prices or quantities can dominate banking and borrowing the possibility of intertemporal banking and borrowing of tradable permits is often viewed as tilting the various policy debates about optimal pollution control instruments towards favoring such time flexible quantities this paper shows that this view can be misleading at least for the simplest dynamic extension of the original prices versus quantities information structure the model of this paper allows firms to know and act upon the realization of uncertain future costs two full periods ahead of the regulators for any given circumstance the paper shows that either a fixed price or a fixed quantity is superior in expected welfare to time flexible banking and borrowing furthermore the standard original formula for the comparative advantage of prices over quantities contains sufficient information to completely characterize the regulatory role of intertemporal banking and borrowing the logic and implications of these results are analyzed and discussed

the differential regional effects of monetary policy this paper examines whether monetary policy has similar effects across regions in the united states impulse response functions from an estimated structural vector autoregression reveal a core of regions new england mideast plains southeast and the far west that respond to monetary policy changes in ways that closely approximate the u s average response of the three noncore regions one great lakes is noticeably more sensitive to monetary policy changes and two southwest and rocky mountains are found to be much less sensitive a state level version of the model is estimated and used to provide evidence on the channels for monetary policy

natural resources curse or blessing are natural resources a curse or a blessing the empirical evidence suggests that either outcome is possible this paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources these include that a resource bonanza induces appreciation of the real exchange rate deindustrialization and bad growth prospects and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law corruption presidential democracies and underdeveloped financial systems another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad induces corruption especially in nondemocratic countries and keeps in place bad policies finally resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets the survey also offers some welfare based fiscal rules for harnessing resource windfalls in developed and developing economies

losses from effluent taxes and quotas under uncertainty recent theoretical papers by adar and griffin j environ econ manag 3 178 188 1976 fishelson j environ econ manag 3 189 197 1976 and weitzman rev econ studies41 477 491 1974 show that different expected social losses arise from using effluent taxes and quotas as alternative control instruments when marginal control costs are uncertain key assumptions in these analyses are linear marginal cost and benefit functions and an additive error for the marginal cost function to reflect uncertainty in this paper empirically derived nonlinear functions and more realistic multiplicative error terms are used to estimate expected control and damage costs and to identify empirically the mix of control instruments that minimizes expected losses

regulating stock externalities under uncertainty abstract using a simple analytical model incorporating benefits of a stock costs of adjusting the stock and uncertainty in costs we uncover several important principles governing the choice of price based policies e g taxes relative to quantity based policies e g tradable permits for controlling stock externalities as in weitzman rev econom stud 41 4 1974 477 the relative slopes of the marginal benefits and costs of controlling the externality continue to be critical determinants of the efficiency of prices relative to quantities with flatter marginal benefits and steeper marginal costs favoring prices but some important adjustments for dynamic effects are necessary including correlation of cost shocks across time discounting stock decay and the rate of benefits growth applied to the problem of greenhouse gases and climate change we find that a price based instrument generates several times the expected net benefits of a quantity instrument

demand for rural tourism the effects of quality and information the development of rural tourism is regarded as a promising diversification strategy especially for lagging and mountainous areas of the european union research concerning the demand and or supply of rural tourism services has been limited within the agricultural economics domain despite the significance attached to rural tourism by various rural development policy measures and initiatives the article examines the expenditure behavior of rural tourists within a framework of demand for composite heterogeneous goods the proposed framework captures the quality of the tourism experience as the commodity s unit value a quantifiable economic variable examines its effects on expenditures and allows for the estimation of elasticity in prices regarding expenditure and quantity empirical analysis is facilitated by a survey recording the expenditure behavior of 465 tourists in two rural and lagging areas of greece the quality of the tourism experience is significantly and positively affected by the income the source from which information about the trip is retrieved internet newspapers as well as general press and special travel press and by the amount of information sought by the consumer prior to the trip in turn the quality of the tourism experience is the major endogenous factor that positively influences expenditures for rural tourism further research is needed before evidence provided in this work can be used to draw policy conclusions and recommendations

