workfare wellbeing and consumption evidence from a field experiment with kenya s urban poor abstract restrictions like work requirements and constraints on voucher transfers are often used in social welfare systems but little empirical evidence exists on their impact on wellbeing we conducted a 10 day randomized experiment with 432 individuals living below the poverty line in the kawangware settlement of nairobi kenya testing two elements of social welfare design workfare versus welfare and restricted versus unrestricted vouchers participants were randomly assigned to a work condition involving daily work for unrestricted vouchers or one of two wait conditions involving daily waiting for vouchers that were either unrestricted or partially restricted to staple foods we find that working improved psychological wellbeing relative to waiting suggesting that the means of implementing welfare programs may have important effects on individuals beyond the impact of monetary benefit alone furthermore although the restrictions were inframarginal partially restricted vouchers crowded in spending on staple foods suggesting the existence of a flypaper effect in spending from restricted vouchers

human capital accumulation in a federation abstract more than half of the variation across u s school districts in real k 12 education expenditures per student is due to differences between rather than within states i study the welfare implications of redistribution of education expenditures by the federal government using an analytically tractable model of human capital accumulation with heterogeneous agents and endogenous state policies the net welfare effect of federal redistribution depends on a trade off between the positive effect of redistributing resources toward poorer states and the negative effect resulting from misallocation of population across states federal redistribution increases welfare in a calibrated version of the model

the poverty gap in school spending following the introduction of title i abstract title i of the 1965 elementary and secondary education act explicitly directed more federal aid for k 12 education to poorer areas for the first time in us history with a goal of promoting regional convergence in school spending using newly collected data we find some evidence that title i narrowed the gap in per pupil school spending between richer and poorer states in the short to medium run however the program was small relative to then existing poverty gaps in school spending even in the absence of crowd out by local or state governments the program could have reduced the gap by only 15 percent

modelling the transport sector fuel demand for developng economies abstract this paper concentrates on the transport sector of six developing countries with similar common denominators namely turkey thailand pakistan morocco tunisia and malaysia by using standard econometric techniques we analyse the evolution of oil demand for road transport in these countries in relation to independent variables such as income population price of gasoline and diesel etc unlike the treatment in the present literature on the subject gasoline and diesel consumption are estimated separately due to the high share of diesel in the total transport sector consumption on the basis of the estimation over the period 1970 1990 on a country by country basis we forecast the demand for these six countries until 2010 the results of this study indicate that the transport sector will be the driving force for energy and oil demand as part of economic growth in these developing countries its share in the future energy market structure is expected to grow consequently the pricing policies of oil products in this sector have a crucial role for shaping rational economic and energy strategies within the framework of rising environmental concern

the crisis of gasoline consumption in the iran s transportation sector fossil fuels have the greatest share in supplying the world s energy demands regarding the limited natural resources fuel consumption management and energy planning in the end user sectors are two great matters of importance among the fossil fuels gasoline is the principal fuel for light duty vehicles in iran fuel consumption especially that of gasoline has increased sharply with the growth rate of 10 2 for the year 2006 in comparison with that in 2005 turning into a big crisis in the recent years on the other hand enormous subsidies for importing 40 of domestic demands which have reached more than 10 billion us are too much to be supplied in this study we have assessed the gasoline consumption production import and prices reviewed main causes of the tremendous growth rate of consumption current conservation policies and their advantages or disadvantages swot analysis proposed short to long term solutions and strategies for efficient gasoline consumption management and finally current strategies and proposed solutions are analyzed and evaluated a foregone conclusion strongly suggests that not only the low price of motor gasoline but also mass production of vehicles with the conventional technology likewise affects motor gasoline demand a second conclusion is that gasoline crisis in iran has no straight solution and that fundamental strategies and policies are needed to solve the problem

market share market value and innovation in a panel of british manufacturing firms this paper examines the empirical relationship between technological innovations market share and stock market value new developments in the estimation of dynamic count data models are used to control for unobserved firm specific heterogeneity we find a robust and positive effect of market share on observable headcounts of innovations and patents although increased product market competition in the industry tends to stimulate innovative activity furthermore the impact of innovation on market value is larger for firms with higher market shares we argue that our results are consistent with models where high market share firms have incentives to pre emptively innovate

price competition and market structure the impact of cartel policy on concentration in the uk this paper examines the impact of firms conduct on market structure it studies the evolution of concentration in uk manufacturing following the abolition of cartels using a theoretical framework based on sutton s theory of market structure and a panel data set of four digit industries over 1958 1977 the econometric results suggest that the intensity of price competition has a positive impact on concentration in exogenous sunk cost industries as well as in advertising intensive and r d intensive industries the concentration market size relationship while negative in exogenous sunk cost industries breaks down in industries with high advertising or r d intensity

fiscal shenanigans targeted federal health care funds and patient mortality we explore the effectiveness of matching grants when lower levels of government can expropriate some of the funds for other uses using data on the medicaid disproportionate share program we identify states that were most able to expropriate funds payments to public hospitals in these states were systematically diverted and had no significant impact on patient mortality payments that were not expropriated were associated with significant declines in patient mortality overall subsidies were an effective mechanism for improving outcomes for the poor but the impact was limited by the ability of state and local governments to divert the targeted funds

