savings and loan and finance industry pac contributions to incumbent members of the house banking committee this paper examines the relationship between campaign contributions from savings and loan and finance industry pacs and membership on the house banking committee the distinguishing features of this paper are that we focus on campaign contributions at an industry level and we use regression analysis to determine whether membership on the house banking committee the committee with oversight responsibility for the savings and loan industry influences the level of contributions received by an individual legislator we find that members of the house banking committee do receive significantly greater contributions from the savings and loan and finance pacs than do other members of congress and that being chairman of the house banking committee also pays a dividend

a test of the structure of pac contracts an analysis of house gun control votes in the 1980s enactment of the bill was a major victory for the national rifle association which had worked for years to win relaxation of the landmark gun control act of 1968 congressional quarterly almanac 1986 p 82 i introduction every election the same political action committees pacs contribute millions of dollars to candidates for office well informed participants in the political process surely must get value for their money yet empirical research fails to provide systematic evidence that campaign contributions influence congressional roll call votes 1 a mischaracterization of the exchange between pacs and politicians may produce these contradictory results empirical studies of roll call voting typically use pac contributions from only one election cycle earlier studies generally assume prepayment in the prior congress while more contemporary studies assume a spot exchange recent empirical work however suggests another possibility interest groups may buy current influence with money spent over multiple election cycles stratmann 1995 shows that contributions from both the current and the previous election cycles influence floor votes on agricultural price supports snyder 1990 1992 presents evidence that interest groups make long term investments in politicians previous studies by arbitrarily imposing a payment structure may have produced erroneous estimates of the influence of pac money on legislative votes we examine roll call votes on gun control in the u s house of representatives during the 1980s to determine whether pacs make spot market purchases prepay for votes in the prior election cycle or make long term investments we investigate whether pac contributions have a durable long term investment effect as snyder 1992 suggests we consider two types of evidence concerning the campaign contribution contract first we examine the pattern of expenditures by the two dominant interest groups concerned with gun control the national rifle association nra and hand gun control hgc their expenditures provide strong evidence against the spot market exchange hypothesis both groups made significant expenditures in sessions of congress in which no floor vote occurred nor were these expenditures purchasing services such as committee work in a spot market exchange further 1986 nra expenditures are significantly higher for first term representatives which is consistent with long term investments but contradicts a spot exchange since freshmen have the least influence to sell second we include expenditures from both the current and the five previous election cycles as separate independent variables in a model of roll call voting to date no empirical paper tests whether pac money from more than two cycles influences roll call voting and only stratmann 1995 and grenzke 1989 use a model that specifies money from more than one cycle in an equation explaining roll call votes our probit estimates indicate that nra expenditures in the three most recent election cycles and hgc expenditures in the two most recent cycles buy votes the independent effect of expenditures from different cycles suggests that contributions are neither an unqualified one session prepayment nor a spot exchange the influence of nra expenditures two sessions prior to the roll call votes is evidence of a long term investment the literature on the determinants of roll call voting assumes that pac contributions alter representatives votes interest groups might instead simply provide campaign assistance to their supporters to affect the composition of congress stratmann 1991 bronars and lott 1997 if a difficult to quantify variable and thus omitted from regressions signals a representative s true position and interest groups make campaign contributions on the basis of this variable pac contributions might appear to influence votes the pattern of contributions and votes on gun control however indicates attempts by the nra and hgc to influence votes not merely the composition of congress

deficits government expenditures and tax smoothing in the united states 1929 1988 abstract barro s tax smoothing hypothesis tsh implies that the government runs a budget deficit whenever it anticipates the growth rate of national income to increase or the growth rate of its expenditure to decline we test this implication of the hypothesis by examining the implied cross equation restrictions on a vector autoregression var model using u s data for the period ranging from 1929 to 1988 our formal tests reject the hypothesis for the full sample period but cannot reject it for the post 1947 period further investigations show that the statistical rejection should be attributed to sharp differences in the statistical properties of the pre 1947 and the post 1947 data rather than the failure of the hypothesis itself

