returns is more fundamentally an outcome of the capital expenditures process equilibrium expected real returns vary directly with capital expenditures in order to induce equilibrium allocations of resources between consumption and investment this positive relation between expected real returns and real activity which comes out of the real sector combines with a negative relation between expected inflation and real activity which is traced to the monetary sector thus inducing the negative relation between expected inflation and expected real returns predicted by mundell and tobin but explained in terms of a model much different from theirs

money and output a test of reverse causation this paper attempts to explain the correlation between money and output at various leads and lags with a model in which money is largely neutral and endogenously responds to output money is endogenous because both monetary policy and deposit creation are endogenous parameters are selected according to the simulated moments estimation technique while the estimated model succeeds along some dimensions in matching properties of postwar u s data its failure to match key patterns of lead lag correlations seems to cast doubt on the ability of endogenous money determination by itself to quantitatively account for the observed money output correlations copyright 1996 by american economic association

measuring the temporary component of stock prices robust multivariate analysis abstract we identify the temporary and permanent components of us stock prices through appropriate restrictions on a vector autoregression of real stock returns and changes in interest rates employing alternative robust estimation procedures designed to allow for non gaussian innovations

is german domestic social policy politically controversial this paper investigates empirically the influence of government ideology on social policy using german data examining the funding and the benefits of social security and public healthcare policy my results suggest that policies implemented by governments dominated by left and rightwing parties were similar over the 1951 2007 period leftwing governments however spent more in the 1970s and rightwing governments did so after german reunification in 1990 since policy convergence encourages new parties to enter the political arena and party platforms on social policy matters are likely to undergo further changes in light of demographic change the observed pattern may thus be a transitory phenomenon

the effect of inflation on stock prices international evidence paper presented at the september l980 meetings of the american economic and american finance associations in denver colorado

population age structure and the size of social security this paper uses a general overlapping generations model to analyze social security rather than focusing on intertemporal price and income considerations however the paper focuses on the effect of contemporaneous same period prices and income the analysis shows that the old age dependency ratio acts as a shadow price for old age benefits with this new shadow price the equilibrium price and quantity of social security benefits and the level of the payroll tax rate are determined in a demand supply framework with individual utility maximization three explicit demand functions intergenerational contracts are analyzed the model is tested using u s time series data for the social security old age and survivors oasi program excerpt

what drives public acceptance of reforms longitudinal evidence from a dutch pension reform governments often find it hard to pursue economic reforms even if they eventually will benefit a majority of voters the literature remains inconclusive about the reasons for this some scholars on the one hand stress the role of distributional conflicts between different classes for instance dividing the young and the old in the case of pay as you go pensions others have highlighted that resistance to reform is rather broad based owing to the public s poor understanding of the need for reform this paper attempts to disentangle the drivers of public acceptance of reform by means of a case study the 2012 increase of the dutch statutory retirement age from 65 to 67 we exploit a unique longitudinal dataset on the attitudes of dutch households respecting pension reform in the 2003 2013 period our findings offer various new insights first we find that education occupational status and psychological traits were the most systematic drivers of reform preferences while age had a limited impact second and significantly we find that the year fixed effects were the main drivers of respondents acceptance of reform we interpret the pattern of the year coefficients as evidence of a collective learning process whereby households gradually updated their expectations and reform preferences in light of new information

voters commitment problem and reforms in welfare programs when will a vote seeking government pursue unpopular welfare reforms that are likely to cost it votes using a game theoretical model we show that a government enacts reforms that are unpopular with the median voter during bad economic times but not during good ones the key reason is that voters cannot commit to re elect a government that does not reform during bad times this voters commitment problem stems from economic voting i e voters tendency to punish the government for a poorly performing economy the voter commitment problem provides an explanation for the empirical puzzle that governments sometimes enact reforms that voters oppose

public pensions as optimal social contracts abstract a simple overlapping generations model is modified to allow for an externality experienced by the young from consumption by the elderly this sets up a game between generations in which one generation s strategy may be to save too little and rely on gifts from the young e g public assistance for retirement income social security can therefore be viewed as a pareto optimal contract to restore efficient intertemporal allocation a funded public pension plan corresponds to forced saving but is vulnerable in that the next young generation may stop contributing rely on its children for retirement assistance and meanwhile reap the consumption externality from the current elderly s social security benefits this suggests a forced giving or pay as you go type of compulsory pension plan such as exists in most nations which also has the advantage of aiding the initial old generation and therefore generating an immediate consumption externality for the initial young the approach can also be used to explain other aspects of existing social security

inflation and real interest rates on assets with different risk characteristics given the importance of ex ante real interest rates to economic decision making it is no surprise that much empirical research focuses on them 1 several recent studies find that the ex ante real returns for short term u s treasury securities are not constant and are negatively correlated both with inflation and with nominal interest rates this paper examines the extent to which these findings hold for assets of longer maturity are robust with respect to the choice of price index and are stable over time we expand the set of assets studied to include those of longer maturity both publicly and privately issued for two reasons first their ex ante real returns may differ substantially from that of a short term nominally riskless security second because longer maturity assets have risk characteristics closer to capital their ex ante real returns are potentially more relevant for investment and savings decisions we explore the use of various price indices because the index used in most studies the consumer price index severely overstates inflation during the 1970s as a result of its inappropriate treatment of residential housing costs 2 this overstatement casts doubt on an important finding of previous studies that there are long stretches of time during the 1970s when ex ante real rates are significantly negative given the existence of holding costs for the goods relevant to most price indices and the absence of a riskless real return no arbitrage conditions are violated by a negative ex ante real rate however its persistence is problematical because asset holders are typically assumed to have a positive rate of time preference which ensures a positive ex ante real rate in the long run we find that before 1979 a negative relationship of ex ante real rates both with inflation and with nominal interest rates appears for the longer maturity assets as well as the short term nominally riskless asset indeed the relationship grows

