defending the articles of confederation a reply to dougherty this reply addresses the issues raised bydougherty in response to my 1999 article in this journal ialso develop a new graphical model of the optimal collectionrate under the articles where states made contributions andcontrast it to the revenue potential from direct taxation ibelieve that despite dougherty s criticisms my argumentremains valid while the articles were not perfect in anabsolute sense that when more properly viewed in acomparative manner that the system of state contributions forraising revenue under the articles was and still is superiorto a system of direct federal taxation

micro incentives and municipal behavior political decentralization and fiscal federalism in argentina and mexico summary this article analyzes the mixed results of political and fiscal decentralization in latin america by comparing taxing and spending policies in six cities in argentina and mexico consistent with previous studies we find that decentralization has been frustrated by overconcentration of power at the provincial level and large vertical fiscal imbalances though we characterize these as functional elements in a system of redistributive policy making that benefits a wide array of provincial and municipal actors we seek to add a new dimension to the literature by arguing that micro level incentives conditions and circumstances particular to specific places are more important determinants of municipal behavior than macro level structures those policy and institutional changes intended to make officials more responsive to local conditions federalism local elections intergovernmental transfers and own source revenues we conclude that the theory of decentralization relies on a flawed conception of the causal mechanisms that are hypothesized to create responsiveness in local officials

institutional competition versus centralization quo vadis europe lots of steep and sometimes blind bends with harsh speed limits and frequent detours but still it has been one that has attracted more and more traffic after a successful period of shaping a customs union and a free trade area following the treaty of rome 1957 europe became infected with euro sclerosis in the seventies owing to an increased intensity of national regulation especially in the labour market the constructionist approach to harmonization from above slowed down the speed of integration almost to a halt only the change of two fundamental rules revitalized the european integration process namely the introduction of majority voting in the ec council and the mutual recognition of national regulations brought about by the 1979 ruling of the european court with the single european act and the launch of the internal market programme europhoria blossomed finally leading to the maastricht treaty which aimed to be the masterpiece of european integration only very recently the danish no and the unconvincing approval by the french voters cooled off hopes for a united states of europe signalling that european integration is at the crossroads once again

do high taxes lock in capital gains evidence from a dual income tax system the purpose of this paper is to study whether investors willingness to realize capital gains falls when the marginal tax rate on capital gains is raised we use a rich register based panel data set covering almost 8 of the swedish population the results indicate that a 10 increase in capital gains tax rate reduces the number of realizations of capital gains with 8 7 and the realized amount given the decision to realize with 1 9 in addition we find that wealthy individuals seem to respond more to changes in capital gains tax rates than less wealthy

secular cost changes and the size of government towards a generalized theory abstract baumol s cost disease account of government growth is contrasted with that of kau and rubin who focus on decreasing costs of tax collection over time the apparent paradox wherein the first theory explains government growth by cost increases and the second by way of cost decreases is technically resolved why both theories seem to be able to stand up to empirical tests even though they use similar data is then explained finally public choice analysis is employed to reveal further potential for the ultimate construction of one all embracing secular cost change theory of government growth

socialism and the revenue maximizing leviathan the driving force in the government s progress from a capitalistic system to one with government ownership of capital and relative wage allocated labor socialism to a system involving inframarginal taxation of labor and government ownership of capital communism is the government s desire to increase current revenues 1 each step along the way sacrifices more private resource allocation and replaces it with direct governmental control the government might well realize that it lacks the knowledge to replicate these lost private functions accurately with the passage of time and the appearance of potentially useful technological innovations any losses resulting from this lack of knowledge increase these losses are an anticipated drain on future income a decision maker with a long time horizon and a secure position a low discount rate would find these prospective losses weighing heavily in his calculations and might never take the first step beyond capitalism a less fortunately placed decision maker facing domestic and foreign threats may find that current revenue requirements for internal and external defense and for payments made to supporters force him to mortgage the future for increased current revenue this decision maker may be tempted by socialism not for any ethical or political reasons but merely for the quick revenue returns it offers