interpreting the korean crisis financial liberalisation industrial policy and corporate governance as the interpretation of its economic miracle has been so the interpretation of the recent crisis in korea remains highly controversial 1 although there are many important issues which have been raised by the korean crisis such as exchange rate policy labour market policy and the architecture of the international financial system chang 1998a three issues have been especially controversial in the debate financial liberalization industrial policy and corporate governance

first branch or root the congress the president and the federal reserve much of the literature on the power of elected officials and bureaucratic agencies argues from an empirical perspective that bureaus appears to exercise autonomy in this paper a theoretical model sets out the conditions under which the congress the president and one agency we use the u s federal reserve as an extended example can dictate policy outcomes the results of the paper include the congressional dominance theorem if more than 2 3 of house members and more than 2 3 of senate members agree on something they get it the theorem is obvious the proof is in the u s constitution but often forgotten in the substantive literature more realistic results are derived for situations where the preferences of members of congress are more diverse powers of the president to influence policy with and without appointments are also analyzed

fiscal consequences for mexico of adopting the dollar dollarization implies a reduction in the menu of assets available to the government and to the private sector in managing risk whatever the gains from dollarization the costs of reducing the asset menu need to be weighed against them this paper presents models one a simple generalization of a well known model of tax smoothing by ba1ao in which these costs are explicit along the way it suggests that there is likely to be no reduction in interest costs to the government from dollarization recently economists have been paying increasing attention to a dynamic general equilibrium approach to the theory of the price level that is often called the fiscal theory of the price level or ftpl this way of thinking emphasizes the role of fiscal and monetary policy in determining the risk and return properties of government liabilities it is particularly useful in analyzing proposals for large scale institutional changes that imply shifts in monetary and fiscal policies when dollarization is considered from this perspective some disadvantages are brought to light that may not be so apparent from other points of view section 1 below lays out the main ideas of ftpl section 2 displays a model that extends an earlier one of barro s to argue that optimal fiscal policy will use surprise inflation to achieve lower deadweight tax loss than would otherwise be possible section 3 considers the composition of government liabilities along the lines of the theory of corporate finance asking if dollarization will reduce the cost of funds section 4 presents annual estimates of the unanticipated returns to holders of u s government debt to show that these are substantial and are to some extent timed to match legitimate periods of fiscal stress as the optimality theory of section 2 would suggest section s discusses the lendel of last resort function and its connection to these fiscal issues section 6 briefly discusses some alternatives to pure dollarization in our concluding section 7 we sum up finding much to worry about in the prospect of dollarization

joint implications of consumption and tax smoothing in this paper the joint hypotheses of consumption and tax smoothing are shown to imply that the present value of expected proportionate declines in government non interest outlays is approximately equal to a log linear function of the budget deficit and private dissaving in this exact linear relation the budget deficit signals declines in future government outlays after controlling for prospective changes in the tax base private dissaving controls for such prospective changes since under the joint hypotheses the present value of expected proportionate rises in tax revenues are approximately equal to a log linear function of private dissaving both exact linear relations are tested in a var framework on annual post world war ii u s data we find considerable empirical support for the theory

politics and the rescue of insolvent savings and loans before 1989 the results presented in this paper are consistent with those predicted by public choice economists who believe that regulatory agencies represent the interests of their controlling congressional committees membership on committees is not random congressmen seek committee assignments where they can represent the interests of their constituency congressmen from states where financial institutions are significant will seek membership on their respective banking committees once on those committees congressmen will seek to protect and promote their own constituency in the case of the savings and loan industry insolvent savings and loans received benefits from staying in operation these savings and loans gained another chance to gamble for resurrection being shut down or placed in a management consignment program did not give this option the results presented in our paper indicate that participation in one of the rescue programs is not random savings and loans in states with political power representation on the senate banking committee are less likely to be resolved

will bounty hunting revenue agents increase enforcement while the final version of the 1986 tax reform act retained budget funding of the irs the senate proposal to finance spending from audit revenues represented a seriously debated alternative that continues to receive attention as a method for increasing enforcement at one level the ultimate failure of the proposal is puzzling given congress s unwillingness to raise tax rates to cover spending the budget deficits of the 1980s must be financed from some other source inflation borrowing or increased enforcement turning the irs into a bounty hunting agency would seem to be a straightforward way of producing extra revenue