endogenous federal grants and crowd out of state government spending theory and evidence from the federal highway aid program contrary to simple theoretical predictions existing evidence suggests that federal grants do not crowd out state government spending a legislative bargaining model with endogenous grants documents a positive correlation between grant receipts and preferences for public goods this correlation has likely biased existing work against measuring crowd out to correct for such endogeneity the model motivates instruments based on the political power of state congressional delegations exploiting this exogenous variation in grants the instrumental variables estimator reports crowd out that is statistically and economically significant this endogeneity may explain the flypaper effect a nonequivalence between grant receipts and private income jel d70 h40 h77

heterogeneous vertical tax externalities and macroeconomic effects of federal tax changes the role of fiscal advantage abstract how do state tax rates respond to federal tax shocks this paper presents a novel mechanism of heterogeneous vertical tax externalities across state levels of fiscal advantage showing that tax increases can be expansionary even without their reinvestment states rich in natural resources have a fiscal advantage in the inter state competition over production factors which allows them to respond better to increases in federal taxes and consequently attract capital from other parts of the nation we add heterogeneity in fiscal advantage levels to an otherwise standard model of vertical tax externalities and horizontal tax competition the model shows that irrespective of federal redistribution the contractionary effect of a federal tax increase can be overturned in fiscally advantaged states through an increase in their tax base using the case of the u s and narrative based measures of federal tax shocks a la romer and romer 2010 we provide empirical evidence for the various aspects of this mechanism specifically our baseline estimates indicate that controlling for federal transfers a 1 increase in the gdp share of capital related federal taxes at the beginning of a year increases the growth rate of the per capita tax base by approximately 0 7 in high fiscal advantage states at the end of it

active labour market policies and the efficiency of the european social fund in spanish regions abstractactive labour market policies and the efficiency of the european social fund in spanish regions regional studies this paper estimates the determinants of public expenditure on active labour market policies almps at the regional level using panel data from a sample of the 17 spanish regions 1989 2010 the estimations take into account endogeneity dynamics and spatial dependence among regions estimations outcome is interpreted with the help of a simple theoretical model of intergovernmental grants results reveal that the european social fund is not effective in its aim of promoting almp expenditure and show that rent seeking when regions compete to attract funds from a common pool provokes the opposite effect which is exacerbated in the presence of imitation

relying on the private sector the income distribution and public investments in the poor abstract what drives governments with similar revenues to provide very different amounts of goods with private sector substitutes education is a prime example i use exogenous shocks to brazilian municipalities revenue during 1995 2008 generated by non linearities in federal transfer laws to demonstrate two things first municipalities with higher income inequality or higher median income allocate less of a revenue shock to education and are less likely to expand public school enrollment they are more likely to invest in public infrastructure that is broadly enjoyed like parks and roads or to save the shock second i find no evidence that the quality of public education suffers as a result if anything unequal and high income areas are more likely to improve public school inputs and test scores following a revenue shock given their heavy use of private education i further provide evidence that an increase in public sector revenue lowers private school enrollment

cops and crime abstract the violent crime control and law enforcement act of 1994 established the community oriented policing services cops program that provided grants to states and localities to pay up to 75 of the cost for new police hires for 3 years to date the cops program has awarded almost 5 billion in hiring grants paying for 64 000 new police officers we use annual data from 1990 through 2001 from 2074 cities with populations in excess of 10 000 to show that for each officer paid for by grant funds the size of the force expands by 0 70 officers the size of cops grants are correlated with population and crime rates but not the pre cops time trends in crime rates or the size of the police force this allows us to use the size of cops grants as an instrument for the size of the police force in regressions where crime is the outcome of interest these models indicate that police added to the force by cops generated statistically significant reductions in auto thefts burglaries robberies and aggravated assaults

the empirics of the municipal fiscal adjustment we summarize the literature that uses the vector error correction model approach to analyze the dynamics of the municipal fiscal adjustment the international comparison between samples collected from entire countries and specific regions reveals interesting similarities but also remarkable differences the main similarities are the fulfillment of the intertemporal budget constraint the volatility of the budgetary components and the importance of the intergovernmental transfers as an adjustment instrument the most remarkable difference is the preponderant role of the own revenues in the usa probably reflecting the larger fiscal autonomy of us municipalities in most cases the large municipalities seem to be more dependent on grants than their small counterparts although this pattern is broken in japan finally partial evidence supporting the existence of moral hazard problems and the flypaper effect is provided

unsticking the flypaper effect in an uncertain world abstract we provide a novel explanation for the flypaper effect based on insurance arguments in our model the flypaper effect arises due to the differential response of precautionary savings to private income or fiscal transfers shocks in an uncertain world with incomplete markets the model generates two testable implications i the flypaper effect is a decreasing function of the correlation between fiscal transfers and private income and ii such relationship is stronger the higher is the volatility of fiscal transfers and or private income an empirical analysis of argentinean provinces for the period 1963 2006 finds strong support for the model s implications

the rise of the states u s fiscal decentralization in the postwar period article i nfo article history one of the most dramatic changes in the fiscal federalism landscape during the postwar period has been the rapid growth in state budgets which almost tripled as a share of gdp and doubled as a share of government spending between 1952 and 2006 we argue that the greater role of states cannot be easily explained by changes in tiebout forces of fiscal competition such as mobility and voting patterns and are not accounted for by demographic or income trends rather we demonstrate that much of the growth in state budgets has been driven by changes in intergovernmental interactions restricted federal grants to states have increased and federal policy and legal constraints have also mandated or heavily incentivized state own source spending particularly in the areas of education health and public welfare these outside pressures moderate the forces of fiscal competition and must be taken into account when assessing the implications of observed revenue and spending patterns

