sorting equilibrium in a multi jurisdiction model abstract this paper analyzes a general model of an economy with heterogeneous individuals choosing among two jurisdictions such as towns or political parties each jurisdiction is described by its constitution where a constitution is defined as a mapping from all possible population partitions into the possibly multidimensional policy space this study is the first to establish sufficient conditions for existence of sorting equilibria in a two jurisdiction model for a policy space of an arbitrary dimension

environmental compliance by firms in the manufacturing sector in mexico abstract to date little empirical evidence exists to help regulators understand why some firms comply even when there is little financial incentive to do so and others continually violate environmental regulations this paper examines data on compliance with environmental regulations within the manufacturing sector in mexico the probability of complying depends among other factors on the kind of management practices of the firm and the level of environmental training some firms in the manufacturing sector over comply with regulations our results show that providing environmental training to employees in the firm increases the probability of over compliance local community has a positive impact on over compliance however the magnitude of its impact is not as strong as is often suggested in the literature

safe debt risky capital the author extends the diamond 1965 model of national debt in two directions she first introduces technological uncertainty and then she allows the stock of debt to vary the author studies the dynamical equilibria of the resulting stochastic system and she establishes conditions for the existence of stationary states that are expressed in terms of invariant distributions since conditions that ensure the existence of a stochastic stationary state with positive debt are very restrictive in this model financial instability is a pervasive phenomenon and allocations are in general dynamically inefficient copyright 1994 by the london school of economics and political science

determinacy of equilibrium in stationary economies with both finite and infinite lived consumers abstract we consider the determinacy of perfect foresight equilibrium near steady state equilibria of stationary infinite horizon economies the work of t j kehoe and d k levine econometrica 53 1985 433 453 is generalized by the inclusion of both infinite lived agents and overlapping generations of finite lived agents and the inclusion of production and non depreciating pure rents we show that indeterminacy is possible in robust examples and that the dimension of the indeterminacy can be as large as the number of goods per period we also discuss extreme cases in which determinacy is guaranteed

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

multiple bgps in a growth model with habit persistence this paper establishes multiple balanced growth paths in an otherwise standard competitive growth model without externality or distortions and with households preference dependent upon how his her consumption compares to a habit stock formed by his her own past consumption the key feature in our model is that consumption forms habits in combination with existing habits this model establishes multiple equilibria because habit persistence induces an internal intertemporal complementarity effect among consumption flows with current consumption reinforcing future consumption as a result there exist two balanced growth paths with one path exhibiting low consumption and habits and high economic growth and the other path exhibiting high consumption and habits and low growth that is not necessarily a development trap both steady states are saddles but global indeterminacy arises where a high balanced growth path co exists with a low balanced growth path where the two equilibrium paths cannot be pareto ranked and history need not matter for the selection of the equilibrium path

income segregation and local progressive taxation empirical evidence from switzerland this study investigates spatial income segregation in fiscally decentralized urban areas the theoretical part proposes the progressivity of local income taxes as a new theoretical explanation for income segregation the empirical part studies how income tax differentials across municipalities affect the households location decisions i use data from the swiss metropolitan area of basel that contains tax information on all moving households in 1997 the location choice of the households is investigated within the framework of the random utility maximization model different econometric specifications of the error term structure such as conditional logit nested logit and multinomial probit are compared the empirical results show that rich households are significantly and substantially more likely to move to low tax municipalities than poor households this result holds after controlling for alternative explanations of segregation social interactions and distance from the central business district are established as other major factors for income segregation households in general tend to choose locations close to other households like themselves

non existence of equilibria in multicommunity models abstract this paper reconsiders equilibrium existence in models with migration and voting over local public goods we show that under some straightforward assumptions on preferences and income distributions the basic structure of multicommunity models i e perfect mobility majority rule single crossing property implies that no equilibrium with jurisdictions conducting different policies can exist stratification equilibria with sorting of the population according to income classes are therefore not as natural as is sometimes suggested mechanisms that can serve to support stratification i e tight housing markets returns to scale in the provision of publicly consumed goods are discussed

comparative statics and perfect foresight in infinite horizon economies does a pure exchange economy with an infinite time horizon have determinate perfect foresight equilibria when there is a finite number of infinitely lived agents equilibria are generically determinate this is not true with overlapping generations of finitely lived agents we ask whether the initial conditions together with the requirement of convergence to a steady state locally determine an equilibrium price path in this framework there are many economies with isolated equilibria many with continua of equilibria and many with no equilibria at all with two or more goods in every period not only can the price level be indeterminate but relative prices as well furthermore such indeterminacy can occur whether or not there is fiat money and whether or not the equilibria are pareto efficient this paper considers whether infinite horizon economies have determinate perfect foresight equilibria this question is of crucial importance if instead equilibria are locally indeterminate not only are we unable to make comparative static predictions but the agents in the model are unable to determine the consequences of unanticipated shocks the idea underlying perfect foresight is that agents expectations should be the actual future sequence predicted by the model if the model does not make determinate predictions the concept of perfect foresight is meaningless we consider two extreme cases the first with a finite number of infinitely lived consumers and the second with an infinite number of finitely lived consumers an overlapping generations model both are models of stationary pure exchange economies no production including the storage of goods between periods can occur these models are unrealistic but are the easiest to study extensions of the results of this paper to models with production infinitely lived assets and mixtures of the two types of consumers are presented by muller and woodford 29 when there is a finite number of infinitely lived consumers we argue that equilibria are generically determinate this is because the effective number of equations determining equilibria is not infinite but equal to the number of agents minus one and must determine the marginal utility of income for all but one agent generically near an equilibrium these equations are independent and exactly determine the unknowns when there are infinitely many overlapping generations this reasoning breaks down an infinite number of equations is not necessarily sufficient to determine