intertemporal tax smoothing and the government budget surplus canada and the united states this paper shows that if the government smooths taxes then the budget surplus should equal the present discounted value of expected changes in government expenditure this implication of the tax smoothing hypothesis imposes more stringent restrictions on the data than the more usual method of testing whether changes in tax rates follow a random walk the tax smoothing model is applied to the federal government budgets of canada and the united states and in each case receives considerable empirical support copyright 1995 by ohio state university press

optimal taxation without state contingent debt in an economy studied by lucas and stokey tax rates inherit the serial correlation structure of government expenditures belying barro s earlier result that taxes should be a random walk for any stochastic process of government expenditures to recover a version of barro s random walk tax smoothing outcome we modify lucas and stokey s economy to permit only risk free debt having only risk free debt confronts the ramsey planner with additional constraints on equilibrium allocations beyond one imposed by lucas and stokey s assumption of complete markets the ramsey outcome blends features of barro s model with lucas and stokey s in our model the contemporaneous effects of exogenous government expenditures on the government deficit and taxes resemble those in lucas and stokey s model but incomplete markets put a near unit root component into government debt and taxes an outcome like barro s however we show that without ad hoc limits on the government s asset holdings outcomes can diverge in importa

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

budget balance through revenue or spending adjustments abstract the paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending by examining u s budget data from 1792 1988 i conclude that about 50 65 of all deficits due to tax cuts and about 65 70 of all deficits due to higher government spending have been eliminated by subsequent spending cuts while the remainder was eliminated by subsequent tax increases in contrast to previous studies the empirical analysis uses error correction models in a way that the intertemporal budget constraint is imposed in the estimation stage

do business cycles affect state appropriations to higher education 1 introduction and motivation business cycles affect higher education in a number of important ways anecdotal evidence from college admissions officers and administrators as well as empirical evidence on the behavior of students and institutions of higher education suggest that enrollment in higher education is countercyclical for example betts and mcfarland 1995 recently showed that enrollments in community colleges are highly responsive to changes in local labor market conditions these authors found a 1 increase in the unemployment rate among all adults associated with a 4 increase in enrollment at community colleges in a large panel of community colleges across the united states leslie and ramey 1986 found a similar relationship between economic conditions and enrollment using data aggregated to the regional level this paper examines the relationship between state appropriations to higher education and state specific measures of business cycle conditions in order to better understand the effects of the business cycle on government funding of higher education 1 i further investigate the relationship between the business cycle and state government appropriations to higher education reported by betts and mcfarland 1995 and leslie and ramey 1986 both of these studies aggregated state and local government appropriations to higher education to the regional and national level while data aggregated to the regional and national levels are readily available decisions about government funding to higher education are made at the state and local levels and these decisions may be affected more by local economic conditions than by aggregate economic conditions if the timing of turning points in the business cycle varies across states then aggregating government appropriations data across states may obscure important statespecific phenomena most research has focused on the effects of economic conditions on demand for higher education one notable exception is leslie and ramey 1986 who examined the relationship between enrollment business cycles and state appropriations to higher education using regional appropriations and enrollment data and a national measure of business cycle conditions that study found a procyclical relationship between the nber coincident index and regional level government appropriations to higher education for one region the estimated elasticity of appropriations with respect to changes in the coincident index was three suggesting that a 1 change in the nber coincident index was associated with a 3 change in appropriations to higher education in that region this study also highlighted the complex relationship between state funding for higher education enrollment and business cycle conditions by documenting a statistically significant relationship between enrollment and state appropriations at the regional level although they found that the appropriations enrollment relationship weakened after 1977 betts and mcfarland 1995 also describe in an informal way using aggregate data a procyclical relationship between the business cycle and funding for higher education these authors report that aggregate state and local government appropriations to higher education fell in the years 1971 1975 1980 1982 as well as in several years in the early 1990s all of these years are either coincident with or immediately following years when the nber dating committee has identified a cyclical downturn in the economy the transmission mechanism linking business cycles and government appropriations to higher education during recessionary periods seems clear recessions reduce tax revenues state and local governments most of which operate under legally required balanced budget restrictions reduce appropriations to institutions of higher education as well as other types of expenditures in order to balance their budgets betts and mcfarland point out that these cyclical patterns of government support for higher education may place tremendous financial pressure on institutions of higher education during economic downturns because the cuts in government funding happen at the same time enrollments are increasing