the flypaper effect what happens to a state s spending when it receives an unconditional grant from the federal government the standard theoretical analysis predicts that the increase in spending will be the same as that generated by an equivalent increase in local incomes or roughly 5 10 percent for most states in contrast numerous empirical analyses have found that spending increases by much more with some estimates near 100 percent this result is known as the flypaper effect since the money appears to stick where it hits the authors review this evidence as well as other studies that find similar behavior in firms

microenterprise growth and the flypaper effect evidence from a randomized experiment in ghana standard models of investment predict that credit constrained firms should grow rapidly when given additional capital and that how this capital is provided should not affect decisions to invest in the business or consume the capital we randomly gave cash and in kind grants to male and female owned microenterprises in urban ghana for women running subsistence enterprises we find no gain in profits from either treatment for women with larger businesses we strongly reject equality of the cash and in kind grants only in kind grants cause growth in profits suggesting a flypaper effect whereby capital coming directly into the business sticks there but cash does not the results for men also suggest a lower impact of cash but differences between cash and in kind grants are less robust there is suggestive evidence that the difference in the effects of cash and in kind grants is associated more with lack of self control than with external pressure

a predictive index for the flypaper effect abstract it is well established that lump sum public grants boost local government spending more than an equivalent increase in private income the flypaper effect one shortcoming of the related literature is that it presumes all communities have an identical propensity to consume from an intergovernmental grant this paper is one attempt to allow for a heterogeneous response the working conjecture is that government expenditure on administrative overhead is a gauge of voter control over fiscal decisions high overhead spending implies a lower provision of public services and a stronger role for revenue maximizing forces in the budget setting process as such the flypaper effect should be more marked in high overhead communities an overhead index is applied to a sample of pennsylvania communities in the philadelphia metropolitan area it is difficult to understand these governments spending propensities from various windfall revenues without the help of the overhead index supportive evidence for this approach because overhead data is widely available the technique here can be used to address important policy questions such as predicting variations in state government responses to the recently created lump sum welfare grants

who pays for public employee health costs abstract we analyze the incidence of public employee health benefits because these benefits are negotiated through the political process relevant labor market institutions deviate significantly from the competitive private sector benchmark empirically we find that roughly 15 percent of the cost of recent benefit growth was passed onto school district employees through reductions in wages and salaries strong teachers unions were associated with relatively strong linkages between benefit growth and growth in total compensation our analysis is consistent with the view that the costs of public workers benefits are difficult to monitor contributing to benefit oriented and often under funded compensation schemes

finders keepers forfeiture laws policing and local budgets to encourage anti drug policing the federal government and many state governments have enacted laws that allow police agencies to keep a substantial fraction of the assets that they seize in drug arrests we use rich new data on police seizures and local spending to explore the reactions of both governments and police to the incentives created by these policies we find that local governments offset police seizures by reducing their other allocations to police partially undermining the incentives laid out in statute and diverting the earmarked funds to other purposes police in turn respond to the real net incentives for seizures once local offsets are taken into account by increasing the drug arrest rate heroin prices also increase suggesting that the increased emphasis on anti drug policing raises the supply costs of illicit drugs these findings highlight both the promise and pitfalls of using financial incentives to solve agency problems in a federal system both local agents and intervening governments have sophisticated responses to financial incentives and these responses must be taken into account in both designing effective policies and evaluating their consequences 2007 elsevier b v all rights reserved

using a discontinuous grant rule to identify the effect of grants on local taxes and spending when investigating the effects of federal grants on the behavior of lower level governments it is hard to defend the handling of grants as an exogenous factor federal governments often set grants based on characteristics and performance of decentralized governments in this paper we make use of a discontinuity in the swedish grant system in order to estimate the causal effects of general intergovernmental grants on local spending and local tax rates the formula for the distribution of funds is used as an exclusion restriction in an iv estimation we find evidence of crowding in where federal grants are shifted to more local spending but not to reduced local tax rates

strategic r d with spillovers collusion and welfare the author considers a two stage r d then output or price duopoly game in which r d spills over so reducing the marginal cost of both the investing firm and its rival the author compares the noncooperative regime to three collusive regimes joint venture collusion on r d price fixing collusion at the price or output stage and merger collusion at both stages and evaluates under what circumstances a collusive regime improves welfare if spillovers are sufficiently large all three regimes are beneficial although mergers are more likely and price fixing less likely to produce specific benefits than are joint ventures copyright 1994 by blackwell publishing ltd

choice simplification a theory of mental budgeting and naive diversification we develop a theory of how an agent makes basic multiproduct consumption decisions in the presence of taste consumption opportunity and price shocks that are costly to attend to we establish that the agent often simplifies her choices by restricting attention to a few important considerations which depend on the decision at hand and affect her consumption patterns in specific ways if the agent s problem is to choose the consumption levels of many goods with different degrees of substitutability then she may create mental budgets for more substitutable products e g entertainment in some situations it is optimal to specify budgets in terms of consumption quantities but when most products have an abundance of substitutes specifying budgets in terms of nominal spending tends to be optimal if the goods are complements in contrast then the agent may consistent with naive diversification choose a fixed unconsidered mix of products and if the agent s problem is to choose one of multiple products to fulfill a given consumption need e g for gasoline or a bed then it is often optimal for her to allocate a fixed sum for the need