foreign direct investment and the dark side of decentralization countries differ in their government architecture some countries are characterized by a high degree of concentration of fiscal administrative judicial executive and lawmaking powers whereas others have decentralized many functions and responsibilities of government to different jurisdictions and various levels of government the cross country differences in the organization of government are also not static but have been subject to substantial change in many countries the co existence of different organizational patterns of government has created an important debate regarding the determinants of particular government structures as well as questions regarding the optimality of different forms of organization

expenditures and receipts testing for causality in state and local government finances the results of our tests indicate similarities between the expenditure tax receipt relations of state governments to those previously reported for the federal government in manage and marlow 1986 the results reported here indicate support for the hypothesis that tax receipts cause expenditures at the state level of government for tests utilizing symmetric lag structures ranging from three to five years state expenditures appear to follow state tax receipts for the shortest lag length 2 2 the determination of bidirectional causality does not make us reject the hypothesis that higher spending levels result from higher revenue levels rather the causality appears to be in both directions for the shortest lag length

do external grants to district governments discourage own revenue generation a look at local public finance dynamics in ghana summary using rich panel data on all of ghana s districts local public finances over 11 years this paper investigates the way that intergovernmental and other transfers to local governments affect local governments incentives to collect internally generated revenues and funds igf we find that despite an incentive scheme built into one of the major intergovernmental grants the flow of all grants taken together discourages rather than encourages igf this is reflected both in the depressing effect of transfers on igf levels as well as on igf growth

politicians as experts electoral control and fiscal restraints we propose an argument for fiscal restraints that is based on the premise that the services of politicians are credence goods politicians are experts who specialize in observing the true state of the economy budget maximizing politicians are better informed than the electorate about the level of public spending necessary to manage public affairs voters who are able to observe the size of the budget but not the necessary level of spending affect the government s spending behavior via electoral control a fiscal restraint limits the maximum spending a government can choose we identify conditions under which such a fiscal restraint improves voter welfare and discuss the role of the political opposition as a second expert in situations in which the state of the economy requires a level of spending which exceeds the fiscal restraint

government growth in the twenty first century public choice explanations of government growth fall into three main categories budget maximization theories rational choice models and path dependent models like the ratchet hypothesis the strengths and weaknesses of these theories as explanations for government growth are considered along with some facts about the actual growth of government to conjecture about its trajectory in the twenty first century government size seems to have been constrained in the past primarily by its ability to raise revenue growth rates in the new century thus appear to depend on factors constraining government s ability to continue to expand the tax base

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

does tax competition tame the leviathan abstract we study the impact of tax competition on equilibrium taxes and welfare focusing on the jurisdictional fragmentation of federations in a representative agent model of fiscal federalism fragmentation among jurisdictions with benevolent tax setting authorities unambiguously reduces welfare if however tax setting authorities pursue revenue maximization fragmentation by pushing down equilibrium tax rates may under certain conditions increase citizen welfare we exploit the highly decentralized and heterogeneous swiss fiscal system as a laboratory for the estimation of these effects while for purely direct democratic jurisdictions which we associate with relatively benevolent tax setting we find that tax rates increase in fragmentation fragmentation has a moderating effect on the tax rates of jurisdictions with some degree of delegated government our results thereby support the view that tax competition can be second best welfare improving by constraining the scope for public sector revenue maximization

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

edmund phelps macroeconomist and social scientist edmund phelps helped change the way we think about macroeconomic theory and policy by introducing imperfect information and costly communication into the theory and deriving their implications for the dynamics of inflation and unemployment phelps treated macroeconomics as a social science whose subject matter is not just the choices people make but how people interact in groups his pioneering efforts in developing a formal theory of the coordination mechanisms governing interactions led the way to a new kind of macroeconomics one that was based on the interplay between the actions and expectations of individual actors instead of being based on postulated relationships between macro aggregates mainstream macroeconomics today projects a view of the economy that differs in important respects from phelps s original vision whereas he portrayed economic interactions as being problematical and uncertain leading to outcomes that intelligent people can adapt to but not anticipate much of macroeconomics now is about the representative agent content to interact with only himself and nature or perhaps at arm s length with the market through an unspecified agency that calculates equilibrium prices and executes preharmonized transactions and people are typically portrayed now as understanding completely up to stochastic error with known distribution all economic forces indeed phelps himself has changed his view on the significance of imperfect anticipation having adopted a structural approach to unemployment that attaches only momentary importance to disappointed expectations as a driving force even so macroeconomics today has a connection with microeconomic reasoning that it never did before phelps and a handful of others transformed the subject and many of the concepts that phelps himself introduced while making these contributions in the 1960s and 1970s remain in