capital rules the domestic politics of international regulatory harmonization in the past fifteen years financial regulators from the developed world have attempted to create international regulatory standards in a variety of financial issue areas their negotiations are notable for the stark variation in the preferences of regulators toward international regulatory harmonization certain regulators actively resist any attempts at regulatory harmonization while others are vocal in their advocacy for an international agreement when will regulators seek to harmonize their rules with their foreign counterparts i propose a principal agent framework for analyzing regulator behavior that views international harmonization as a means of satisfying domestic political pressures the framework predicts that regulators are more likely to seek international regulatory harmonization when confidence in the stability of financial institutions is declining and when competitive pressures are increasing from foreign firms facing less stringent regulations i explore the consistency of the framework with two important cases in the history of international financial regulation the negotiations among bank regulators leading up to the 1988 basel accord on bank capital adequacy and the negotiations among securities regulators over capital adequacy for securities firms between 1988 and 1992 i thank gabe aguilera david bach ethan bueno de mesquita dan carpenter bill clark mark copelovitch jeff frieden dan gingerich dan ho devesh kapur joseph n r sanberg ross schaap allan stam matt stephenson two anonymous reviewers and the editors of io for helpful comments discussions and feedback i am also indebted to the thirty current and former regulators and financial industry executives who participated in interviews to advance this project finally i thank the weatherhead center for international affairs and the center for european studies for research funding

a legitimate paradox neo liberal reform and the return of the state in korea this article examines the neo liberal reforms that the kim government implemented in post crisis korea it argues that by embracing the reforms the state paradoxically re legitimised itself in the national political economy the process of enacting the reforms completed the power shift from a collusive state chaebol alliance towards a new alliance based on a more populist social contract but one that nonetheless generally conformed to the tenets of neo liberalism kim and his closest associates identified the malpractices of the chaebols as the main cause of the crisis so reforming the chaebols would be the key to economic recovery combining populism and neo liberalism they drew on support from both domestic and international sources to rein in rather than nurture the chaebols

the new economics of organization over the last ten years or so an important new approach to the study of organizations has emerged within economics it is perhaps best characterized by three elements a contractual perspective on organizational relationships a theoretical focus on hierarchical control and formal analysis via principal agent models this paper provides political scientists with an overview of the new economics of organization and explores its implications for the study of public bureaucracy so far positive political theory has not contributed much to our understanding of public bureaucracy in part this is due to the unsympathetic treatment that rational modeling and most other modes of quantitative analysis have long received from students of public administration the other side of the coin however is that positive theorists have not made much of an effort to develop theories of bureaucracy their concerns have centered around two basic mechanisms of social choice voting and markets and they have devoted little systematic attention to a third mechanism that is clearly important for understanding how societies and other aggregates make collective decisions this third and relatively unexplored mechanism is hierarchy movement toward a positive theory of hierarchies would fill a serious gap in the social choice literature while at the same time making a theoretical contribution that strikes to the essence of public bureaucracy indeed of all organizations in fact significant steps toward a positive theory of hierarchies have very recently been taken but by economists not political scientists in small numbers of course economists made contributions to the study of public bureaucracy some time ago with the pioneering works of downs 1967 tullock 1965 and niskanen 1971 but this new wave of theoretical work is different it is already a large complex body of literature that is the focus of innovation and excitement among a growing number of economists and it reflects an unusual degree of theoretical coherence and cumulative effort work in this tradition tends to receive orientation from a distinctive economic approach to the analysis of organizations an approach perhaps best characterized by three elements a contractual perspective on organizational relationships a focus on hierarchical control and formal analysis via principal agent models this approach has emerged from recent attempts to move beyond the neoclassical theory of the firm which assumes away all organizational considerations to a theory of economic organizations that can explain why firms corporations and other enterprises behave as they do propo

the limits of independence and the policy of the ecb it is argued that the european central bank s independence is not as secure as it seems and that as a result it has appreciable institutional incentives to protect and enhance its position it follows that its behaviour should not be understood as being solely determined by the pursuit of price stability one consequence is that certain points on which it has been criticised on the basis that its approach makes for ineffective monetary policy might be better understood as often effective attempts to protect its position another is that making a central bank or any other institution completely independent may be much harder than it seems and failed attempts which come close are not necessarily to be preferred even by the advocates of independence to less ambitious designs