budget spillovers and fiscal policy interdependence evidence from the states abstract this paper formalizes and tests the notion that states expenditures depend on the spending of similarly situated states we find that even after allowing for fixed state effects year effects and common random shocks among neighbors a state government s level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors ceteris paribus a one dollar increase in a state s neighbors expenditures increases its own expenditure by over 70 cents

tax mix corners and other kinks abstractthis paper models the local tax mix determination process in the presence of statewide fiscal limitations the decentralized government finance archetype and shows how excess sensitivity of local public spending to grants the conventionally and somewhat misleadingly termed flypaper effect arises in the constrained tax mix irrespective of whether lower or upper limits bind and how it cannot in general be taken as a symptom of local government overspending an empirical application to italian province panel data provides consistent evidence of the role of corner solutions produced by two sided tax limits in explaining the sensitivity of local public expenditures to grants

does foreign aid promote the expansion of government building on the literature on public finance i seek to advance our understanding of variations in government size by exploring the impact of official development assistance on fiscal policy i hypothesize that foreign aid operates in accordance with the flypaper effect systematically generating incentives and opportunities for the expansion of government spending results from a time series cross sectional regression analysis of growth in government spending over the 1970 99 time period are consistent with the hypothesis for middle and lower income nations aid represents an important determinant of government expansion looking at the tax and revenue side of the equation however reveals a more perverse pattern of response aid promotes not only increased spending but also reduced revenue generation the results have important implications from both a theoretical and policy perspective inter alia they point to the potentially self defeating nature of efforts to promote market oriented programs of state retrenchment via development assistance as well as to the importance of incorporating international transfers into future research on government spending

housing booms and local spending abstract this paper examines how local governments adjust their spending in response to a temporary revenue windfall generated by a housing boom we focus on spanish local governments because of the intensity of the last housing boom bust experienced there and the large share of construction related revenues they obtain we find that windfall revenues were mostly used to increase expenditures above all current we seek to determine whether this behaviour was due to political myopia incumbents in contested elections increasing expenditures to convince uninformed voters about their competence or to extrapolation bias leading to the overstatement of the persistence of revenue shocks we find evidence for both mechanisms the propensity to spend is higher where local incumbents were elected by a narrow vote margin and lower in places with past volatility experience finally we also examine what happens during the bust and find that governments enjoying large windfalls during the boom had to cut their spending abruptly above all capital and raise taxes the adjustment during the bust was actually greater in those places that overspent more during the crisis

the acquisition and commercialization of invention in american manufacturing incidence and impact abstract recent accounts suggest the development and commercialization of invention has become more open greater division of labor between inventors and innovators can enhance social welfare through gains from trade and economies of specialization moreover this extensive reliance upon outside sources for invention also suggests that understanding the factors that condition the extramural supply of inventions to innovators is crucial to understanding the determinants of the rate and direction of innovative activity this paper reports on a recent survey of over 5000 american manufacturing sector firms on the extent to which innovators rely upon external sources of invention our results indicate that between 2007 and 2009 16 of manufacturing firms had innovated meaning had introduced a product that was new to the industry of these 49 report that their most important new product had originated from an outside source notably customers suppliers and technology specialists i e universities independent inventors and r d contractors we also compare the contribution of each source to innovation in the us economy although customers are the most common outside source inventions acquired from technology specialists tend to be the more economically significant in term of their gross commercial value as a group external sources of invention make a significant contribution to the overall rate of innovation in the economy innovation policies both public and private should pay careful attention to the external supply of invention and the efficiency of the mechanisms affecting the relationships between inventors and innovators

special interest groups and the allocation of public funds i propose a fully rational model of government contracting that explains differences in local government spending from grants and other income in this model violations of fungibility arise from dynamic interactions between politicians and interest groups with the ability to raise funds for the local government the predictions of the model are tested by exploiting unique features of windfalls received by states under a settlement with the tobacco industry although windfalls are legally unrestricted the median state increased spending on tobacco control programs from zero to 2 30 per capita upon receipt of funds the marginal propensity to spend on such programs is 0 20 from settlement revenue and zero from overall income states which were not involved in the settlement lawsuits spend less these results cannot be explained by existing models in the literature

government decision making and the incidence of federal mandates abstract this paper analyzes the effects of federally mandated program changes on state spending and revenues incorporating and evaluating the predictive value of several common theories of the state decision making process using several sources of exogenous increases in public medical spending i estimate that the entire state portion of the burden of mandated spending is borne by decreases in other public welfare spending while federal mandates may influence the composition of benefits at the state level it is much more difficult for them to change the total level of state transfers comparison of state reactions to different shocks suggests that these reductions are due in part to the substitutability of programs in the voter utility function but also in part to the stickiness of spending within budget categories states with greater racial differences between recipients and voters and states with less generous neighbors reduce other public welfare spending by even more alleviating the burden the medical expansions imposed on their taxpayers mandates may thus serve only to increase inequality across states

