political competition and voter mobility the existing model of political competition is extended to allow voters to live in different regions and to migrate between regions in response to an inter regional transfer policy we then show that regions have a different weight in the expected vote function of political parties this gives parties an incentive to bias the transfer policy in favour of relatively high weight regions with potentially adverse efficiency and equity effects however we then show that parties always propose efficient and equitable regional transfers regardless of whether regions have different weights if there is some mobility of citizens across regions mobility constrains parties to act efficiently and equitably even though they face an incentive to act otherwise however when voters are immobile political competition leads to inequitable though efficient outcomes

efficiency and equalization payments in a federal system of government a synthesis and extensions of recent results this paper investigates the rationale for a system of equalization transfers in a federal system of government the existing sources of inefficiency of resource allocation in economies with more than one level of government are synthesized in the framework of a simple decentralized multiprovince model with mobile factors of production the sources of inefficiency arise first because migrants respond at the margin to incorrect signals owing to the phenomena of rent sharing and fiscal exterality and second because of global rather than local inefficiencies the model is then extended to consider the role of the federal government in providing intergovernmental transfers in the face of such inefficiencies in addition to synthesizing the sources of inefficiency in federal models the equity arguments for equalization are briefly recounted efficacite et paiements de perequation dans un systeme federal de gouvernement synthese et extensions de certains resultats recents ce memoire examine la logique qui soustend un systeme de paiements de perequation dans un systeme fdderal de gouverement les auteurs utilisent un modele simple d un systeme multi provincial decentralise avec des facteurs de production mobiles pour definir les sources d inefficacite dans l allocation des ressources dans les dconomies qui possedent plus d un niveau de gouvernement ces inefficacites proviennent de ce que d abord ceux qui se deplacent le font en reponse a la marge a des signaux incorrects engendres par le partage de la rente sur la base de la residence et par les phenomenes d exteralites fiscales elles sont aussi le resultat d inefficacites globales plutot que locales dans le cadre de ce modele les auteurs analysent le role du gouvernement federal effectuant des transferts inter gouverementaux pour corriger ces inefficacites en plus de presenter une synthese des sources d inefficacite dans les regimes federaux les auteurs font un bref rappel en passant a l ensemble des arguments fondes sur l equite qu on utilise pour rationaliser les paiements de perequation this paper is a linear combination of two papers presented at the may 1982 meetings of the canadian economics association in halifax entitled the case for equalization payments by the authors and recent developments in the theory of regional economic policy in canada by boadway the authors are grateful for comments by the discussants jim johnson and baxter macdonald and by jack mintz brian scarfe gerard belanger david sewell tom courchene and the referees we are especially heavily indebted to dan usher for many stimulating comments and suggestions while the work was in progress some of the above persons will undoubtedly disagree with the emphasis we have chosen to put on various aspects of the analysis for policy purposes support for some of this work has been provided by the economic council of canada and is gratefully acknowledged canadian journal of economics revue canadienne d economique xv no 4 november novembre 1982 printed in canada imprimd au canada 0008 4085 82 0000 0613 01 50 1982 canadian economics association this content downloaded from 207 46 13 127 on wed 12 oct 2016 04 27 47 utc all use subject to http about jstor org terms 614 robin boadway and frank flatters

famous myths of fiat money the paper re evaluates the conventional wisdom regarding the existence of moneys that supposedly circulated without any legal status or intrinsic value economists call these objects fiat money i re examine the most famous examples of such objects from primitive societies such as the stone money of yap and seashells which have been cited by some of the most prominent monetary economists i find that actually none of these cases is an evidence of fiat money a general conclusion is that one needs to seriously study the society in question before making a claim that it has used fiat money

sophisticated monetary policies in standard monetary policy approaches interest rate rules often produce indeterminacy a sophisticated policy approach does not sophisticated policies depend on the history of private actions government policies and exogenous events and can differ on and off the equilibrium path they can uniquely implement any desired competitive equilibrium when interest rates are used along the equilibrium path implementation requires regime switching these results are robust to imperfect information our results imply that the taylor principle is neither necessary nor sufficient for unique implementation they also provide a direction for empirical work on monetary policy rules and determinacy