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

doctors with borders occupational licensing as an implicit barrier to high skill migration research on the political economy of immigration overlooks the specificity of human capital in skilled occupations and its implications for immigration preferences and policymaking conclusions that skilled americans are unconcerned about labor market competition from skilled migrants build on a simple dichotomy between high and low skill migrants in this article we show that natives turn to occupational licensing regulations as occupation specific protectionist barriers to skilled migrant labor competition in practice high skill natives face labor market competition only from those high skill migrants who share their occupation specific skills licensure regulations ostensibly serve the public interest by certifying competence but they can simultaneously be formidable barriers to entry by skilled migrants from a collective action perspective skilled natives can more easily secure sub national occupation specific policies than influence national immigration policy we exploit the unique structure of the american medical profession that allows us to distinguish between public interest and protectionist motives for migrant physician licensure regulations we show that over the 1973 2010 period states with greater physician control over licensure requirements imposed more stringent requirements for migrant physician licensure and as a consequence received fewer new migrant physicians by our estimates over a third of all us states could reduce their physician shortages by at least 10 percent within 5 years just by equalizing migrant and native licensure requirements this article advances research on the political economy of immigration and highlights an overlooked dimension of international economic integration regulatory rent seeking as a barrier to the cross national mobility of human capital and the public policy implications of such barriers

determinants of the amount and type of corruption in state fiscal bureaucracies an analysis of late imperial china a principal agent model of relations between rulers and state officials is used to derive several propositions concerning the amount and type of corruption in state bureaucracies the model is appl

a political economic analysis of the failure of neo liberal restructuring in post crisis korea this paper evaluates imf led neo liberal restructuring in post crisis korea the main conclusions are that the economic rebound in 1999 2000 was both incomplete and unsustainable restructuring created a ongoing credit crunch that continues to constrain investment spending korea may have been pushed onto a long term low investment low growth trajectory insecurity and inequality have risen substantially and the influence of foreign capital has dramatically increased the paper concludes by suggesting that koreans should reject radical neo liberal restructuring and consider instead reforms to democratise and modernise their traditional state guided growth model copyright 2002 oxford university press

efficient timing of income taxes abstract the marginal collection cost of an income tax is predicted to be a martingale and the marginal income tax rate is predicted to be a supermartingale collection costs can be estimated from tax rates almost all tests based on a u s series of actual marginal income tax rates 1913 1975 accept the hypothesis of random walk behavior in collection costs and reject the parallel hypothesis on tax rates

government budget deficits and trade deficits are present value constraints satisfied in long term data abstract we test whether long term data from the u s and u k are consistent with the intertemporal government budget constraint and external borrowing constraint both individually and simultaneously a very strong test is provided by our focus on whether the present value constraints pvcs continue to hold despite unusual events such as wars that cause a structural break in the short run dynamic behavior of the variables we find that the pvcs hold over the whole sample period the data also indicate that the pvcs continue to hold following events that cause a structural break in the short run dynamics

a political theory of regulation with some observations on railway abandonments one of the main themes of partisan dispute in the recent past and doubtless in the foreseeable future is whether or not the value of detailed governmental regulation of the economy exceeds the cost this is exactly the kind of dispute that might be resolved by raising it from the level of mere partisan interest to the level of economic and political science unfortunately however it has not been raised because we do not have the necessary intellectual apparatus namely a theory about the motivation for the operation of and the consequences of regulation as a result most of the discussion consists of biased ad hoc explanations of particular cases with little effort to formulate and test alternative generalizations we have therefore nothing but unresolved and unresolvable disputes about a more or less random collection of stories and some contradictory recipes about cause and effect

