federal reserve independence abstract the federal reserve is always called an independent agency the term independent is rarely defined the only attempt in the literature and internal records is based on chairman martin s statement that the federal reserve is independent with the government not independent of the government martin explained several times that independence within government meant that the federal reserve helped to finance government budget because they were approved by congress and signed by the president financing budget deficits is the very opposite of the principle adopted when congress approved the federal reserve act in 1913 in fact the federal reserve has supported treasury operations many times i conclude that it is far more important to have an enforceable policy rule such as the taylor rule but any rule must have a provision that permits the rule to be set aside

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

the implications of competition among jurisdictions does tiebout need politics the paper investigates whether compensation among local jurisdiction is by itself sufficient to ensure efficient provision of local public goods jurisdictions have fixed boundaries and each has an entrenched government with the power to tax and supply the public good residents can move costlessly among jurisdictions it is shown that competition among numerous jurisdictions is not sificient to guarantee public sector efficiency though residents can vote with their feet land is immobile hence governments can unsurp some land rents for their own ends increasing the number of jurisdictions limits but cannot completely eliminate the ability to exercise discretionary governmental power

unraveling the relationship between presidential approval and the economy a multidimensional semiparametric approach summary empirical studies analyzing the determinants of us presidential popularity have delivered quite inconclusive results concerning the role of economic variables by assuming linear relationships we employ penalized spline smoothing in the context of semiparametric additive mixed models and allow for flexible functional forms and thus possible nonlinear effects for the economic determinants by controlling for the well known politically motivated covariables we find strong evidence for nonlinear and negative effects of unemployment inflation and government consumption on presidential approval additionally we present new results in favor of nonparametric trivariate interaction effects between the macroeconomic covariables copyright 2014 john wiley sons ltd

a life cycle consistent empirical model of family labour supply using cross section data this paper estimates a utility maximising model of the joint determination of male and female labour supplies using a sample of married couples from the u k family expenditure survey the emphasis is on the estimation of within period preferences that are consistent with intertemporal two stage budgeting under uncertainty however the approach we adopt provides an alternative method of estimating certain aspects of life cycle behaviour to the fixed effects constant approach of heckman and macurdy 1980 macurdy 1981 and browning deaton and irish 1985 moreover it relaxes some of the underlying restrictions that are implicit in these constant models under uncertainty

choosing tax rates and public expenditure levels using majority rule abstract a sufficient condition is presented for a policy to be a condorcet winner when voters differ only in a single characteristic the condition is that all voters utility gradients with respect to the n different policy dimensions lie in the same plane in r n if the policy is a set of commodity tax rates then the condition is implied by the linearity of voters common engel curves if the policy includes levels of public good provision then the vectors of marginal willingness to pay for the various public goods of the different voters must all lie on the same line

property taxation congestion and local public goods abstract the residential property tax has been viewed as a congestion fee even if it distorts housing decisions this paper shows that the rule for a competitive jurisdiction s optimal public good supply may be written in a form in which no such role appears congestion costs enter the cost side of this rule in the same way that they enter when only a land tax is available the new rule is reconciled with an alternative rule in the literature which contains no congestion costs

the income elasticity of demand for single family owner occupied housing an empirical reconciliation abstract past studies estimate the permanent income elasticity of demand for single family owner occupied housing to range from 0 14 to 1 5 a range much too broad to be of any use for solving policy questions data from the panel study of income dynamics are used herein to test the sensitivity of this income elasticity to several factors the results suggest that differences in sample population with respect to duration of housing tenure explain a large portion of the variation in the estimates of this elasticity the paper concludes that for short run applications the probable value of this elasticity is approximately 0 70 and for long run applications the probable value of this elasticity might best be taken as approximately 1 00

property value maximization and public sector efficiency abstract this paper analyses the efficiency implications of property value maximization communities are open so that utilities are parametric to housing producers and the local government each local government chooses its public good output to maximize aggregate property value in the community ignoring feedback effects on the composition of the housing stock it is shown that this type of government behavior generates an equilibrium in which all communities are internally pareto efficient