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

empirical measures of inflation uncertainty a cautionary note a direct ex ante measure of inflation uncertainty in the us is compared with a number of proxies used in empirical studies the direct estimate is the root mean subjective variance of the probability distributions for inflation reported by respondents to the asa nber survey the proxies include forecast standard deviations from arima arch and structural models of inflation these proxies are not significantly correlated with the direct measure nor with one another use of the proxies leads to incorrect inferences about the correlation between inflation and inflation uncertainty and between inflation uncertainty and the real interest rate

redistribution and administrative federalism in this paper redistribution is studied in the presence of migration externalities administrative federalism is defined as a constitution where statutory tax and transfer levels are set nationally while local administrations may refuse to pay the transfer or rebate the tax in single cases thereby introducing horizontal inequity with risk aversion this is less attractive than reducing the level of redistribution in a horizontally equal way it is shown that administrative federalism leads to higher transfers and higher utilitarian welfare than decentralized decisions that it may implement the first best solution and that horizontal inequality never occurs in equilibrium

where should the elderly live and who should pay for their care we consider a model with a population consisting of earners and retired persons elderly care is publicly provided there is one big city where congestion effects and agglomeration forces are at work and a number of small villages we show how the externalities related to population mobility lead to an inefficient spatial distribution of earners and retirees and we characterize the second best solution decentralization of this solution in a fiscal federalism structure requires the use of taxes and subsidies proportional to the number of earners and retired persons living in the city and the villages

a hybrid fiat commodity monetary system in this paper i describe a monetary system in which backing is provided for the government s liabilities by way of contingent resort to taxes the system is studied within the context of a one good pure exchange model of two period lived overlapping generations in which aside from various uniform boundedness assumptions considerable diversity is allowed both within and across generations two results are established i the existence of at least one perfect foresight competitive equilibrium and ii the pareto optimality of any such equilibrium the monetary system studied has some of the features of a commodity money system with a large seignorage spread between bid and ask prices one crucial feature of the system is that the government by taxing stands ready at any time to convert its outstanding liabilities into the commodity at an announced price in an important sense the hybrid scheme is a mixture of a fixed supply fiat scheme and a pure tax transfer scheme a social security scheme it makes some use of market pricing of net government indebtedness and some use of taxes and transfers its one advantage vis a vis the fixed supply fiat scheme is that any equilibrium under the hybrid scheme is pareto optimal for the fixed supply fiat scheme one can at best demonstrate that there exists an optimal equilibrium it is well known that there can exist nonoptimal equilibria under that scheme the presumed advantage of the hybrid scheme vis a vis the pure tax transfer scheme is its lesser use of taxes and transfers i say presumed because the framework i set out is not rich enough to imply that less use of taxes and transfers is preferable to more use of taxes and transfers

monetary fiscal and reserve requirement policy in a simple monetary growth model the authors consider an otherwise conventional monetary growth model in which spatial separation and limited communication create a transactions role for currency and stochastic relocation gives rise to financial intermediaries in this framework they consider how changes in fiscal and monetary policy and in reserve requirements affect inflation capital formation and nominal interest rates there is also considerable scope for multiple equilibria the authors show how reserve requirements that never bind along actual equilibrium paths can play an important role in avoiding undesirable equilibria finally they demonstrate that changes in apparently nonbinding reserve requirements can have significant real effects coauthors are mark g guzman elisabeth huybens and bruce d smith copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

tax competition and income redistribution an empirical analysis for switzerland tax competition is supposed to lead to thecollapse of the welfare state because first it willbecome difficult for a single jurisdiction to levy aredistribution tax upon the rich and mobile andsecond such a policy if undertaken in onejurisdiction will attract poor individuals from otherjurisdictions and erode internal redistributionpolicies in this paper the impact of personal incometaxes and transfers on residence decisions oftaxpayers is analyzed with swiss subfederal data therelationship of tax competition and the erosion of theswiss welfare state is tested with aggregate data onincome redistribution

redistribution within and across the regions of a federation the authors reconsider the literature on redistribution within a federation with mobile agents they conclude that redistribution is a function best assigned to the national government local governments with diverse preferences for redistribution distort individual migration decisions the authors also examine the fiscal externality literature which has made an efficiency argument for interregional transfers they show that if local governments have the same preferences for redistribution the nash equilibrium is efficient if preferences are diverse the authors show that nationally imposed interregional transfers do not address the source of the inefficiency nevertheless interregional transfers are shown to be a part of decentralized behavior

optimality free mobility and the regional authority in a federation abstract this paper examines the efficiency properties of a federation characterized by strategically competing regions and freely mobile homogeneous individuals analyses of this economy have concluded that achieving a pareto optimal will require intervention by a national authority this paper makes one basic point the nash equilibrium of regional authority behavior is pareto optimal the implication is that there is no role for a national authority in either providing interregional transfers or correcting for decentralized provision of public goods the nash equilibrium involves samuelson public goods provision and regions purchasing preferred population distributions with optimal interregional transfers