governmental structure trustee selection and public university prices and spending multiple means to similar ends estimate the effects of multiple instruments for exercising political control over public university prices and spending i find that public universities located in states with governmental structures that enhance political control and universities whose trustees are selected by nonacademic stakeholders charge significantly lower prices than universities located in states with decentralized systems

state regulation and university behavior abstract the impact of state regulation on the economic behavior of american public research universities is studied using a unique sample of data on costs outputs and regulation measures for 98 institutions the university cost structure is modeled by a multiple output translog cost function explicitly allowing for the impact of state regulation regulating non faculty salary expenditures and the spending of non state revenues decreases costs while regulating faculty salary expenditures increases costs given the same output levels the results are interpreted in terms of the principal agent relationship of state regulators and universities efficiency gains and losses depend on the relative accuracy of state information on the production process

the supply of university enrollments university administrators as utility maximizing bureaucrats the supply of enrollments in higher education has receivedrelatively little attention in both theoretical and empiricaleconomic research to address this we formulate and test amodel of the supply of enrollments in higher education inwhich administrators are modeled as utility maximizingbureaucrats we find evidence that individual presidents andprovosts have a significant effect on enrollment supply andfaculty demand in a panel of eleven public colleges anduniversities in maryland from 1988 to 1996 implying thatinstitutions have enough market power to permit thepreferences of administrators to influence enrollment supplyand faculty demand

balancing environmental protection and energy production in the federal hydropower licensing process the u s federal energy regulatory commission ferc must balance environmental protection of riverine resources with the nation s growing demand for power production every time it issues a hydroelectric license this paper models the bureaucratic agency s decision making process in issuing these licenses data on nearly 500 hydro power licenses issued from 1983 to 2005 are utilized it is discovered that legislative and institutional constraints are by far the largest influences on ferc s regulatory decisions implying that if the current allocation of surface water in the united states is considered inefficient the most effective way to alter this allocation is by passing new legislation or by implementing institutional reform at ferc

on the stability of legislative outcomes this paper argues that by arranging vote trades in the face of information costs legislative committees contribute to the stability of legislative outcomes a structure of permanent committees and subcommittees facilitates informational specialization and helps legislators acquire experience in their specializations committees arrange vote trades by adjusting amounts of recommended spending on separate items in bills that receive majority support each legislator is allotted a roughly equal amount of legislative spending that he can influence plus an additional amount that depends on his skill and experience as a committee member

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

government organization and power i introduction economists have systematically examined the economics of government finance and long ago established that the means of financing government creates inefficiencies in the market for instance see baumol and bradford 1970 and diamond and mirrlees 1971a 1971b what may be less well examined and understood is that apart from the distortions that arise from the means of government finance government officials can have an incentive to provide a combination of services and taxes that are nonoptimal as in niskanen 1997 the ability of government to exercise coercive and pricing power creates these incentives a growing number of articles explore the effect of government power on its size for example anderson and tollison 1988 and rogers and rogers 1995 examine the implications of pricing power for government size in his work on bureaucracy niskanen 1971 considered the implications of coercive power for government size olson 1991 mcguire and olson 1996 niskanen 1997 and mcguire 2001 examine the implications of the joint exercise of coercive and pricing powers by an autocratic government to our knowledge however no previous work explicitly distinguishes between the coercive and pricing powers of government and none systematically examines all the possible combinations of coercive and pricing powers in the present analysis we develop a simple theoretical framework that allows us to examine on an integrated basis the exercise of government power the framework abstracts from any distortions in the means of government finance and separates government power into two dimensions pure coercive power and pure pricing power pure coercive power is the ability of a government to compel consumers to accept more of the public good than they desire at each tax price through fiat coercive power typically arises when citizens are unable to exit a jurisdiction costlessly and the government is able to push citizens beyond what they would accept in a voluntary relationship pure pricing power is the government s ability to restrict output along a given demand curve and earn rents by doing so pricing power typically arises when the government has limited competition and faces a downward sloping demand curve for its services we consider four polar combinations of coercive and pricing power in comparison to the social optimum lindahl democracy monopoly niskanen bureaucracy and autocracy as shown in figure 1 the government in lindahl democracy exercises neither coercive nor pricing power a monopoly government is able to restrict its output and exercise pricing power to earn rents in a traditional monopolistic fashion but it cannot engage price discrimination or expropriation to obtain any remaining consumer surplus from its citizens a niskanen bureaucracy can exact all of the surplus that consumers obtain from the public goods it provides but it must use the surplus in the production of public goods it cannot exercise pricing power and restrict output to obtain rents as a monopoly would an autocracy exercises both coercive and pricing power in practice democratic governments are likely to have both coercive and pricing powers rather than to conform to the lindahl ideal our analytical framework allows us to clarify and reconcile the differences between some of the previous contributions to the literature on government power and size in democracy a government can simultaneously use its coercive power to grow too large and its pricing power to restrict its output and earn rents furthermore government size or rents alone may be poor indicators of the extent to which government fails to achieve optimality in its provision of services government power may be used to generate rents provide too much government service or a combination of both ii social optimum consider a jurisdiction or economy with n identical individuals and two goods a purely public good and a purely private good