does partisan affiliation impact the distribution of spending evidence from state governments expenditures on education abstract how and why does partisan affiliation impact policy using a regression discontinuity strategy and focusing on state education spending we find that democratic and republican governors allocate spending differently in particular school districts with higher shares of minority students receive larger state transfers than other districts under democratic governors a similar pattern occurs in state transfers to higher education institutions this is true regardless of whether the governor is eligible for reelection we find no evidence that democrat governors are simply sending money to areas with a larger share of democrats these results suggest that the observed policy divergence is driven by differences in preferences of elected candidates

long term outlook of energy use and co2 emissions from transport in central and eastern europe a forecast of transport activity energy consumption and carbon dioxide emissions from transportation carried out under business as usual economic assumptions is presented for the 10 countries of central and eastern europe that have acquired the status of accession countries to the european union energy demand is projected under considerations of the dynamic evolution of transport modes and their use the evolution of automotive fuel prices which are assumed to gradually converge with western european price levels within the current decade and assumptions on efficiency improvements in all transport modes according to current technological trends and european regulations the results showing transportation energy demand to double and co2 emissions to be 70 higher in 2030 compared to 2000 are compared with other published forecasts and discussed with a view to potential future energy and environmental impacts in these countries outlining major policy implications r 2002 elsevier science ltd all rights reserved

hospital ownership and public medical spending the hospital market is served by firms that are private for profit private not for profit and government owned and operated i use a plausibly exogenous change in hospital financing that was intended to improve medical care for the poor to test three theories of organizational behavior i find that the critical difference between the three types of hospitals is caused by the soft budget constraint of government owned institutions the decision makers in private not for profit hospitals are just as responsive to financial incentives and are no more altruistic than their counterparts in profit maximizing facilities my final set of results suggests that the significant increase in public medical spending examined in this paper has not improved health outcomes for the indigent i introduction the hospital market is served by firms that are private for profit private not for profit and publicly owned and operated in this paper i examine how a hospital s type of ownership influences its response to profitable opportunities that are created by changes in government policy the policy change that i exploit was designed to improve the quality of medical care for lowincome individuals by significantly increasing hospitals financial incentives to treat them this program also substantially increased the revenues of those hospitals that had been serving a disproportionate share of the indigent i use this plausibly exogenous change in government policy to test three different theories of organizational behavior and then to assess the impact of hospital behavioral responses on health outcomes the response of organizations to changes in government policy will have an important impact on the consequences of these policies this is likely to be especially true in the medical sector in which the federal state and local governments contract directly

fiscal decentralization in rentier regions evidence from russia summary the paper argues that governments in regions that rely heavily on intergovernmental transfers and natural resource rents face serious distortions in their incentive structure as a result such regions tend to have more fiscally centralized governments than the regional characteristics would suggest data on russian regions in the late 1990s early 2000s support this hypothesis advancing intraregional fiscal decentralization in rentier regions could reduce policy distortions and make the subnational environment more supportive of economic development

foreign competition domestic knowledge base and innovation activities evidence from chinese high tech industries using panel data analysis for a sample of chinese high technology industries from 1998 to 2008 this study examines how industry characteristics affect industry innovation activities differing from existing studies our research considers the impact of foreign competition on innovation activities at industry level in a large emerging economy the results indicate that the intensity of competition from foreign invested enterprises fies and domestic skill intensity affect industry buy and make activities foreign competition is positively associated with the intensity of buy activity but negatively affects the intensity of make activity further the findings show that domestic skill intensity weakens the impact of foreign competitive pressure on innovation activities our empirical evidence has important policy implications

fiscal and spending behavior of local governments identification of price effects when prices are not observed this paper analyzes local public fiscal andspending behavior in a setting where localgovernments represented by the dominantparty or coalition are treated as utilitymaximizing agents the econometricanalysis which is based on a modifiedversion of eles recognizes total spendingas well as total income as endogenousvariables identification of the priceeffects is achieved by utilizing data onenvironmental cost factors and localtastes the performance of the estimatedmodel is investigated by testing itsability to make out of sample predictionsof local government behavior

mental accounting of public funds the flypaper effect in the lab abstract we report evidence from a series of laboratory experiments that focus on mental accounting of public funds groups of three players decide upon how much to redistribute within the group we measure the preference to redistribute when transfers are made either out of individual accounts the players own money or out of a common account the group s money since the common account is dissolved after each round and paid out to individuals its size should not affect the decision to redistribute the experiment is designed to control for anchoring as a potential confounding effect we find that the size of the common account significantly affects redistribution behavior specifically the transfer increases in the size of the common account this effect is significantly more pronounced when the transfer is paid out of the common account instead of the individual account we interpret these findings as evidence for a flypaper effect due to mental accounting

general revenue sharing and public sector unions abstract in this paper i find that in the context of a large intergovernmental general revenue sharing program implemented from 1972 to 1986 cities increased expenditures one for one with federal grants which is suggestive of a large flypaper effect furthermore i find that cities in states with pro union collective bargaining laws spent more than half of the transfers on increased wages while cities in states without such laws spent a greater fraction on increased government services these latter findings suggest that public sector unions play an important role in determining the usage and impact of intergovernmental grants

the effect of competition on wages and productivity evidence from the united kingdom abstract i examine the impact of competition on wages and productivity using a panel data set of u k manufacturing industries over 1954 1973 the introduction of cartel law in the united kingdom in the late 1950s caused an intensification of price competition in previously cartelized manufacturing industries but it did not affect those industries that were not cartelized the econometric results from a comparison of the two groups of industries before and after the introduction of cartel law provide strong evidence of a negative effect of collusion on labor productivity growth there is no evidence of any effect of collusion on wages these results are robust to controlling for the potential endogeneity of collusion and are further strengthened by a comparison with u s data