decentralized and efficient control of transboundary pollution in federal systems abstract decentralized control of transboundary pollution in federal systems can be efficient when population crowding is socially costly in this paper an upstream region abates pollution or makes an interregional income transfer to the downstream region with the sole intent of deterring immigration because either instrument abatement expenditure or interregional income transfer alone implements an efficient population distribution between the regions interregional income transfers are unnecessary for efficiency without explicit income transfers each region provides the efficient portion of the aggregate level of pollution abatement in the nash equilibrium

the impressive contribution of canadian economists to fiscal federalism theory and policy the study of fiscal federalism has been central to the research of canadian economists since the rowell sirois report to mark the 50th anniversary of the founding of the canadian economics association it is fitting to take stock of their contributions we focus on the period since 1982 and emphasize the main scholarly publications of an inclusive array of canadian economists and economists in canadian universities our attention is devoted to applications in the context of federal and provincial governments setting aside related issues in municipal government finance we briefly discuss instances where the fiscal federalism literature has informed policy debates including through policy research institutes government commissions and international organizations la contribution impressionnante des economistes canadiens a la theorie et a la politique du federalisme fiscal l etude du federalisme fiscal a ete un element central de la recherche des economistes canadiens depuis la commission rowell sirois au moment de celebrer le 50eme anniversaire de la fondation de l association canadienne d economique le moment est approprie pour prendre la mesure de leurs contributions on se concentre sur la periode apres 1982 et on souligne les principales publications savantes d un ensemble inclusif d economistes canadiens et d economistes dans les universites canadiennes une attention particuliere est portee aux applications dans le contexte federal et provincial mettant de cote les enjeux relies a la finance municipale on discute brievement des instances ou la litterature sur le federalisme fiscal a eclaire les debats de politiques publiques y compris a travers les instituts de recherche sur les politiques publiques les commissions gouvernementales et les organisations internationales

assistance to the poor in a federal system abstract this paper explores the roles of different levels of government in assisting the poor using a model incorporating utility interdependence the paper first presents some theoretical results indicating how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support it then provides a survey of the empirical work on migration of the poor along with a brief historical discussion of the experience under the english poor laws the concluding section turns to normative issues and contends that mobility of the poor is a basic source of inefficiency in wholly decentralized systems of support this inefficiency along with certain other equity considerations establishes a role for the central government in assistance to the poor

ruling out divergent speculative bubbles abstract the growth in the empirical literature on testing for divergent in mean speculative bubbles indicates that existing theoretical arguments for ruling out such price paths are not sufficiently compelling here we strengthen the case for ruling out explosive or implosive bubbles a priori by filling in two gaps first we demonstrate why divergent stochastic bubbles arising from purely extrinsic uncertainty as in blanchard 1979 cannot be equilibria in a monetary optimizing model second we show why existing arguments for ruling out implosive price bubbles are insufficient in some cases and we provide stronger arguments

efficiency in a pure currency economy with inflation individuals who are buffeted by stochastic shocks will wish to substitute consumption intertemporally to effect this substitution they can enter into insurance contracts or they can use money this paper investigates the connection between optimum insurance and friedman s 1969 concept of the optimum quantity of money using a simplified version of lucas s 1980 pure currency economy monetary efficiency and efficient insurance are equivalent here an example is presented in which an efficient monetary equilibrium exists contrary to bewley s 1983 conjecture in the example the efficient rate of return on real balances is less than the internal rate of discount

risk sharing in a federation with population mobility and long horizons in this paper risk sharing among individuals within and across regions in a federation with population mobility and infinite horizons is considered it is shown that the regional authorities will not fully exploit gains from interregional risk sharing when population mobility is imperfect in the nash equilibrium there is complete risk sharing among the individuals within each region however which corresponds to the policies of the central authority regional authorities who care about their reputation may be able to commit to an efficient allocation it is possible that improvements in the degree of mobility will make such commitments less likely jel classification h77 e61 and f36 le partage du risque dans une federation ou la population est mobile et l horizon temporel long ce memoire examine le partage du risque entre personnes a l interieur des regions et entre regions dans une federation ou il y a mobilite de la population et horizon temporel infini on montre que les autorites regionales n exploiteront pas pleinement les gains en provenance d un partage inter regional du risque quand la mobilite de la population est imparfaite cependant dans un equilibre a la nash il y a partage complet du risque entre les individus de chaque region ce qui correspond aux politiques des autorites centrales les autorites regionales qui tiennent a leur reputation peuvent etre capables de s engager a une allocation efficace il est possible que les ameliorations dans le degre de mobilite rendent ces engagements moins probables