the determinants of technology adoption the case of the banking firm using data on the adoption of automatic teller machines by firms in the banking industry this study examines the relationship between the decision to adopt new technology and its determinants since banking firms differ considerably in terms of the competitive environments in which they operate focusing on this one innovation in this industry allows a stronger test of the relationship between market structure and the adoption of new technology than has been previously conducted using a failure time estimation procedure we find that larger banks and banks operating in more concentrated local banking markets register a higher conditional probability of adopting this new technology all else equal we also find that other results are consistent with the underlying model and that the bank s regulatory environment shapes its adoption decision in plausible ways

do budget maximizing public officials increase the probability of property reassessment county governments in pennsylvania face non binding limits on their property tax rates these are considered non binding because they do not place a limit on tax levies or expenditures assuming local public officials have monopoly power tax rate limits can be circumvented by reassessing the property tax base a two stage process was hypothesized in which the probability of reaching tax rate limits first was determined and the probability of reassessment then was determined the effect of budget maximizing government officials at each stage was tested for 66 pennsylvania counties over the 1970 1995 period the empirical results showed that variables associated with budget maximizing behaviour influenced the choice in each stage public expenditure growth increased the probability of reaching the tax rate limit in the first stage while reaching the tax rate limit increased the probability of reassessment in the second stage the estimates also showed that economic fiscal and taste variables were signific

fiscal decentralization and government size numerous studies have attempted to model the possible factors contributing to universal growth in public sectors this paper analyzes one device that appears capable of controlling some of that growth fiscal decentralization the results reported here also support the use of monopoly government assumptions in models of public policy

a predictive index for the flypaper effect abstract it is well established that lump sum public grants boost local government spending more than an equivalent increase in private income the flypaper effect one shortcoming of the related literature is that it presumes all communities have an identical propensity to consume from an intergovernmental grant this paper is one attempt to allow for a heterogeneous response the working conjecture is that government expenditure on administrative overhead is a gauge of voter control over fiscal decisions high overhead spending implies a lower provision of public services and a stronger role for revenue maximizing forces in the budget setting process as such the flypaper effect should be more marked in high overhead communities an overhead index is applied to a sample of pennsylvania communities in the philadelphia metropolitan area it is difficult to understand these governments spending propensities from various windfall revenues without the help of the overhead index supportive evidence for this approach because overhead data is widely available the technique here can be used to address important policy questions such as predicting variations in state government responses to the recently created lump sum welfare grants

establishing property rights establishing secure property rights in transition economies amounts to solving two problems inefficiency structures of control rights over assets and poor contract enforcement politicians and bureaucrats still wield excessive control over assets which results in inefficient underinvestment by entrepreneurs corruption is one way of getting around political control but the drawbacks are considerable particularly the limited enforceability of corruption contracts more workable strategies for establishing property rights in transition economies are giving equity to the bureaucrats and other parties that have control reforming the civil service and removing bureaucratic control rights through privatization russia s experience shows how privatization combined with equity incentives for enterprise insiders transfers control rights from the bureaucrats and stimulates political and economic pressures to protect private property rights

irving fisher and the fisher relation setting the record straight william j crowder 1997 1124 1127 states that the fisher hypothesis represents one of the oldest and most basic equilibrium relationships in financial economics the fisher equation encapsulates the simple relationship hypothesized to exist between nominal interest rates and expected inflation first delineated by irving fisher 1930 whose name has been associated with the equation ever since crowder s first sentence is indisputable the other sentence quoted presents a belief that seems almost universal in the literature on the fisher relation as distinct from the history of economic thought literature about irving fisher it credits fisher with one of the few innovations in the area for which he does not deserve and did not claim credit neglects what he did contribute on related topics and views the theory of interest 1930 as his first presentation of the relationship a third of a century later than his classic reformulation of the relation the celebrated equation which appears in fisher s american economic association monograph appreciation and interest 1896 and in an appendix to his the rate of interest 1907 does not appear in the theory of interest where the treatment of the relation in chapters 2 and 19 is verbal supplemented with diagrams but no equation in appreciation and interest 1896 fisher drew attention to statements by william douglass john stuart mill alfred marshall jacob de haas and john bates clark of how expected inflation or deflation affects nominal interest and he made no claim to originality on the point writing at the end of a thirty year period of declining prices fisher referred in his title to appreciation of the purchasing power of money rather than to depreciation fisher was the first to write down the relation as an equation but not the first to articulate the relation while endorsing

