test of the adjustment process and linear homogeneity in a stock adjustment model of money demand stock adjustment models of money demand have employed either the nominal or real adjustment process but they have not been tested statistically due to their nonnestedness this paper formulates a general stock adjustment model which includes both nominal and real adjustment processes as its nested subsets each process is then tested against the general specification the paper also examines the homogeneity of money demand with respect to price level and income in the general model

the democratic political economy of progressive income taxation why do both left and right political parties typically propose progressive income taxation schemes in political competition analysis of this problem has been hindered by the two dimensionality of the issue space to give parties a choice over a domain that contains both progressive and regressive income tax policies requires an issue space that is at least two dimensional nash equilibrium in pure strategies of the standard two party game whose players have complete preferences over a two dimensional policy space generically fails to exist i introduce a new equilibrium concept for political games based on the fact of factional conflict within parties each party is supposed to consist of reformists militants and opportunists each faction has a complete preference order on policy space but together they can only agree on a partial order nash equilibria of the two party game where the policy space consists of all quadratic income tax functions and each party is represented by its partial order exist and it is shown that in such equilibria both parties propose progressive income taxation

existence of equilibrium in single and double private value auctions we show existence of equilibria in distributional strategies for a wide class of private value auctions including the first general existence result for double auctions the set of equilibria is invariant to the tie breaking rule the model incorporates multiple unit demands all standard pricing rules reserve prices entry costs and stochastic demand and supply valuations can be correlated and asymmetrically distributed for double auctions we show further that at least one equilibrium involves a positive volume of trade the existence proof establishes new connections among existence techniques for discontinuous bayesian games

voting over flat taxes in an endowment economy abstract we assume a majority rule mechanism and examine how society trades off exemption levels and tax rates in a simple endowmwnt economy using a flat tax contrary to the presumption in foley yale economic essays 1967 7 45 98 we find that preferences over these tax structures are not single peaked however we are able to prove existence and provide a simple characterization of the majority rule equilibrium

representative democracy and marginal rate progressive income taxation abstract this paper develops a political economy model that is consistent with the fact that democracies have a preference for increasing marginal tax rates on income we present a model in which there is an exogenous set of political parties with preferences over the set of admissible tax schedules this set contains virtually any increasing and piecewise linear continuous function each party decides whether or not to present a candidate for election there is a fixed cost of running the elected candidate implements one of her preferred tax policies our main results provide conditions under which a strong nash equilibrium exists and a tax schedule with increasing marginal tax rates is implemented in some nash equilibria and in any strong nash equilibrium

is there a demand for income tax progressivity recently marhuenda and ortuno ortin economics letters 48 1995 319 have provided a popular support for progressivity theorem that says that a marginal progressive tax always defeats a marginal regressive tax as long as individuals vote for the tax scheme minimizing their tax liabilities and the median income is less than the mean income in this paper we provide under similar circumstances a popular support for regressivity theorem according to which for any existing tax scheme there is always a majority support for a regressive reform reducing marginal progressivity or increasing marginal regressivity this regressive reform is supported by both extremes of the income distribution combining this result with marhuenda and ortuno ortin s result implies that vote cycling between regressive and progressive tax reform is inevitable and thus that the demand for progressivity cannot be established in the standard downsian framework with self interested voters

voting over income taxation abstract a major problem of the positive theory of income taxation is to explain why statutory income tax schedules in practice are marginal rate progressive while it is commonly believed that this is but a simple consequence of the fact that the number of relatively poor voters exceeds that of richer voters in general putting this contention in a voting equilibrium context is not a trivial task we do this here in the context of nonlinear taxation and attempt to provide a formal argument in support of this heuristic claim we first establish the existence of mixed strategy equilibria and identify certain cases in which marginal rate progressive taxes are chosen almost surely by the political parties unfortunately we also find that if the tax policy space is not artificially constrained the support of at least one equilibrium cannot be contained within the set of marginal rate progressive taxes

the provision of public goods under alternative electoral incentives politicians who care about the spoils of office may underprovide a public good because its benefits cannot be targeted to voters as easily as pork barrel spending we compare a winner take all system where all the spoils go to the winner to a proportional system where the spoils of office are split among candidates proportionally to their share of the vote in a winner take all system the public good is provided less often than in a proportional system when the public good is particularly desirable we then consider the electoral college system and show that it is particularly subject to this inefficiency