housing market heterogeneity in a monetary union this paper studies the implications of cross country housing market heterogeneity in a monetary union for both shock transmission and welfare i develop a two country new keynesian general equilibrium model with housing and collateral constraints to explore this issue the conventional wisdom is that welfare would be higher in a monetary union if mortgage markets were homogeneous this paper shows instead that welfare is higher only when homogenization does not result in higher aggregate volatility because of financial accelerator effects or does not redistribute too much wealth from borrowers to savers

state level implications of federal tax policies abstract the united states federal fiscal policy has differential impact across states we construct a new quarterly state level dataset that we use to analyze the impact of unexpected changes in federal personal and corporate income taxes we find substantial heterogeneity across states with more than half having no significant response to the tax cuts in addition less capital intensive states have larger responses to corporate tax cuts although puzzling in standard models a model with corporate and non corporate sectors is consistent with this evidence overall our results suggest the importance of variation and reallocation across states in evaluating federal policy

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

the unequal geographic burden of federal taxation in the united states workers in cities offering above average wages cities with high productivity low quality of life or inefficient housing sectors pay 27 percent more in federal taxes than otherwise identical workers in cities offering below average wages according to simulation results taxes lower long run employment levels in high wage areas by 13 percent and land and housing prices by 21 and 5 percent causing locational inefficiencies costing 0 23 percent of income or 28 billion in 2008 employment is shifted from north to south and from urban to rural areas tax deductions index taxes partially to local cost of living improving locational efficiency

optimal monetary policy in a currency area abstract this paper investigates how monetary policy should be conducted in a two region general equilibrium model with monopolistic competition and price stickiness this framework delivers a simple welfare criterion based on the utility of the consumers that can be used to evaluate monetary policy in a currency area if the two regions share the same degree of nominal rigidity the terms of trade are completely insulated from monetary policy and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates these weights coincide with the economic sizes of the region if the degrees of rigidity are different the optimal plan implies a high degree of inertia in the inflation rate but an inflation targeting policy in which higher weight is given to the inflation in the region with higher degree of nominal rigidity is nearly optimal

the impact of natural resources survey of recent quantitative evidence the cross country empirical evidence for the natural resource curse is ample but unfortunately fraught with econometric difficulties a recent wave of studies on measuring the impact of natural resource windfalls on the economy exploits novel datasets such as giant oil discoveries to identify effects of windfalls uses natural experiments and within country econometric analysis and estimates local impacts these studies offer more hope in the search of quantitative evidence

correlated uncertainty and policy instrument choice abstract for two decades environmental economists have generally maintained that benefit uncertainty is irrelevant for choosing between price and quantity instruments but that cost uncertainty matters with the identity of the efficient instrument depending upon the relative slopes of the marginal benefit and cost functions but in the presence of simultaneous correlated uncertainty such policy instrument recommendations may be inappropriate with plausible values of relevant parameters the conventional identification of a price instrument will be reversed to favor instead a quantity instrument the opposite reversal from the choice of a quantity instrument to a price instrument seems less likely to occur

monetary policy natural resources and federal redistribution can monetary policy shocks induce redistribution across natural resource rich and poor states within a federation we conjecture that resource rich states are capital intensive hence their investment is more responsive to changes in monetary policy consequently contractionary monetary policy shocks e g increases in the interest rate may induce redistribution from resource poor states to resource rich ones via an equalizing federal transfer scheme because investment is reduced more strongly in the latter we test these hypotheses using a panel of u s states covering several decades and find that 1 resource rich states are significantly and persistently more capital intensive 2 contractionary monetary policy shocks induce a relative drop increase in investment federal transfers in resource rich states over the course of four years 3 these patterns are driven by resource induced differences in the capital share in the economy we estimate that a one standard deviation contractionary monetary shock induces within the first year federal redistribution of approximately 2 5 billion from the resource poor to the resource rich states representing about 11 of the total average annual federal transfers received by the latter states

irreversible abatement investment under cost uncertainties tradable emission permits and emissions charges abstract a major concern with tradable emission permits is that stochastic permit prices may reduce a firm s incentive to invest in abatement capital or technologies relative to other policies such as a fixed emissions charge however under efficient permit trading the permit price uncertainty is caused by abatement cost uncertainties which affect investment under both permit and charge policies we develop a rational expectations general equilibrium model of permit trading and irreversible abatement investment to show how cost uncertainties affect investment under permits we compare the resulting investment incentive with that under charges after controlling for the assumption that random shocks affect the abatement cost linearly we find that firms investment incentive decreases in cost uncertainties but more so under emissions charges than under permits therefore tradable permits in fact may help maintain firms investment incentive under uncertainty