sectoral patterns of technical change towards a taxonomy and a theory abstract the purpose of the paper is to describe and explain sectoral patterns of technical change as revealed by data on about 2000 significant innovations in britain since 1945 most technological knowledge turns out not to be information that is generally applicable and easily reproducible but specific to firms and applications cumulative in development and varied amongst sectors in source and direction innovating firms principally in electronics and chemicals are relatively big and they develop innovations over a wide range of specific product groups within their principal sector but relatively few outside firms principally in mechanical and instrument engineering are relatively small and specialised and they exist in symbiosis with large firms in scale intensive sectors like metal manufacture and vehicles who make a significant contribution to their own process technology in textile firms on the other hand most process innovations come from suppliers these characteristics and variations can be classified in a three part taxonomy based on firms 1 supplier dominated 2 production intensive 3 science based they can be explained by sources of technology requirements of users and possibilities for appropriation this explanation has implications for our understanding of the sources and directions of technical change firms diversification behaviour the dynamic relationship between technology and industrial structure and the formation of technological skills and advantages at the level of the firm the region and the country

the economic effects of constitutions replicating and extending persson and tabellini persson and tabellini the economic effects of constitutions the mit press cambridge 2003 show that presidential regimes and majoritarian election systems have important economic effects here the number of countries is expanded and more recent data is used in replicating and extending their analyses we find that the effect of presidential regimes vanishes almost entirely with regard to electoral systems the original results are largely confirmed majoritarian as opposed to proportional electoral systems lead to lower government expenditure lower levels of rent seeking but also lower output per worker the institutional details such as the proportion of candidates that are not elected on party lists and district size are particularly important

political decentralization and corruption evidence from around the world abstract how does political decentralization affect the frequency and costliness of bribe extraction by corrupt officials previous empirical studies using subjective indexes of perceived corruption and mostly fiscal indicators of decentralization have suggested conflicting conclusions in search of more precise findings we combine and explore two new data sources an original cross national data set on particular types of decentralization and the results of a firm level survey conducted in 80 countries about firms concrete experiences with bribery in countries with a larger number of government or administrative tiers and given local revenues a larger number of local public employees reported bribery was more frequent when local or central governments received a larger share of gdp in revenue bribery was less frequent overall the results suggest the danger of uncoordinated rent seeking as government structures become more complex

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

is there a bias toward excess in u s government budgets or deficits do the political institutions of a majoritarian representative democracy and in particular those of the united states systematically produce either levels of public spending or budget deficits that are excessive should u s political institutions be altered by constitutional amendment to deal with these problems i will start by examining the issue of public spending and then turn to the question of budget deficits

on nationalizing private property and the present value of dictators reply john lott and david reiffen 1986 argue that our explanation of socialism is both inconsistent with rational behavior on the part of government leaders and empirically unsupported they also assert that our revenuemaximizing inframarginal taxes are incorrectly specified we feel that their comments are a result of a misreading of our paper 1984 our primary concern was with the capture of the inframarginal rents of labor suppliers rather than the return on capital labor returns in a capitalistic society typically comprise 70 to 80 percent of income and are therefore a potentially large source of governmental wealth although in framing our argument in a way consistent with brennan and buchanan s 1980 framework we choose to evaluate alternative tax regimes such taxes actually take the form of a governmental labor monopsony all firms are nationalized and workers become government employees by choosing wages which just cover substance governmental profits are increased by what would be workers rent in a capitalistic economy although substance may vary from worker to worker the government would not know this variation and wages would realistically be set at a level sufficient to draw most of the population into the work force any variation in wages seen would reflect not differences in productivity in the usual sense but rather differing political pay offs according to the worker s service towards maintaining the political regime or conversely his potential to disrupt it the resulting wage structure would be independent of economic productivity and the government would have to rely on some form of directed labor allocation the resulting economy would correspond to the soviet model of communism with a total elimination of non governmental employment opportunities in western european countries socialism does not appear to be motivated by the desire to maximize governmental revenue but rather as part of an attempt to achieve employment or other political goals the existence of a private sector economy of a significant size precludes the exercise of monopsony power in the labor market it is interesting to note that these western socialized economies do not prohibit out migration coun