the value of school facility investments evidence from a dynamic regression discontinuity design author s cellini stephanie riegg ferreira fernando rothstein jesse abstract despite extensive public infrastructure spending surprisingly little is known about its economic return in this paper we estimate the value of school facility investments using housing markets standard models of local public goods imply that school districts should spend up to the point where marginal increases would have zero effect on local housing prices our research design isolates exogenous variation in investments by comparing school districts where referenda on bond issues targeted to fund capital expenditures passed and failed by narrow margins we extend this traditional regression discontinuity approach to identify the dynamic treatment effects of bond authorization on local housing prices student achievement and district composition our results indicate that california school districts underinvest in school facilities passing a referendum causes immediate sizable increases in home prices implying a willingness to pay on the part of marginal homebuyers of 1 50 or more for each 1 of capital spending these effects do not appear to be driven by changes in the income or racial composition of homeowners and the impact on test scores appears to explain only a small portion of the total housing price effect c 2010 by the president and fellows of harvard college and the massachusetts institute of technology

costs of taxation and the size of government existing theory on the form of government suggests that a parliamentary system promotes a larger size of government than does a presidential system this paper extends the existing theory by allowing for distortionary taxation a main result is that if taxation is sufficiently distortionary the parliamentary system may promote a smaller size of government than the presidential system the proposed mechanism appears consistent with several empirical patterns in the data that cannot be explained by other theories

r d reactions to high technology import competition for a seventeen year panel covering 308 u s manufacturers the authors analyze companies r d spending reactions to changes in high technology imports on average r d sales ratios were reduced in the short run as imports rose reactions tended to be more aggressive the more concentrated the markets were in which the firms operated when company r d operations were multinational and with greater company size and diversification reactions were less aggressive when special trade barriers had been erected reactions became more aggressive over the longer run copyright 1992 by mit press

competition innovation and the use of innovations i examine the effect of competition on the production and use of innovations using evidence from a natural experiment of policy reform the introduction of cartel legislation in the uk in the late 1950s i compare manufacturing industries which had been collusive and were therefore affected by the policy with those that had been competitive and were not affected the intensification of competition following the abolition of cartels caused a short run decrease in innovations produced but had no significant effect in the long run in contrast innovations used increased both in the short run and in the long run

multi tier targeting of social assistance the role of intergovernmental transfers albania provides a small amount of social assistance to nearly 20 percent of its population through a system that allows some community discretion in determining distribution this study investigates how well this social assistance program is targeted to the poor relative to other safety net programs in low income countries social assistance in albania is fairly well targeted nevertheless the system is hampered by the absence of a clear objective criterion to determine the size of the grants from the central government to communes as well as limited information that could be used to implement this criterion substantial gains in targeting could be achieved if the central government better allocated transfers to local governments even holding local targeting at base levels

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

capital investments and price agreements in semicollusive markets we consider a semicollusive market where firms compete in a long run variable such as investment in capital or capacity and collude with respect to a short run variable such as price or market shares our concern is with the potential destabilizing effect of the long run competition on the short run collusion we show that under a certain refinement of the equilibrium the set of equilibria is reduced to include just the one in which the collusive agreement is stable we then lend some support to the phenomenon of an inverse association between advertising and competition by investigating the conditions under which overcapitalization occurs in the above equilibrium

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

product and process innovation as a response to increasing imports and foreign direct investment the paper analyses the hypotheses that imports and inward foreign direct investment fdi have positive effects on the innovative activity of domestic firms because competition on the domestic market is thereby increased and domestic firms have to perform more efficiently to maintain their market position chamberlain s random effects probit approach which may account for individual heterogeneity depending on exogenous variables is used to analyse a panel data set containing 1270 firms of the german manufacturing industry from 1984 to 1988 it turns out that both import share and fdi share have positive and significant effects on product and process innovations

reviving leviathan fiscal federalism and the growth of government this article revisits the influential leviathan hypothesis which pos its that tax competition limits the growth of government spending in decentralized countries i use panel data to examine the effect of fiscal decentralization over time within countries attempting to distinguish between decentralization that is funded by intergovernmental transfers and local taxation first i explore the logic whereby decentralization should restrict government spending if state and local governments have wide ranging authority to set the tax base and rate especially on mobile assets in countries where this is most clearly the case decentralization is associated with smaller government second consistent with theoretical arguments drawn from wel fare economics and positive political economy i show that governments grow faster as they fund a greater portion of public expenditures through intergovernmental transfers

beyond incentives do schools use accountability rewards productively we use a regression discontinuity design to analyze an understudied aspect of school accountability systems how schools use financial rewards for two years california s accountability system financially rewarded schools based on a deterministic function of test scores qualifying schools received per pupil awards amounting to about 1 of statewide per pupil spending corroborating anecdotal evidence that awards were paid out as teacher bonuses we find no evidence that winning schools purchased more instructional material increased teacher hiring or changed the subject specific composition of their teaching staff most importantly we find no evidence that student achievement increased in winning schools supplemental materials for this article are available online