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

the political economy of regional integration projects at borders where poor and rich meet the role of cross border shopping and community sorting abstract at borders between poor and rich countries huge service price differentials could be exploited to mutual benefit offering better paid job opportunities to the poor as well as better shopping opportunities to the rich however cross border shopping is often limited by the substantial transaction costs of crossing the border moreover countries and regions frequently fail to cut these transaction costs even when they have the opportunity to do so we provide a politico economic analysis of cross border integration projects more specifically we show how the political outcome depends on i intra country mobility ii decision making and housing ownership regimes and iii federal grants and international border regulations our analysis builds on two key characteristics in which individuals differ interregional mobility and intercultural ability

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

efficient migration and redistribution abstract it has often been noted that the brain drain may be abetted by highly progressive tax systems in the regions which are likely sources for emigration by those with the most income earning potential this paper presents the case in favour of such policies the underlying assumption here is that there are productivity differences between regions and that emigration of the most skilled workers from less productive regions increases the overall value of national output the problem lies in sharing these gains with the less skilled workers left behind in the low productivity region if national governments can transfer income among regions but if the transfers cannot be targeted to particular individuals then there is a trade off between equity and efficiency generous transfers redistribute the gains but tend to impede efficient migration since prospective migrants will only emigrate if their earnings net of all fiscal transfers and net of migration costs are higher in the destination region greater tax progressivity in the source region helps relax a constraint and make the trade off less difficult

meritocracy egalitarianism and the stability of majoritarian organizations we gratefully acknowledge support from the severo ochoa programme for centres of excellence in r d sev 2011 0075 barbera and bevia acknowledge support from grants consolidated group c eco2008 04756 and feder and sgr2014 515 ponsati acknowledges support from grants eco2012 37065 and sgr2009 1142

terms of trade and current account dynamics a methodological critique this paper suggests that the recent intertemporal studies concerning the implications of terms of trade deterioration on the current account of a small open economy may suffer from significant methodological deficiencies the study demonstrates that while the assumption of a small open economy represents a legitimate modeling simplification the analysis of the impact of perturbation of the terms of trade on the current account of this small open economy is methodologically erroneous in particular the paper demonstrates that a given pattern of terms of trade deterioration may be associated with opposing evolutionary patterns of the current account of this small economy this paper argues that the methodology employed by several influential intertemporal studies concerning the relationship between the terms of trade and the current account of a small economy suffers from critical deficiencies it demonstrates that while the assumption of a small open economy confronting exogenously determined terms of trade represents a legitimate modeling simplification the analysis of the impact of perturbations of this terms of trade on the small open economy and on its current account is methodologically erroneous in particular the paper demonstrates that a small economy may experience diametrically opposing evolutionary patterns of the current account in association with a given pattern of terms of trade deterioration the paper suggests therefore that predictions based on this literature are in need of reassessment these intertemporal studies of the relationship between the terms of trade and the current account of a small economy have been conducted under the simplifying assumption that perturbations in the terms of trade are exogenous and do not affect the world interest rate 2 this approach may reflect a valid simplification as long as the study is concerned with exportable goods whose prices are insignificant in the determination of the general price level in the world economy however if the focus of the analysis is a small country that exports a group of commodities such as agricultural goods or industrial goods a change in the terms of trade for the small economy may reflect fundamental changes in the world relative prices that are

long term substitutability between environmental and man made goods abstract substitutability between environmental and man made goods plays a major role in the sustainability debate the notion of substitutability covers a continuous spectrum with perfect substitutability at one end and poor substitutability at the other in this paper it is shown that if economic growth sustains a sharp distinction emerges between perfect and poor substitutability without any intermediate interpretation of substitutability if poor substitutability prevails environmental resources will eventually constitute the major part of total consumption value we relate our results to baumol s disease and assess the implications of this phenomenon for the compensation of environmental losses

self selection and internal migration in the united states abstract within the conceptual framework of the roy model this paper provides an empirical analysis of internal migration flows using data from the national longitudinal survey of youth the theoretical approach highlights regional differences in the returns to skills regions that pay higher returns to skills attract more skilled workers than regions that pay lower returns our empirical results suggest that interstate differences in the returns to skills are a major determinant of both the size and skill composition of internal migration flows persons whose skills are most mismatched with the reward structure offered by their current state of residence are the persons most likely to leave that state and these persons tend to relocate in states which offer higher rewards for their particular skills