solving estimating and testing a nonlinear stochastic equilibrium model with an example of the asset returns and inflation relationship abstract this paper describes a method for solving estimating and testing a fully specified nonlinear stochastic equilibrium model by simulation a nonlinear stochastic asset pricing model with production and money is formulated which aims to explain observed empirical relations between inflation and asset returns complete solution paths to the equilibrium model are generated through a backwards mapping method the parameters of the model are estimated by simulation taking account of the broad range of dynamics of the model and overidentifying restrictions of the model are tested by extending gmm procedures

campaign finances and political platforms the economics of political controversy one implication of the widely used median voter model is that candidates have little to gain by disagreement apart from some epsilon of controversy necessary to demonstrate which candidate is closer to the median voter position in the policy dimension in question votes are maximized by taking essentially identical position this is true at the nash median voter equilibrium and is true away from equilibrium as a consequence two candidate competition within one dimensional policy domain is expected to generate considerable agreement about appropriate policy we do in fact observe that in many elections candidate positions converge to very similar positions on matters of broad concern it is largely this convergence that gives the median voter model its considerable credence in spite of the fragility of the underlying theory on the other hand the convergence is rarely as complete as might have been expected and there are elections where candidates take substantively different positions this paper explores the extent to which the campaign contributions of politically active groups may draw candidates away from the median voter position as candidate seek funds to run effective election campaigns candidates gener

voting for pollution policy the importance of income inequality and openness to trade abstract this paper analyzes how openness and the distribution of factor ownership interact to determine individual and aggregate demand for pollution policy analysis of voter preferences in autarky shows that an increased stake in either the dirty or the clean industry can induce an individual voter to prefer stricter environmental policy similarly the paper shows that poorer voters may be the greener voters within an electorate the model also reveals that the incidence of pollution policy depends upon a country s trade regime with consequences for the direction in which income inequality influences aggregate demand for pollution policy

the political economy of the essential air service program we find that congressional influences affect the amount of airport subsidies that a congressional district receives through the essential air service eas program the eas program was passed with the goal of helping to continue commercial air service to rural communities following deregulation in the 1970s using data from 1998 2014 we find strong and consistent evidence that subsidies are higher in districts having congressional representation on the house transportation and ways and means committees our empirical results when combined with news reports of members claiming credit for securing eas funding are consistent with the eas serving private and public interests

home production with endogenous growth abstract benhabib et al 1991 and greenwood and hercowitz 1991 demonstrate that general equilibrium beckerian home production models that incorporate separate technology shocks to the home and market production functions are able to explain either the comovements in employment across consumption and investment sectors of the economy or the comovement in output across market and home investment sectors but not both simultaneously this paper demonstrates that these comovements can be resolved by introducing endogenous growth into the model while retaining only a single technology shock to market production the additional margin for allocating time between formal training and market activities is sufficient to bring about the observed positive comovements in employment and output across sectors

is the median voter a clear cut winner comparing themedian voter theory and competing theories in explaining localgovernment spending this paper attempts to test the power of the median model againstthe respective strength of other alternate models based onredistributive political institutional and interest group theoriesin explaining the demand for public spending in new york statecounties during 1990 1980 and 1970 to execute the comparison ofthe performance of median voter model with that of each of thenonmedian voter ones various nonnested tests such as j and jatests n tilde w and encompassing tests have been employed results of the study show that although the median voter model hasa marginal edge over the rival models based on the alternativetheories it may not be relied upon solely when many otherinstitutional redistributive and interest group factors are alsorelevant for explaining public spending the results of this studydiffer from those in congleton and bennett 1995 we do not findthat interest group models are substantially weaker than the medianvoter model

on the political economy of state highway expenditures some evidence of the relative performance of alternative public choice models this paper explores the extent to which the public demand for roads and or power of special interest groups determines road expenditures at the state level using an extension of the methodology developed in congleton and shughart 1990 reduced form models of median voter demand special interest group equilibria and a combined model are estimated using cross sectional state data from the united states we generally find support for the hypothesis that voting matters the pure median voter models have a better fit than the pure special interest group models moreover in our combined model we find that variables from the median voter model can not be dropped without significantly reducing the combined model s fit

does money explain asset returns theory and empirical analysis a cash in advance model of a monetary economy is used to derive a money based capm m capm which allows us to implement tests of asset pricing restrictions without consumption data a test as in fama and macbeth of the model suggests that the money betas have some explanatory power for the cross sectional variation of expected returns however the model is rejected using conditional information consistent with our predictions estimates of the curvature parameter are lower than those of the consumption capm c capm and pricing errors of the m capm tend to be smaller than those of the c capm while the relation between asset prices and real macroeconomic variables such as aggregate consumption has been extensively investigated less attention has been devoted to the relation between monetary aggregates and asset prices that arises from models which incorporate a monetary sector it is often argued that one possible reason for the rejection of the consumption oriented capm c capm is the absence of monetary considerations this paper takes a step towards encompassing money into the c capm and proposes a moneybased capm m capm that can be tested without using consumption data this m capm is interesting in the way it captures the time series and crosssectional variation in stock returns and it provides insights in the possible misspecification of existing c capm models the setup is based on the cash in advance model of lucas and stokey 1987 in which some consumption goods are financed with outside money i e cash and some are financed with inside money e g bank deposits the pricing results of this paper differ from those of other monetary models such as those considered by finn hoffman and schlagenauf 1990 or singleton 1985 which focus on the role of outside money in affecting the marginal utility of consumption instead we concentrate on inside money in asset pricing the focus on inside money is appealing because inside money reflects conditions in