in state versus out of state students the divergence of interest between public universities and state governments abstract this paper examines the divergence of interest between universities and state governments concerning standards for admitting in state versus out of state students we find that public universities set lower minimum admission standards for in state than out of state applicants presumably in response to state pressure while private universities treat both groups equally however we also find that favoring in state applicants goes against states long term financial interest this is because marginal out of state students pay higher tuition than marginal in state students pay more in future state taxes and are equally influenced in whether they locate in the state after graduation by attending public university there

a public choice theory of the great contraction the conventional chicago wisdom about the great contraction is that it was the result of a massive policy failure according to this view the collapse of the economy was brought about mostly by the fact that the monetary policymakers of the day were more concerned with internal power struggles than with supplying reserves to member banks an explanation which with apologies to professor stigler must have elicited uproarious laughter at the bankers club it has been our purpose in this paper to suggest an alternative theory briefly stated the restrictive monetary policy pursued by the fed from 1929 to 1933 was motivated by the economic interests of member banks the fed s policy produced a massive differential failure rate between member and nonmember banks in which the latter were eliminated at a rate at least five times higher than the former fed member banks faced substantially less competition in the banking market after the house cleaning than before although all banks suffered net losses in the short run in the long run member bank profitability was enhanced by the reduction in the number of nonmember competitors at the same time the fed itself benefitted from a substantial increase in the proportion of the total banking system within its bureaucratic jurisdiction and from a change in its method of finance putting the great contraction in interest group terms we suggested that the fed was acting as the agent of congressmen serving on important oversight committees who in turn were representing the interests of the member banks in their states due to interstate branching restrictions the state is the relevant geographic market within which banks compete we tested this hypothesis using bank failure rate data across states and found that holding other things equal the failure rates of nonmember banks in the early 1930s were significantly higher in states with representation on the house banking and currency committee of course not even friedman and schwartz 1963 299 301 argue that fed policy was the sole direct cause of the great contraction but instead maintain that the fed acted in such a way as to take a relatively severe contraction and turn it into by far the most severe business cycle contraction in the whole of u s history but to the extent that the great contraction was worsened by fed policy and this in turn led to the succession of events called the great depression the latter was a side effect of economically rational interests of federal reserve member banks to say the least this would appear to have been an enormously inefficient method of obtaining the postulated benefits certainly there were other less costly methods available by which member banks could have reduced the number of their nonmember rivals this is perhaps the most difficult problem our theory of the great contraction confronts we can offer two responses first although the literature on the great depression tends to focus on fluctuations in national macroeconomic aggregates e g the money supply unemployment and so on it is clear that the severity of the depression differed radically across states states with relatively large agricultural sectors tended to be especially hard hit suffering the highest rates of unemployment and the most significant numbers of bank failures by contrast states in some other areas most notably new england and the southeast seemed to be less seriously affected we note that in some of our regressions the number of nonmember bank failures was negatively and significantly related to state unemployment rates in 1934 this is certainly not conclusive evidence but it does suggest a pattern of differential costs associated with the great contraction that is the costs of providing benefits to federal reserve member banks in states with representation on the relevant oversight committees may have fallen more heavily on the economies of states not so represented if so this would cast a very different light on the actual costs of these policies to the relevant political decision makers second the potential dilemma in this case is no worse than that encountered in the application of the economic theory of politics to many other kinds of government behavior economists since adam smith have ascribed protectionist trade policies to the influence of special interest groups who benefit modestly at the cost of relatively huge economic inefficiencies many other government actions that might be plausibly explained from an interest group perspective would similarly seem to involve costs to the economy which grossly outweigh the benefits special interests might reasonably expect presumably even in such seemingly extreme cases marginal benefits equal marginal costs to the relevant actors some writers have suggested that the political marketplace in modern democracies is characterized by much larger transactions costs than are normally encountered in ordinary markets see demsetz 1982 this might help explain the seemingly huge discrepancies we observe between apparent concentrated benefits and diffused costs in depression era monetary policy in any event this problem is not peculiar to our theory but is shared by many applications of the interest group model of government it is worth emphasizing that the events we have described do fall into the interest group model s stylized depiction of concentrated benefits versus diffuse costs moreover without having a complete picture of all of the options available to the monetary policymakers we cannot be sure that any of the alternatives was in fact more efficient we do know the path that was chosen and that contrary to the conventional wisdom this path had a rationally motivated interest group basis