the control of externalities in a growing urban economy the received theory of externality control which implicitly assumes that both the social marginal damage and marginal treatment cost schedules will remain fixed during the time any policy is operative concludes that an effluent tax and an auction of rights to emit pollutants in the amount of a given emissions standard will be equally efficient in meeting that standard we show that urban growth causes shifts in both schedules these shifts in turn substantially increase the welfare loss from a fixed effluent tax relative to that from an auction market with a fixed number of licenses

regional convergence evidence from a new state by state capital stock series this paper seeks to reconcile the growth empirics technique of mankiw romer and weil 1992 with the empirical results of barro and sala i martin 1991 through the development of a new database covering the 1977 96 period we create state by state capital stock and gross investment estimates by apportioning the national capital stock among the states using these estimates along with gross state product and employment data we find evidence that the solow growth model explains state wide growth during this period we consistently find a rate of convergence of around 2 our results as a consequence suggest that the empirical results of barro and sala i martin are driven by the neoclassical growth process of solow

welfare gains from quality certification of infant foods results from a market experiment in mali in low income countries malnutrition is often most severe among infants of six to twenty four months they need higher density foods than the family diet but density is a credence attribute we hypothesize that the premium now paid for heavily advertised brands reflects demand for quality assurance which could be provided at lower cost to competing firms through third party certification we use a new market experiment to find that mothers average willingness to pay for certification is about 1 75 kg or four times its cost so that total economic surplus gains from introducing certification to mali would be on the order of 1 million annually

inflation persistence and optimal monetary policy in the euro area in this paper we present an optimizing agent model for the euro area to emphasize how the existence of heterogeneity in inflation persistence across regions matters for the design of monetary policy we find supporting evidence of the existence of such a heterogeneity in inflation dynamics across euro area countries in particular based on the estimation of new keynesian phillips curves for five major countries of the euro area we find that inflation in germany has a dominant forward looking component while in the other group of countries inflation show a significant inertial backward looking behavior under this circumstance we study the welfare implications of four monetary policy rules following terms of trade shocks fully optimal optimal inflation targeting hicp targeting and output gap stabilization

using natural resources for development why has it proven so difficult developing economies have found it hard to use natural resource wealth to improve their economic performance utilizing resource endowments is a multistage economic and political problem that requires private investment to discover and extract the resource fiscal regimes to capture revenue judicious spending and investment decisions and policies to manage volatility and mitigate adverse impacts on the rest of the economy experience is mixed with some successes such as botswana and malaysia and more failures this paper reviews the challenges that are faced in successfully managing resource wealth the evidence on country performance and the reasons for disappointing results

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

what labelling policy for consumer choice the case of genetically modified food in canada and europe faced with divergent opinions among consumers on the use of genetically modified gm foods canada has adopted a voluntary labelling approach for non gm foods whereas the european union has a mandatory labelling policy for gm foods interestingly both labelling systems have resulted in very little if any additional consumer choice using an analytical model we show that the coexistence of gm and non gm products at the retail level depends on the labelling policy consumer perceptions and the type of product although voluntary labelling tends to favour the use of gm products it is more likely to provide consumer choice confrontes a des opinions publiques divergentes sur l usage des aliments genetiquement modifies gm le canada a adopte une politique d etiquetage volontaire pour les aliments non gm alors que l union europeenne a mis en place une politique d etiquetage obligatoire des aliments gm curieusement ces deux systemes d etiquetage n ont pas reellement permis de faciliter le choix des consommateurs a l aide d un modele analytique nous demontrons que la coexistence des produits gm et non gm au niveau du commerce de detail depend de la politique d etiquetage de la perception des consommateurs et du type de produit bien que l etiquetage volontaire ait tendance a favoriser l usage des produits gm cette approche est plus a meme de faciliter le choix du consommateur que l etiquetage obligatoire