the effect of wealth on individual and household labor supply evidence from swedish lotteries abstract we study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of swedish lottery players winning a lottery prize modestly reduces earnings with the reduction being immediate persistent and quite similar by age education and sex a calibrated dynamic model implies lifetime marginal propensities to earn out of unearned income from 0 17 at age 20 to 0 04 at age 60 and labor supply elasticities in the lower range of previously reported estimates the earnings response is stronger for winners than their spouses which is inconsistent with unitary household labor supply models jel d14 j22 j31

changes in federal reserve preferences abstract using a model of optimizing central bank behavior i estimate the dynamic behavior of preferences which are captured by the relative weight put on stabilizing inflation versus minimizing the output gap unlike previous work i let this parameter vary continuously over time there is a drastic but steady rise in the weight on inflation around the appointment of paul volcker however i find variation in preferences throughout the sample period the results suggest that preference changes have been more complex than typically assumed in the literature the estimated preference series is used to perform counterfactual experiments and to construct a new measure of monetary shocks

on the political economy of zoning abstract households choose a community in a metropolitan area and collectively set a minimum housing quality and a property tax to finance a local public good the collective imposition of a lower bound on housing consumption induces an income stratified equilibrium in a specification where meaningful community differentiation would not arise without zoning we show computationally that zoning restrictions are likely to be stringent with a majority facing a binding constraint in communities that permit it by inducing a stratified equilibrium zoning causes tiebout welfare gains in aggregate but with large welfare transfers relative to stratified equilibrium without zoning the zoning equilibrium is significantly more efficient as it reduces housing market distortions

labor supply and taxes a survey i survey the male and female labor supply literatures focusing on implications for effects of wages and taxes for males i describe and contrast results from three basic types of model static models especially those that account for nonlinear taxes life cycle models with savings and life cycle models with both savings and human capital for women more important distinctions are whether models include fixed costs of work and whether they treat demographics like fertility and marriage and human capital as exogenous or endogenous the literature is characterized by considerable controversy over the responsiveness of labor supply to changes in wages and taxes at least for males it is fair to say that most economists believe labor supply elasticities are small but a sizeable minority of studies that i examine obtain large values hence there is no clear consensus on this point in fact a simple average of hicks elasticities across all the studies i examine is 0 30 several simulation studies have shown that such a value is large enough to generate large welfare costs of income taxation for males i conclude that two factors drive many of the differences in results across studies one factor is use of direct vs ratio wage measures with studies that use the former tending to find larger elasticties another factor is the failure of most studies to account for human capital returns to work experience i argue that this may lead to downward bias in elasticity estimates in a model that includes human capital i show how even modest elasticities as conventionally measured can be consistent with large welfare costs of taxation

the persistence and inefficiency of property tax finance of local public expenditures abstract i both characterize and evaluate equilibrium outcomes in multiple jurisdiction economies with property and land taxation but where direct taxation of residents is not possible the model contains perfectly mobile capital and population and competitive entrepreneurial governments that choose local taxes and expenditures to maximize after tax land rent when the cost of public goods is proportional to population the property tax emerges as the sole source of local finance even though the land tax has no deadweight loss it is shown that equilibria are not constrained efficient in general hence decentralized decision making is not consistent with the best use of the available tax instruments

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

estimating intertemporal labour supply elasticities using structural model in this paper the author proposes empirical models where both the intertemporal substitution elasticity and the elasticities measuring the impact of different wage profiles are estimated taking into account the restrictions derived from utility maximization she considers models assuming a stone geary utility function and also a constant elasticity of substitution across periods function the data used are a sample of men from the michigan panel of income dynamics her estimates support the low intertemporal substitution elasticity found in previous studies the estimates for the uncompensated elasticities are also small copyright 1989 by royal economic society

local property and state income taxes the role of interjurisdictional competition and collusion this paper addresses two long standing positive questions in public finance i why is the property tax despite widespread popular complaints against its fairness the almost exclusive tax instrument used by local governments and ii why do we consistently observe higher levels of governments states undermining local property tax systems through income tax funded grants and state imposed caps on local property tax rates a new intuitive argument to explain question is presented and tested in simulations using a computable general equilibrium model with parameters set to be consistent with new jersey data both the intuitive argument and the simulation results indicate that setting local income tax rates to zero is a dominant strategy for community planners when faced with popular sentiment against the property tax community planners can collude and introduce local income taxes simultaneously to prevent adverse general equilibrium migration and price changes since zero income tax rates are dominan