testing theories of agency behavior evidence from hydropower project relicensing decisions of the federal energy regulatory commission theories of agency behavior are examined via an application to hydropower project relicensing by the federal energy regulatory commission ferc in the relicensing of each project fish and wildlife agencies submit recommendations to ferc ferc then enters a twostage deliberation process for each recommendation econometric analysis of these decisions covers 933 recommendations made for 72 projects relicensed during 1980 96 a new law the electric consumers protection act substantially altered ferc s decisions while a new administration the clinton administration exerted a mixed effect both events influenced the number of recommendations per project made by the fish and wildlife agencies

migration benefit spillovers and state support of higher education this paper tests the hypothesis that benefit spillovers from public higher educationproxied by out niigration led to lower higher education appropriations by state legislatures a model addressing legislative appropriations tuition and out migration activity is developed and estimated the results support the benefit spillover hypothesis indicating that for each percentage point increase in out migration appropriations per student decline by 100 the results also reveal a bi directional relationship between tuition and state appropriations this is in contrast with the view that tuition is a residual source of revenue representing the difference between the institutional budgets endorsed by educational policy makers and the level of state appropriations

competing for global capital or local voters the politics of business location incentives the competition for global capital has led to interjurisdictional competition between countries states and cities as to who can offer the most attractive incentives to firms in this study we examine the domestic politics of this competition by focusing on incentive use in the united states from 1999 to 2012 we define incentives as the targeted tax deductions or exemptions that are used to lure businesses into a locality drawing on data from municipal incentive programs we examine how electoral competition shapes the use and oversight of targeted incentives we find evidence that cities with elected mayors provide larger incentives than non elected city managers by taking advantage of exogeneity in the assignment of city government institutions and a database of over 2000 investment incentives from 2010 to 2012 we also find that elected mayors enjoy more lax oversight of incentive projects than their appointed counterparts our results have important implications for the study of interjurisdictional competition and the role of electoral institutions in shaping economic policy

theory of tax smoothing in the small open economy abstract we derive necessary and sufficient conditions for the martingale like behavior of tax rates the world real interest rate is exogenous to the small domestic economy consumers are risk averse and markets are incomplete the government s loss function is not ad hoc

an econometric model of a public university s income and enrollments abstract an econometric model of a public organization s income and outputs is applied to a public university and contains equations representing legislative demand for enrollments students attendance demand and university supply the results support the hypotheses that supply and the two demands determine the university s instructional funding and enrollments and that interest groups affect legislative demand while per student legislative funding for high cost graduate and professional students was not found to exceed that of undergraduates evidence is presented that these enrollments are financed by the estimated discretionary funds resulting from the legislature s high cost of controlling academic activities