combining price and quantity controls to mitigate global climate change abstract uncertainty about compliance costs causes otherwise equivalent price and quantity controls to behave differently and leads to divergent welfare consequences although most of the debate on global climate change policy has focused on quantity controls due to their political appeal this paper argues that price controls are more efficient simulations based on a stochastic computable general equilibrium model indicate that the expected welfare gain from the optimal price policy is five times higher than the expected gain from the optimal quantity policy an alternative hybrid policy combines both the political appeal of quantity controls with the efficiency of prices using an initial distribution of tradeable permits to set a quantitative target but allowing additional permits to be purchased at a fixed trigger price even sub optimal hybrid policies offer dramatic efficiency improvements over otherwise standard quantity controls for example a 50 trigger price per ton of carbon converts the 3 trillion expected loss associated with a simple 1990 emission target to a 150 billion gain these results suggest that a hybrid policy is an attractive alternative to either a pure price or quantity system

a test of nutritional quality signaling in food markets prior to implementation of mandatory labeling in may 1994 new nutrition labeling regulations went into effect in the united states requiring mandatory disclosure of information on the nutritional content of foods this article uses grossman s model of totally effective quality signaling to evaluate whether markets were effective in information provision prior to the new regulation if markets were effective in providing information to consumers on the nutritional quality of foods the new regulation would be unnecessary the results of the logistic model where the probability of voluntary information disclosure is linked to the nutritional quality of food products and their prices indicate that private quality signaling was not reliably at work in food markets prior to implementation of the mandatory nutrition labeling regulation copyright 2000 oxford university press

pollution standards vs charges under uncertainty conventional analysis of pollution control policy under uncertainty does not properly account for the potential cost effectiveness difference between standards and charges thus drawing misleading conclusions for the case of inefficient standards correcting for this anomaly the following conclusions can be drawn when uncertainty involves the position of the marginal damage cost schedule rather than policy indifference a charge is always superior to an inefficient standard when uncertainty is about the position of the marginal control cost schedule policy indifference may occur but if it does it must be the case that the slope of marginal damage cost exceeds that of marginal control cost

pollution permit markets with intertemporal trading and asymmetric information abstract we consider the problem of determining the permit discount rate in pollution permit markets in which permits may be traded over time and polluting firms have better information about their abatement costs than does the regulator we show that the preferred permit discount rate may be greater than or less than the money discount rate we also consider whether or not the regulator should allow intertemporal trading to take place allowing intertemporal trading lowers social costs when the slope of the marginal damage function is less than the slope of the aggregate marginal abatement cost function

regional redistribution through the u s mortgage market abstract regional shocks are an important feature of the us economy households ability to self insure against these shocks depends on how they affect local interest rates in the united states m

does food safety information impact u s meat demand a theoretical model of consumer response to publicized food safety information on meat demand is developed with an empirical application to u s meat consumption evidence is found for the existence of pre committed levels of consumption seasonal factors time trends and contemporaneous own and cross commodity food safety concerns the average demand response to food safety concerns is small especially in comparison to price effects and to previous estimates of health related issues this small average effect masks periods of significantly larger responses corresponding with prominent food safety events but these larger impacts are short lived with no apparent food safety lagged effects on food safety concerns in the united states have dramatically increased in the past decade with regard to incidences of contaminated meat products concerns have arisen because contaminated meat products can result in serious risk to the well being and health of consumers contamination comes from a myriad of sources including but not limited to outbreaks of listeria monocytogenes escherichia coli e coli and salmonella centers for disease control and prevention food safety problems are not isolated to the united states as other unsafe contaminates in meats have emerged across the world including highly publicized outbreaks of bovine spongiform encephalopathy bse in europe the potential impacts of publicized food safety events on consumer s demand for meat products in the united states include own effects on the demand for the contaminated meat involved as well as cross effects impacting the demand for other meats the objective of this article is to investigate whether publicized food safety concerns surrounding beef pork and poultry chicken and turkey have impacted meat consumption food safety indices are constructed separately for beef pork and poultry

innocent bystanders monetary policy and inequality abstract we study the effects of monetary policy shocks on and their historical contribution to consumption and income inequality in the united states since 1980 as measured by the consumer expenditure survey contractionary monetary policy systematically increases inequality in labor earnings total income consumption and total expenditures furthermore monetary policy shocks account for a non trivial component of the historical cyclical variation in income and consumption inequality using detailed micro level data on income and consumption we document some of the different channels via which monetary policy shocks affect inequality as well as how these channels depend on the nature of the change in monetary policy