equity and efficiency in human capital investment the local connection a general model of community formation and human capital accumulation with social spillovers and decentralized school funding is used to analyse the causes of economic segregation and its consequences for equity and efficiency significant polarization arises from minor differences in endowments preferences or access to capital markets this makes income inequality more persistent across generations but the same need not be true for wealth equilibrium stratification tends to be excessive resulting in low aggregate surplus whether state equalization of school resources can remedy these problems hinges on how purchased social and family inputs interact in education and in mobility decisions

anticipated and unanticipated wage changes wage risk and intertemporal labor supply in this article i estimate how labor supply responds to anticipated wage growth unanticipated wage growth and wage risk using the 1989 93 panel section of the bank of italy survey of households income and wealth shiw which collects individual expectations of future wages the use of subjective expectations has several advantages first they provide information on the evolution and riskiness of future wages that the econometrician may never hope to observe moreover this avoids the need for specifying instruments for the growth rate of wages finally forecast errors can be directly controlled for thus avoiding inconsistency in short panels

congress and the federal reserve we examine legislative activity targeting the federal reserve to determine when congress takes an interest in the fed and whether this interest has an effect on monetary policy using a keyword search of the thomas catalogue for the period from january 1973 through december 2010 we identify 1575 bills in the house and 728 bills in the senate pertaining to the federal reserve we classify these bills into several categories including those that expand fed powers and those that threaten or usurp fed powers using the romer and romer 2004 series of monetary policy shocks we find that prior to the early 1980s the fed responded to bills credibly threatening fed powers by lowering the federal funds target below that prescribed by current and forecast economic conditions however this accommodation ceased following the end of the non borrowed reserves targeting period in october 1982 analyzing the determinants of bill sponsorship we find that high unemployment high inflation and high long term real borrowing costs failures of the fed along the three dimensions of its mandate all lead to a greater number of bills seeking to alter the fed s powers importantly we also find that the relative importance of these three dimensions has changed over time under chairmen burns and miller congress took greater interest when unemployment was high under chairman greenspan congress took greater interest when inflation was high we believe that these findings are consistent with the view that the lessons of the great inflation changed the public perception of the fed s macroeconomic responsibilities which in turn better aligned congressional views on policy with those of the fed and allowed the fed to better resist remaining congressional pressure to its independence

designing tax policy in federalist economies an overview abstract the emerging economic federations of the european union russia and south africa along with the established federations in australia canada and the united states confront the task of designing the institutions for federal fiscal policy this paper reviews the literature on the design of tax policy in federalist economies we conclude that taxation by lower level governments can lead to significant economic inefficiencies and inequities the usual assignment view of federalis recommends central government policies for example resident based taxation or grants in aid to correct these failures these recommendations assume that the central government will act as a benevolent social planner the political economy view of federalism suggests that this assumption is in error and that additional federalist institutions must be considered alternative legislative structures and constitutional rules are considered

majority choice of tax systems in single and multi jurisdictional economies abstract we examine majority choice of tax instruments in an economy with heterogeneous households in our framework majority voting equilibrium exists despite the multidimensional policy choice set we examine single and multi jurisdictional economies we identify five competing incentives that influence choice of tax instruments equilibria generally entail a mixture of tax types with multiple jurisdictions strong reliance on head taxation in rich communities arises to deter poorer households from immigrating in spite of local incentives to use alternative tax instruments to redistribute wealth if relocation costs preclude inter community mobility the equilibrium tax system is fundamentally affected with redistribution incentives then dominating choice of instruments and tax rates limiting or eliminating head taxation fundamentally alters stratification public good provision levels and tax systems

on the identification of frisch labor supplies abstract this paper determines which structural components of the intertemporal decision process can be recovered from labor supply estimates obtained using heckman and macurdy s approach