competition imitation and growth with step by step innovation is more intense product market competition and imitation good or bad for growth this question is addressed in the context of an endogenous growth model with step by step innovations in which technological laggards must first catch up with the leading edge technology before battling for technological leadership in the future in contrast to earlier schumpeterian models in which innovations are always made by outsider firms who earn no rents if they fail to innovate and become monopolies if they do innovate here we find first that the usual schumpeterian effect of more intense product market competition pmc is almost always outweighed by the increased incentive for firms to innovate in order to escape competition so that pmc has a positive effect on growth second that a little imitation is almost always growth enhancing as it promotes more frequent neck and neck competition but too much imitation is unambiguously growth reducing the model thus points to complementary roles for competition anti trust policy and patent policy

do federal grants boost school spending evidence from title i abstract one of the federal government s main elementary and secondary education programs is title i which allocates money for compensatory education to school districts based on child poverty i use sharp changes in per pupil grant amounts surrounding the release of decennial census data to identify effects of title i on state and local education revenue and how much the program ultimately increases spending by recipient school districts i find that state and local revenue efforts initially are unaffected by title i changes but that local governments substantially and significantly crowd out changes in title i within in a 3 year period

is there an intrahousehold flypaper effect evidence from a school feeding programme are public transfers targeted toward children neutralised by the household as the theory of altruism implies or is there an intrahousehold flypaper effect whereby such transfers stick to the child this paper studies the impact of a school feeding programme on child caloric intake in the philippines using a quasi experimental methodology the empirical results confirm an intrahousehold flypaper effect indeed they indicate virtually no intrahousehold reallocation of calories in response to the feeding programme in poorer households however children s gains from the programme appear to be taxed more heavily

sectoral patterns of production and use of innovations in the uk 1945 1983 abstract based on information on more than 4000 innovations commercialised in the uk between 1945 and 1983 we analyse sectoral patterns and trends in the production and use of innovations a few core sectors chemical mechanical instruments and electronic are of major importance in the production of technology that gets used over a much wider range of sectors including those outside manufacturing similar sectoral patterns of production and use exist in the uk and usa the trend over time in the uk has been toward greater sectoral interdependence in technology and a higher share of uses outside manufacturing reflecting the growth and spread of the electronic based technological cluster any understanding of the nature determinants and dynamics of intersectoral differences in patterns of production and use of technology will require an integration into empirical and theoretical analysis of the characteristics of innovating firms

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

finders keepers forfeiture laws policing incentives and local budgets to encourage anti drug policing the federal government and many state governments have enacted laws that allowpoliceagencies tokeepasubstantial fractionofthe assets thattheyseizeindrugarrests weuserich new data on police seizures and local spending to explore the reactions of both governments and police to the incentives created by these policies we find that local governments offset police seizures by reducing their other allocations to police partially undermining the incentives laid out in statute and diverting the earmarked funds to other purposes police in turn respond to the real net incentives for seizures once local offsets are takenintoaccount byincreasingthedrugarrestrate heroinpricesalsoincrease suggestingthattheincreased emphasis on anti drug policing raises the supply costs of illicit drugs these findings highlight both the promise and pitfalls of using financial incentives to solve agency problems in a federal system both local agents and intervening governments have sophisticated responses to financial incentives and these responses must be taken into account in both designing effective policies and evaluating their consequences 2007 elsevier b v all rights reserved

an evaluation of eu regional policy do structural actions crowd out public spending motivated by the lack of success of previous studies trying to estimate the impact of the european cohesion policy this paper brings an unexplored issue to light transfers that are intended to finance public investment in key areas for growth might be crowded out by subsidized governments to alternative uses in fact using annual data from fifteen member countries 1993 2005 we conclude that public investment in the member countries makes up around 60 of the increase in eu funds the limited role of the european commission in the allocation of the funds could partially explain this result

price competition non price competition and market structure theory and evidence from the uk this paper examines the impact of price competition on advertising r and d expenditure and market structure a general theoretical result is derived which restricts the space of possible outcomes regarding the behaviour of concentration and advertising r and d expenditure following an intensification of price competition the theory is tested using uk data on the evolution of competition concentration and advertising over 1954 77 the econometric results suggest that the introduction of restrictive practices legislation in the uk caused a rise in concentration in previously cartelized high advertising manufacturing industries and probably also a fall in advertising intensity

bohn s test of fiscal sustainability of the american state governments the dramatic fall in state revenues during the great recession and the resultant large budget deficits accentuated concerns about state fiscal sustainability i employ a model based approach proposed by bohn 1998 to test for sustainability in this approach a positive and significant reaction of the ratio of primary surplus ratio s to lagged debt constitutes a sufficient condition for sustainability based on a panel of 48 contiguous states 1961 2008 and several model specifications i find robust evidence in favor of sustainability further analysis suggests that the adjustment of the components of s to debt is asymmetric with the revenue side bearing a heavier burden than the spending side the response of s is also found to be asymmetric with respect to the level of debt finally the magnitude of the response is larger in states with a higher degree of fiscal stringency in general and own revenue and no deficit carryover provisions in particular

the effects of grants in aid on state and local expenditures abstract this paper develops econometric methods to estimate the effect of the piecewise linear budget constraints created by grant formulas in which the subsidy rate is not constant over expenditures e g closed end grants the methods are applied to the afdc program the results show that because of the kinked nature of the grant formula 1 the present federal formula actually increases cross state inequality in afdc benefits 2 several subsidy rates in the formula actually reduce benefits and 3 the so called flypaper effect disappears