a theory of capital controls as dynamic terms of trade manipulation we develop a theory of capital controls as dynamic terms of trade manipulation we study an infinite horizon endowment economy with two countries one country chooses taxes on international capital flows in order to maximize the welfare of its representative agent while the other country is passive we show that a country growing faster than the rest of the world has incentives to promote domestic savings by taxing capital inflows or subsidizing capital outflows although our theory of capital controls emphasizes interest rate manipulation the pattern of borrowing and lending per se is irrelevant

can information costs affect consumer choice nutritional labels in a supermarket experiment this paper investigates whether information costs under currently regulated nutritional labeling prevent consumers from making healthier food choices we implement five nutritional shelf label treatments in a market level experiment these labels reduce information costs by highlighting and summarizing information available on the nutritional facts panel following a difference in differences and synthetic control method approach we analyze weekly store level scanner data for microwave popcorn purchases from treatment and control stores our results suggest that consumer purchases are affected by information costs implemented low calorie and no trans fat labels increase sales in contrast implemented low fat labels decrease sales suggesting that consumer response is also influenced by consumers taste perceptions a combination of these claims into one label treatment increases information costs and does not affect sales significantly

indirect methods for regulating externalities under uncertainty it is sometimes necessary or appropriate to correct an externality by intervening in the market for a privately traded commodity with which the externality is linked in these situations ad valorem taxation is a viable policy option it is argued that some combination of specific and ad valorem taxes will always outperform regulations which fix price administratively but that quantity standards may outperform taxes the analysis is applied to a problem in international trade

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

convergence of the south and non south income distributions 1969 1979 income distribution and inequalities in the southern united states are analyzed and compared with data for the rest of the country the evidence presented in this paper reveals that in the 1970s the souths income distribution either converged or moved significantly closer to the income distribution of the rest of the country the degree of convergence depends on the definition of the recipient unit and to a degree on the particular cost of living index used to deflate southern and non southern incomes the convergence is attributed in part to the labor unionization in the northeast and the resulting relocation of companies to the south data are from the 1970 and 1980 censuses and concern total household income excerpt

do voluntary biotechnology labels matter to the consumer evidence from the fluid milk market this article examines the effects on the demand of voluntary labeling for the use of genetically modified growth hormone for retail fluid milk using supermarket scanner data retail fluid milk tracks one of the first biotechnology products approved is fairly standardized and ubiquitous and allows for cross sectional differentiation between labeled and unlabeled products and between conventional and organic brands the results indicate that voluntary labeling increases the demand for recombinant bovine growth hormone free milk in addition the estimated effects of labeling appear to have increased over time innovations through biotechnology enable agricultural producers to reduce production costs and or enhance product quality for many livestock and crop commodities at the same time however these innovations may affect the demand for the products that utilize those commodities many individuals for example are concerned about potential risks to human health although by no means all consumers have such concerns burton metcalfe and smith heiman just and zilberman the use of the recombinant bovine growth hormone rbgh in milk production has been a particular concern for some consumers as approximately one third of the united states dairy herd about 3 million dairy cows currently receive rbgh supplements monsanto product labeling particularly with respect to the provision of health and environmental information is increasingly being used to provide information about product characteristics such as biotechnology content that

managing permit markets to stabilize prices the political economy of environmental policy favors the use of quantity based instruments over price based instruments e g tradable permits over green taxes at least in the united states with cost uncertainty however there are clear efficiency advantages to prices in cases where the marginal damages of emissions are relatively flat such as with greenhouse gases the question arises therefore of whether one can design flexible quantity policies that mimic the behavior of price policies namely stable permit prices and abatement costs we explore a number of quantity plus policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs they do so without necessitating any monetary exchanges between the government and the regulated firms which can be a significant political barrier to the use of price instruments

controlling stock externalities in a common property fishery subject to uncertainty abstract two methods are examined for regulating stock externalities under uncertainty quotas and taxes dynamic programming is used to characterize the externalities precisely the accuracy with which the current size of the resource stock can be monitored is found to be of crucial importance in the choice between tax and quota regulation if the current stock is observed without error taxes are capable of outperforming any quota