why do rich countries prefer free trade over free migration the role of the modern welfare state abstract according to traditional trade theory heckscher ohlin free trade and free migration are equivalent measures of economic integration leading both to an equalization of factor prices this prediction is in sharp opposition to the observed preference of rich countries for free trade over free migration we provide an explanation for this inconsistency the redistribution policies in the countries social welfare in countries with a relatively small number of low skilled native workers is higher with free trade than with free migration due to redistribution of income towards immigrating workers

poverty and urban public expenditures cities in the us bear a disproportionate responsibility for the public expenditures that grow out of poverty because they contain disproportionate numbers of the poor and because a substantial part

efficient tax exporting in a multijurisdiction economy with free mobility of households between communities some portion of any community s tax is incident upon nonresident landowners it is shown that when the objective of a community is taken to be the level of satisfaction of its residents a fully efficient allocation is a nash equilibrium of the decentralized game in general no local tax structure that restricts a community s tax base to residents can attain the optimum thus tax exporting is necessary for independent local government behavior to be consistent with efficiency

migration with fiscal externalities abstract this paper analyses the distribution of a country s population among regions when migration involves fiscal externalities the main question addressed is whether a decentralized decision making of regional governments can produce an optimal population distribution as recently asserted or a centralized intervention is indispensable as argued before in the literature in analysing this issue it is assumed that migration is costly and accordingly the problem is modelled in a dynamic setup it turns out that while with costless mobility the fiscal externality is fully internalized by voluntary interregional transfers with costly mobility centrally coordinated transfers still remain indispensable for achieving the socially optimal allocation

on models with an uncongestible public good and a continuum of consumers abstract this short note shows that models with an uncongestible or mildly congestible public good and a non atomic continuum of consumers have an interesting but unfortunate property only an infinite level of public good provision in the continuum economy can be approximated by feasible public good levels in a sequence of economies with finite populations we discuss the theoretical and practical problems this creates for familiar models that employ a continuum of consumers and a finite level of an uncongestible public good

attachment to home and efficient purchases of population in a fiscal externality economy abstract this paper examines the efficiency properties of an economy characterized by strategically competing regions and individuals with varying degrees of attachment to home in an otherwise standard fiscal externality setting regional authorities may make interregional transfers in purchasing preferred populations however there is a range of distributions of resources over which neither region makes transfers nevertheless all equilibrium allocations resulting from the nash behavior of regional authorities including those that involve no transfers are efficient therefore in contrast to the standard conclusions of the fiscal externality literature there is no efficiency role for a central authority

legal restrictions sunspots and peel s bank act the real bills doctrine versus the quantity theory reconsidered this paper considers two questions i what is the purpose of legal restrictions intended to separate money from credit markets and ii is such a separation desirable it is argued that historical legal restrictions meant to achieve such a separation were designed to preclude the occurrence of sunspot equilibria it is also shown that a coherent model can be constructed in which sunspot equilibria exist in the absence of legal restrictions but not if money and credit markets are separated nevertheless there is no obvious welfare justification for such a separation

speculative runs on interest rate pegs abstract we analyze a new class of equilibria that emerges when a central bank conducts monetary policy by setting an interest rate as an arbitrary function of its available information and letting the private sector set the quantity traded these equilibria involve a run on the central bank s interest target whereby money grows fast private agents borrow as much as possible against the central bank and the shadow interest rate is different from the policy target we argue that these equilibria represent a particular danger when banks hold large excess reserves such as is the case following periods of quantitative easing our analysis suggests that successfully managing the exit strategy requires additional tools beyond setting interest rate targets and paying interest on reserves in particular freezing excess reserves or fiscal policy intervention may be needed to fend off adverse expectations

ruling out speculative hyperinflations the role of the government abstract in this paper we show that if the government can levy taxes to back the currency speculative hyperinflations are ruled out as equilibrium outcomes this is so even though convertibility is never observed in equilibrium the only observational difference between a pure fiat money economy and a convertible economy as the one described in this paper is the potential of the former to exhibit speculative hyperinflations the lack of empirical support for those speculative paths can be taken as evidence against interpreting modern economies as pure fiat money systems

a review of interest and prices foundations of a theory of monetary policy by michael woodford this is a review article of interests and prices foundations of a theory of monetary policy princeton university press 2003 by michael woodford

equilibrium traits of durable commodity money abstract a dynamic model of utility maximizing agents explains why scarce durable commodities are typically monetary the model provides quantitative criteria for distinguishing between monetary and non monetary durables and is also used to analyze symmetallic equilibria the model is then extended to analyze commodity backed paper money it is demonstrated that the backing generates trust in the paper money in the dynamic consistency sense the model predicts regular devaluations as an equilibrium phenomenon but finds such behavior to be efficient finally the results are integrated to make a technical point about dynamic models of pure fiat money