incentives to cultivate favored minorities under alternative electoral systems a simple model is used to compare under different electoral systems the incentives for candidates to create inequalities among otherwise homogeneous voters by making campaign promises that favor small groups rather than appealing equally to all voters in this game model each candidate generates offers for voters independently out of a distribution that is chosen by the candidate subject only to the constraints that offers must be nonnegative and have mean 1 symmetric equilibria with sincere voting are analyzed for two candidate elections and for multicandidate elections under rank scoring rules approval voting and single transferable vote voting rules that can guarantee representation for minorities in multiseat elections generate in this model the most severely unequal campaign promises

covering dominance and institution free properties of social change this paper shows that different institutional structures for aggregation of preferences under majority rule may generate social choices that are quite similar so that the actual social choice may be rather insensitive to the choice of institutional rules specifically in a multidimensional setting where all voters have strictly quasi concave preferences it is shown that the uncovered set contains the outcomes that would arise from equilibrium behavior under three different institutional settings the three institutional settings are two candidate competition in a large electorate cooperative behavior in small committees and sophisticated voting behavior in a legislative environment where the agenda is determined endogenously because of its apparent institution free properties the uncovered set may provide a useful generalization of the core when a core does not exist a general existence theorem for the uncovered set is proven and for the downsian case bounds for the uncovered set are computed these bounds show that the uncovered set is centered around a generalized median set whose size is a measure of the degree of symmetry of the voter ideal points

price competition in a capacity constrained duopoly abstract this paper characterizes the set of nash equilibria in a model of price setting duopoly in which each firm has limited capacity and demand is continuous and decreasing in general there is a unique equilibrium so that comparative static exercises are meaningful the properties of the equilibrium conform with a number of stylized facts the equilibrium prices are lower the smaller is demand relative to capacity when demand is in an intermediate range the firms use mixed strategies they randomly hold sales if capacities are chosen simultaneously before prices the set of equilibrium capacities coincides with the set of cournot quantities

personal income taxation and the principle of equal sacrifice revisited this paper shows that in the domain of piecewise linear statutory income tax functions the principle of equal sacrifice implies tax progressivity the progressivity implication of the doctrine is in fact stronger the equal sacrifice principle in essence characterizes marginal rate progressivity a result which is in sharp contrast with the standard literature on public finance the authors also apply their findings to the personal statutory income taxation practices of the oecd countries and observe that the united states and turkey were the only ones violating the principle of equal sacrifice in the time period 1988 to 1991 copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a drawback of electoral competition in most major democracies there are very few parties compared to the number of possible policy positions held by voters we provide an efficiency rationale for why it might be appropriate to limit the proliferation of parties in our model the larger the number of parties the greater the inefficiency of the outcome of electoral competition the reason is that when the number of parties increases electoral incentives push each party to focus its electoral promises on a narrower constituency and then special interest policies replace more efficient policies that have diffuse benefits the analysis provides a possible explanation for the existence of institutional features that limit the extent of electoral competition thresholds of exclusion runoff electoral systems and majoritarian two party political systems jel d82 l15