the economic case for limits to government in june of 1978 the voters of california approved proposition 13 restricting the rate of local property taxation to no more than 1 percent of 1975 market values in november 1978 the voters of michigan approved the headlee amendment which limited state revenues from own sources to a fixed share of state personal income in november of 1980 massachusetts voters followed the lead of california and required all cities and towns to limit their taxation to a rate of 22 percent of full and fair cash value numerous hypotheses have been advanced and analyzed to explain the emergence of these new restrictions on fiscal choice the results point to two explanations voters feel governments are too big providing more services than what they prefer or governments spend too much on redistributive activities to help the poor and through higher wages to help public employees themselves the response to this perceived failure of government has been to propose and in california michigan and massachusetts to approve absolute limits to government expenditures the question i wish to address here is whether a compelling economic argument can be advanced for such a policy response politics and personalities aside the answer i think is yes but particular preconditions must apply first and perhaps most importantly is the inability of citizens to directly control the provision of public services responsibility for providing public goods is delegated to agents of the voter and these agents be they bureaucrats or elected representatives have their own objectives and an ability to act upon them to the possible disadvantage of the voters second without direct control over public outputs voters must use indirect controls through the manipulation of their appointed agents these indirect controls take two general forms price incentives or quantity restrictions third the choice of either of these indirect controls must take place before the agent acts to provide public goods further voters must often make their choice of a price or quantity control before the benefits or costs of the public service are known to them with certainty agents however can wait to observe true benefits and coststhat is why we use agents and then provide a level of public services in response to costs benefits and the voters chosen control voter uncertainty over benefits and costs can be interpreted as placing the voter within a constitutional perspective where a voter s precise position in society that is his or her benefits and costs are unknown when choosing a control geoffrey brennan and james buchanan ch 1 were the first to really stress this important point fourth if benefit and cost uncertainty is predominantly over the position rather than slope of the marginal benefit and marginal cost schedules and if the marginal benefit schedule is relatively steep loosely an inelastic demand curve while the marginal cost schedule is relatively flat an elastic supply curve then quantity controls on agents behavior through tax or spending limitations will be the preferred control these four preconditions strike me as quite plausible rather than just an emotional reaction to a peculiar configuration of political and economic circumstances proposition 13 the headlee amendment and proposition 24 may be perfectly reasoned responses to a failure in the politi professor university of pennsylvania and research associate the national bureau of economic research inc an alternative hypothesis which has been tested and generally rejected attributes voter approval to a desire to alter the tax mix away from property taxation and towards other taxes what approving voters really want it seems is increased government efficiency and less redistribution see the recent studies by jack citrin paul courant edward gramlich and daniel rubinfeld and helen ladd and julie wilson

federal fiscal transfer rules in monetary unions abstract this paper considers simple rules for federal fiscal transfers that automatically redistribute funds among member states of a monetary union to counteract adverse idiosyncratic shocks the transfer rules target regional differences in nominal gdp consumption spending labor income and fiscal deficits targeting regional fiscal deficits is the only rule that reduces consumption fluctuations and that promotes interregional consumption risk sharing but the overall welfare effect is negative in contrast targeting regional differences in labor income yields the largest welfare gains but it also yields the largest fluctuations in consumption and real gdp it is demonstrated that the welfare gains primarily stem from reducing the allocative inefficiency of input factors caused by nominal rigidities the optimal transfer rule essentially implies a combination of consumption spending and labor income targeting and it primarily targets the allocative inefficiency of factor inputs at the cost of lower interregional consumption risk sharing

fiscal federalism and monetary unions a quantitative assessment abstract in this paper i provide a quantitative analysis of three different forms of fiscal federalism in monetary unions fully decentralized regional fiscal authorities as the benchmark fiscal equalization with nominal tax revenue sharing and a common central fiscal authority i assess the capability of the different arrangements to stabilize regional consumption output and employment over the business cycle i also study the implications for interregional income consumption risk sharing and welfare from this analysis the following results emerge first a central fiscal authority stabilizes consumption fluctuations and increases the scope of interregional income and consumption risk sharing second fiscal equalization destabilizes consumption fluctuations and also reduces the scope of interregional income and consumption risk smoothing third a central fiscal authority leads to welfare gains whereas fiscal equalization leads to welfare losses