the effect of state education finance reform on total local resources abstract both the federal government and the states use intergovernmental grants to try to change the composition of local spending across different programs as well as the distribution of resources across localities many states are now under court order to use state education grants to reduce local disparities in education spending while a substantial body of literature suggests that these court orders increase the level and progressivity of state education spending there is little evidence on their broader effects on the total resources available not just for schools in low income districts but for other programs across all localities we find that states finance the required increase in education spending in part by reducing their aid to localities for other programs particularly for wealthier areas thus while court ordered school finance equalizations do increase total state aid to localities for education they do so at the expense of drawing state intergovernmental aid away from programs like public welfare health hospitals and general services these findings provide insight into the effectiveness of using earmarked funds to achieve redistribution

school district operational spending and student outcomes evidence from tax elections in seven states abstract we use close tax elections to estimate the impact of school district funding increases on operational spending and student outcomes across seven states districts with passing levies directed new revenue toward support services and instructor salaries but did not increase teacher staffing levels these districts eventually realized gains in student achievement and attainment our preferred estimates imply that increasing operational spending by 1000 per pupil increased test scores by approximately 0 15 of a standard deviation and graduation rates by approximately 9 percentage points there is some evidence of diminishing returns as these effects are driven by districts below the median in spending per pupil based on research linking academic outcomes to earnings we conclude that these spending increases were likely cost effective

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

a dynamic oligopoly with collusion and price wars we provide a collusive framework with heterogeneity among jirms investment entry and exit it is a symmetric information model in which it is hard to sustain collusion when there is an activejim that is likely to exit in the near future numerical analysis is used to compare a collusive to a noncollusive environment only the collusive industry generates price wars also the collusive industry offers both more and higherquality products to consumers albeit often at a higher price the positive effect of collusion on variety and quality more than compensates consumers for the negative effect of collusive prices so that consumer surplus is larger with collusion

using market valuation to assess public school spending abstract we examine whether school expenditures are valued by potential residents and whether the current level of public school provision is inefficient by estimating the effect of state education aid on residential property values we find evidence that overall state aid is valued by potential residents and that school districts do not overspend on education however we find that districts may overspend in areas where residents have fewer schooling options but find no difference in efficiency by the degree of district unionization one interpretation of these results is that increased competition may reduce overspending on public schools in some areas

welfare losses in oligopoly and monopolistic competition estimates of the magnitudes of monopoly welfare losses mwl appearing in the economics literature have tended to differ quite widely at one end of the spectrum we find figures of the order of o i of gnp quoted by harberger i 954 in his pioneering study while at the other extreme cowling and mueller i 978 have derived estimates of around i o of gross corporate product from some of their measures two of the major sources of such differences lie in the treatment of a the general equilibrium aspects of deviations between prices and marginal costs and b the impact of market power on the cost levels of firms but unfortunately the tendency of writers to adopt rather different analytical frameworks often makes it difficult to accurately assign the variations in the estimates to specific factors in the present paper the issue of monopoly welfare loss is considered in the context of a differentiated goods model based upon work on monopolistic competition by spence i976 and by dixit and stiglitz i977 within a set of common assumptions about demand the effects of varying cost conditions and differing equilibria on the level of mwl are examined on this basis four major factors connected with suboptimal resource allocation can be identified a supernormal profits b product differentiation c suboptimal scale and d factor bias the first of these needs little explanation its association with welfare loss has been well explored in structure conduct performance theory and is used extensively in applied anti trust economics attention will therefore be focused upon the remaining three all of which can produce mwl in zeroprofit equilibria the paper is organised as follows section ii sets out and discusses the differentiated goods framework which will be used throughout the rest of the analysis it is also shown how a simple transformation of variables reduces the model to the homogeneous goods case and thereby makes immediately available a number of familiar results from the structure conduct performance literature in section iii the focus is on welfare analysis of monopolistic competition the results here are essentially restatements of earlier work although the transformation of variables helps to clarify their foundations section iv extends the analysis to incorporate additional decision variables such as advertising research and development etc while section v considers the case where market conditions will not sustain a large number of firms in equilibrium and suboptimal scale effects become important factor bias is analysed in

more cops less crime abstract i exploit a natural experiment to estimate the causal effect of police on crime the american recovery and reinvestment act increased funding for the community oriented policing services cops hiring grant program from less than 20 million over 2005 2008 to 1 billion in 2009 hiring grants distributed in 2009 were allocated according to an application score cutoff rule and i leverage quasi random variation in grant receipt by comparing the change over time in police and crimes for cities above and below the threshold in a difference in differences framework relative to low scoring cities those above the cutoff experience increases in police of about 3 2 and declines in victimization cost weighted crime of about 3 5 following the distribution of hiring grants the effects are driven by large and statistically significant effects of police on robbery larceny and auto theft with suggestive evidence that police reduce murders as well crime reductions associated with additional police were more pronounced in areas most affected by the great recession the results highlight that fiscal support to local governments for crime prevention may offer large returns especially during bad macroeconomic times

we voted for this abstract this paper examines two institutional factors that influenced school spending in missouri during the 1970s first the retirement of a bond issue is usually accompanied by an increase in the operating tax rate which requires voter approval the retirement of a bond issue does not reduce but apparently obscures the cost of a tax increase in addition a change in assessment practices in 1975 allowed some districts to increase their effective operating rates without voter approval each of these factors led to substantial tax increases in the affected districts