price expectations and the demand for money resolution of a paradox in his restatement of the quantity theory of money milton friedman 1956 argued that physical goods should be regarded as a substitute for money and that higher expected rates of inflation should induce a portfolio shift from money to physical assets as friedman has derived his equation the demand for real balances is a function of the expected rate of inflation in addition to nominal rates of interest wealth and real income p 58 equation 11 this also has been the approach of many applied studies for example valentine 1977 p 747 concludes the fact that the anticipated rate of inflation has an effect on the demand for money which is additional to its effect through its influence on the nominal interest rate provides support for friedman s view of the demand for money emphasis mine there is of course likely to be some degree of substitution between physical goods and wider definitions of money which is the definition friedman envisages it is difficult to believe however that the demand for narrowly defined money mi which is used primarily for transactions balances should be terribly sensitive to moderate expected rates of inflation certainly from theoretical considerations in transactions demand models of the tobin baumol variety there is no role for the expected rate of inflation other than via interest rates herein lies the paradox whilst theory and common sense seem to dictate that expected or actual inflation play little role in the demand for narrow money a number of studies for different countries have reported the opposite these include shapiro 1973 and goldfeld 1973 for the united states smith and winder 1971 for canada and adams and porter 1976 juttner and tuckwell 1974 and valentine 1977 for australia this paper reconciles theory and evidence by showing that with more appropriate specification of previous studies the expected or actual rate of inflation is redundant and not significant those models use either a partial adjustment mechanism or an expectations formation mechanism in real terms it is shown below that this equation is rejected relative to one in which the expectations and adjustments are in terms of nominal variables this nominal specification was pointed out by goldfeld 1973 and hafer and hein 1980 who selected the nominal version on the basis of within sample errors following a description of the real adjustment models in the next section section iii shows this selection of the nominal version more rigorously on the basis of a likelihood ratio test more importantly it is shown that this test of superiority of specification is identical to the test that the rate of inflation exerts no independent influence on the demand for money these tests are carried out in section iv since empirical studies of this question use both the actual and expected rates of inflation the results of those authors using the expected rate of inflation are examined in section v in all cases the strategy has been to replicate those models as closely as possible to see if their conclusions are upheld under more appropriate specifications and in all cases these conclusions are not upheld the aim of the paper is not to suggest new or appropriate expectations formations or to exhaust all possible ones but to test those on which previous conclusions are based the aim is twofold to point out the duality of the appropriate real vs nominal test procedure with the test of significance of the rate of inflation and to show that the conclusions of previous studies regarding the independent effect of the rate of inflation on transactions balances are due to an incorrect specification and interpretation

income taxation uncertainty and stability abstract this paper develops a political model to analyze the stability of income tax schedules it is assumed that agents perceive any proposed alternative tax policy as more uncertain than the status quo a tax policy is stable if it is a condorcet winner it is well known that in a model without uncertainty the existence of such a policy is very rare we show however that in real cases this might not be a serious problem since small amounts of uncertainty can bring stability to the status quo it is also shown that linear tax functions can only be stable in economies with very egalitarian income distributions and high taxation levels

popular support for progressive taxation abstract the popular support obtained by two parties who propose two qualitatively different tax schemes is analyzed we show that if the median voter is below the mean then any progressive proposal wins over a regressive one

redistributive politics with distortionary taxation abstract this paper proposes a first step towards a positive theory of tax instruments we present a model of redistributive politics that extends those of myerson r myerson incentives to cultivate minorities under alternative electoral systems amer polit sci rev 87 1993 856 869 and lizzeri and persico a lizzeri n persico the provision of public goods under alternative electoral incentives amer econ rev 91 2001 225 239 two politicians compete in terms of targeted redistributive promises financed through distortionary taxes we solve for the case of both targetable and non targetable taxes we prove that there is an imperfect efficiency targetability trade off on the tax side politicians prefer targetable taxes over non targetable ones especially when the latter are less efficient yet targetable taxation is always used even when it is very inefficient compared to non targetable taxes

distributive politics and electoral competition abstract within the framework of pure redistribution dividing one unit of a homo geneous good among identical individuals the paper analyses the redistribution that arises from downsian two party electoral competition it appears that the strategic behavior of vote maximizing parties leads them to propose divisions which are not far from the egalitarian one journal of economic literature classification numbers c72 d63 d72

are price equations really money demand equations on their heads it is often argued that the dependent variable in money demand functions is really the price level the money stock itself being exogenous a recent approach which stresses the theme is the buffer stock hypothesis in which money supply shocks explicitly appear in the demand for money function because prices and interest rates do not adjust rapidly enough to bring about short run equilibrium in the money market although this approach has been adopted by a number of authors it is not been subjected to much econometric testing in this paper we outline the economic and econometric issues involved in testing the exogenous money buffer stock hypothesis and subject it to a variety of tests using three different data sets none of our results supports the hypothesis fundamental restrictions are rejected at very high levels of significance and a reasonably good money demand equation is seen to be badly misspecified if interpreted as a price equation this abstract was borrowed from another version of this item