income redistribution in a federal system of governments abstract though the traditional literature in fiscal federalism argues that the federal government should have primary responsibility for income redistribution u s states are in fact actively engaged in redistribution this paper develops a positive model of the respective roles of state and federal governments that can rationalize this observation redistribution by states creates positive horizontal fiscal externalities to other states due to migration but negative vertical fiscal externalities to the national government due to changes in reported taxable income we forecast that states will engage in at least some redistribution though to a lesser degree the greater are mobility relative to taxable income elasticities the federal government can then choose the degree of federal redistribution to assure that the net externalities are zero given such policies we then estimate the welfare weights and migration elasticities for different income groups that would generate the effective net tax schedules observed in the u s the parameter estimates are broadly plausible suggesting that the model can help explain the division of responsibilities for redistribution between state and federal governments

politics and the fed in the standard economic model of policy choice choices are made by analyzing the social welfare implications to find welfare optimizing policy choices in this paper i argue that in a democratic government and perhaps elsewhere policy choices emerge from a political process people vote the voting process chooses elected representatives with their appointees the representatives make policy choices the appropriate model for policy analysis is a political economy model this conclusion is reinforced by my fifteen years of studying the history of the federal reserve 1 from the start that study reflected the influence of james buchanan and many others who followed him by analyzing policy choices made by individuals or committees motivated by considerations other than optimal welfare some of my prior work with alex cukierman and scott richard is fully in that tradition meltzer cukierman and richard 1991 consider recent federal reserve policy the federal reserve has more than doubled the size of its balance sheet it has more than 1 trillion of excess reserves and more than 1 trillion of long term relatively illiquid mortgage backed securities no central bank in a developed country ever had so much long term debt in 1932 a much less informed federal reserve board refused a request from congress to support the mortgage market congress responded by creating the home loan banks a fiscal solution the current board undertook the fiscal operations this is a political decision who would claim it is optimal policy in the late 1970s congress gave the federal reserve a dual mandate except for the years of moderation it has acted lexicographically from 1979 to 1982 it pursued disinflation letting unemployment rise to 10 8 percent before 1979 it concentrated on 1

an optimal taxation approach to fiscal federalism in a federal system of government each unit of government decides independently how much of each type of public good to provide and what types of taxes and which tax rates to use in funding the public goods in this paper we explore what types of problems can arise from this decentralized form of decision making in particular we describe systematically the types of externalities that one unit of government can create for nonresidents through both its public goods decisions and its taxation decisions the paper also explores briefly what the central government might do to lessen the costs of decentralized decision making

the intergenerational conflict over the provision of public education abstract we study the intergenerational conflict over the provision of public education this conflict arises because older households without children have weaker incentives to support the provision of high quality educational services in a community than younger households with school age children we develop an overlapping generations model for households in a system of multiple jurisdictions this model captures the differences in preferred policies over the life cycle we show that the observed inequality in educational policies across communities is not only the outcome of stratification by income but is also determined by the stratification by age and a political process that is dominated by older voters in many urban communities with low quality of educational services the mobility of older households creates a positive fiscal externality since it creates a larger tax base per student this positive tax externality can dominate the negative effects that arise because older households tend to vote for lower educational expenditures as a consequence sorting by age can reduce the inequality in educational outcomes that is driven by income sorting

land use regulation and welfare we evaluate the effect of land use regulation on the value of land and on welfare our estimates are based on a decomposition of the effects of regulation into three components an own lot effect which reflects the cost of regulatory constraints to the owner of a parcel an external effect which reflects the value of regulatory constraints on one s neighbors a supply effect which reflects the effect of regulated scarcity of developable land using this decomposition we arrive at a novel strategy for estimating a plausibly causal effect of land use regulation on land value and welfare this strategy exploits cross border changes in development prices and regulation in regions near municipal borders our estimates suggest large negative effects of regulation on the value of land and welfare in these regions

corrigendum on a life cycle model of female labour supply in the empirical work in our article on the intertemporal substitution of leisure time for married women heckman and macurdy 1980 we inadvertently constrained the estimated intertemporal substitution elasticity to be too high since this parameter plays a prominent role in discussions of equilibrium models of the business cycle and since our empirical work has been cited in discussions on this topic e g hall 1980 we would like to present a corrected set of empirical results for our model the period t utility function adopted in this note is in the notation of our original paper equation 15