tiebout and redistribution in a model of residential and political choice abstract the paper considers a two community model with freely mobile individuals individuals differ not only in their incomes but also in their tastes for a local public good in each jurisdiction the amount of public services is determined by majority vote of the inhabitants and local spending is financed by a residence based linear income tax when making their residential and political choices individuals thus face a trade off between the provisionary and redistributive effects of policies we analyze this trade off and show that tiebout like sorting equilibria often exist if the spread in tastes among individuals is very large an almost perfect sorting according to preferences emerges otherwise a partial sorting prevails and stratification into rich and poor communities is more pronounced importantly we demonstrate that all these sorting equilibria exist whether or not individuals are allowed to relocate after voting

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

interregional redistribution and mobility in federations a positive approach the paper studies the effects and the determinants of interregional redistribution in a model of residential and political choice we find that paradoxical consequences of inter jurisdictional transfers arise if people are mobile while self sufficient regions are nec essarily identical with respect to policies and average incomes in our model interregional redistribution always leads to the divergence of regional policies and per capita incomes thus interregional redistribution prevents interregional equality at the same time however transfers may allow for more interpersonal equality among the inhabitants of each region the voting population may therefore in a decision over the fiscal constitution deliberately implement such a transfer scheme to foster regional divergence empirical evidence from panel data from oecd countries and candian provinces is consistent with the theory

income taxes property values and migration we consider the effects of income redistribution when people can migrate from one country to another and when land within each country is heterogeneous taxes related to income can then affect property values and can induce migration which further affects property values we show that under these conditions a utilitarian government should never equalize after tax incomes if migration is impossible it may even transfer income from the poor to the rich reducing the rents earned by absentee landlords the redistributive tax on the rich may be higher or lower when the rich can migrate than when they cannot a rawlsian government in the absence of mobility will equalize after tax incomes under mobility rawlsian governments cut their taxes if and only if the relative pre tax income of the poor is sufficiently low

the political geography of tax h e avens and tax hells worldwide many governments rely on personal income taxation as one of their major sources of tax revenue casual empirical evidence suggests that although most developed countries levy substantial taxes particularly on higher incomes there also exist a few countries that are characterized by no or very low income taxation a distinguishing feature of the countries in the latter group is that they are geographically very small as can be seen from table 1 which presents international income tax policies and geographical dimensions of some selected countries in the present paper we investigate whether the geography of a country is related to its pattern of taxation central to our argument is the ongoing international integration in the last decades in some cases e g in the european union the process has advanced to the point at which all formal constraints to mobility have been abandoned this development has also greatly improved the mobility of households across states or national borders in contrast to the mobility of production factors however the effects of household mobility migration are not confined to budgetary consequences as taxpayers immigrate or emigrate the inand outflow of citizens also alters policy objectives by changing the composition of the electorate in a jurisdiction at the same time migration decisions especially those of wealthy individuals are based on local tax policies consequently the migration of households determines fiscal policies through the interplay of two basic effects 1 residential choices determine tax rates through a process in which a jurisdiction s inhabitants select their local policies and 2 tax and welfare policies in each jurisdiction influence residential decisions as we argue in this paper this interdependency of residential and political decisions may provide an explanation for the stylized facts illustrated in table 1 we consider a simple framework in which households differ in incomes and national tax policies are democratically determined as a natural implication of their earning characteristics high income households ceteris paribus prefer to live in countries with low taxation for ease of exposition we refer to those countries as tax h e avens in a slight perturbation of popular nomenclature low income households in contrast are more interested in generous public spending than in low income tax rates ceteris paribus they prefer to reside in countries with large welfare programs financed by substantial taxation which we call tax hells for obvious reasons thus individual preferences imply a self selection process which leads to the segregation of households across countries according to income classes 1 if this segregation is in turn supported by a national vote for low taxes in countries where high income earners live and high taxes in countries where lower income earners live an equilibrium with tax heavens populated by wealthy residents and tax hells populated by the less affluent evolves yet the geographical size of countries plays a crucial role in this development first it affects the number of a country s inhabitants the population size because households sort hansen apax partners company possartstr 11 81679 miinchen germany kessler department of economics university of bonn adenauerallee 24 42 53113 bonn germany kessler wipol uni bonn de we thank two anonymous referees marcus berliant dennis epple christian ewerhart gerhard glomm david pines urs schweizer and participants in presentations at the university of munich the 1997 site meeting stanford the 1997 american econometric society summer meeting pasadena and the 1996 iipf congress tel aviv for helpful suggestions and discussions both authors gratefully acknowledge financial support by the deutsche forschungsgemeinschaft sfb 303 at the university of bonn remaining errors are our own the views expressed in this paper should not be attributed to apax partners company 1 the sorting of individuals by preferences across jurisdictions goes back to the famous contribution of charles m tiebout 1956 on migration as a means to reveal preferences over public goods