on the political and fiscal determinants of income redistribution under federalism and democracy evidence from germany several recent studies suggest that transfers from central to regional governments are motivated by political considerations in this paper we examine if this is also the case for transfers from regional to central governments in the context of the german fiscal equalization system we examine the factors that contribute to differences in tax revenues across german states the evidence indicates that both fiscal incentives and political factors can explain these differences although in germany the former are more important moreover accounting for fiscal institutions has important consequences for the empirical assessment of political influences on taxation overall we find that the political affiliation of the state governor is an important factor in explaining differences in state tax revenues thus the right wing party cdu csu is effective in relaxing the tax burden at the state level in contrast partisan alignment between the state government and the federal government loses its importance once fiscal conditions enter the empirical model

inflation and the demand for money in developing countries abstract the sensitivity of money holdings to yield is an important issue for financial sector reform for low income developing countries this sensitivity has been judged mainly on the basis of demand studies which use inflation as the opportunity cost of holding money but researchers have generally neglected the fact that because changes in prices may appear in dynamic demand for money equations even if the demand for money is not yield sensitive it is not normally possible to make valid inferences about the inflation sensitivity of equilibrium demand for money the severity of the problem is illustrated by reference to ghana and china

on the existence of pure and mixed strategy nash equilibria in discontinuous games a game is better reply secure if for every nonequilibrium strategy x and every payoff vector limit u resulting from strategies approaching x some player i has a strategy yielding a payoff strictly above u i even if the others deviate slightly from x if strategy spaces are compact and convex payoffs are quasiconcave in the owner s strategy and the game is better reply secure then a pure strategy nash equilibrium exists better reply security holds in many economic games it also permits new results on the existence of symmetric and mixed strategy nash equilibria

efficiency welfare and political competition we study political competition in an environment in which voters have private information about their preferences our framework covers models of income taxation public goods provision or publicly provided private goods politicians are vote share maximizers they can propose any policy that is resource feasible and incentive compatible they can also offer special favors to subsets of the electorate we prove two main results first the unique symmetric equilibrium is such that policies are surplus maximizing and hence first best pareto efficient second there is a surplus maximizing policy that wins a majority against any welfare maximizing policy thus in our model policies that trade off equity and efficiency considerations are politically infeasible jel codes c72 d72 d82 h21 h41 h42

selecting a portfolio of nonhomogeneous r d proposals abstract this article reports a procedure developed to assist the u s department of energy in the selection of a portfolio of proposals addressing the design and manufacture of components of solar photovoltaic arrays and complete photovoltaic systems considerations such as the relative importance of the different components in the overall effort compatibility of the proposed designs and budgetary and programmatic issues were complicating factors the technical quality of each proposal was represented by multiple evaluation measures these were combined into a single index through the use of multi attributeutility function indices representing the relative importance of the various components were then developed and results in measurable value theory were applied to derive an index of technical quality of a portfolio of proposals the problem was then formulated as an integer program it was solved by using an interactive branch and bound code that allowed for sensitivity analysis before selecting the portfolio of proposals for funding the procedure was successfully applied to funding a portfolio of proposals aimed at reducing the cost of producing photovoltaic arrays and to several other government sponsored procurements

political competition and mirrleesian income taxation a first pass we study downsian competition in a mirrleesian model of income taxation the competing politicians may dier in competence if politicians engage in vote share maximization the less competent politician s policy proposals are attractive to the minority of rich agents whereas those of the competent politician are attractive to the majority of poor agents the less competent politician wins with positive probability which gives rise to a political failure in the sense of besley and coate 1998 political failures are avoided if politicians maximize winning probabilities nevertheless the two equilibria cannot be pareto ranked the minority may be better o under vote share maximization

characterizations of the existence of equilibria in games with discontinuous and non quasiconcave payoffs this paper characterizes pure strategy and dominant strategy nash equilibrium in non cooperative games which may have discontinuous and or non quasiconcave payoffs conditions called diagonal transfer quasiconcavity and uniform transfer quasiconcavity are shown to be necessary and with conditions called diagonal transfer continuity and transfer upper semicontinuity sufficient for the existence of pure strategy and dominant strategy nash equilibrium respectively the results are used to examine the existence or non existence of equilibrium in some well known economic games with discontinuous and or non quasiconcave payoffs for example we show that the failure of the existence of a pure strategy nash equilibrium in the hotelling model is due to the failure of an aggregator function to be diagonal transfer quasiconcave not the failure of payoffs to be quasiconcave as has been elsewhere conjectured