on nationalizing private property and the present value of dictators the empirical and theoretical results in this paper cast doubt upon the explanation of socialism advanced by gifford and kenney the empirical finding that socialism is inversely related to the degree of political instability is directly contrary to the prediction of their model

on the form of transfers to special interests an important question in political economy concerns the form of transfers to special interests the chicago view is that political competition leads politicians to make such transfers efficiently the virginia position is that lack of information on the part of voters leads politicians to favor inefficient sneaky methods of redistribution this paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests it shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians inefficient methods of redistribution may be employed

do law enforcement expenditures crowd out public education expenditures as state and local governments have devoted a rising share of their resources to crime related programmes concerns have arisen that spending on other programmes such as education will fall coupled with growing public concerns over performance of the public education system and expectations that prison populations will rise as states pass and enforce more stringent sentencing laws it is not surprising that some view the expansion of crime related programmes as troublesome one hypothesis is that education and crime related programmes directly compete for government expenditures so that what one programme gains the other must lose as in a fixed pie situation a competing hypothesis is that spending on these two public programmes are unrelated and therefore higher crime related spending may also lead to higher taxes or public debt issuance or to reduction in spending on programmes other than education we estimate a three equation model of spending on crime related programmes spending on education and

rights equity and economic efficiency the adelman morris premise that economic development and equity are incompatible is not supported by the evidence of a strong relationship between equality of rights and the income distribution the premise that equity requires the denial of individual rights and the affirmation of state control is an oxymoron what has been overlooked in the literature on growth and equity is the effect of the rights structure on both economic efficiency and on the income distribution the evidence is that free societies have much larger shares of income going to the middle 60 percent of the distribution than is observed in societies where men are not free to choose in politically open societies compared to politically closed regimes the share of income to the middle three quintiles is q2 10 7 vs 8 0 q3 16 0 vs 11 5 and q4 22 9 vs 17 9 in the aggregate the shares to the middle quintiles are 49 6 vs 37 4 in nations that obey the rule of law compared to regimes in which the rights of the state relative to the individual are paramount the comparisons are q2 11 2 vs 7 4 q3 16 3 vs 10 6 q4 23 0 vs 17 3 summing the three quintiles yields a comparison of 50 5 vs 35 3 in countries that have private property market allocation of resources and minimum intervention by the state compared to command economies the shares of income to the middle quintiles are q2 10 8 vs 8 0 q3 16 0 vs 11 1 and q4 22 8 vs 17 7 aggregated the shares of the middle class in regimes with high levels of economic liberty are 49 6 vs 36 8 for regimes with restricted private economic rights

the dynamics of technological change in uk retail banking services an evolutionary perspective abstract the purpose of this paper is to elaborate an evolutionary perspective on the process of structural change that has characterized the banking industry in the united kingdom uk for this purpose the evolution of retail financial services is contrasted against the backdrop of the implementation and development of information and communication technologies icts the paper delves into the sources and the effects of technological change in banking over a long term perspective 1840s 1990s to point out the significance of the opportunities and the constraints that have shaped the growth and development of this industry this is interpreted as a three stage evolutionary process driven by intertemporal coordination across several complementary domains including activities of production business organization consumption and the underlying regulatory setting it is concluded that the evolution of uk retail banking displays the characteristics of a distributed process of innovation in which developers of technologies service suppliers and customers contribute to the process of structural change of the industry

land leasing and local public finance in china s regional development evidence from prefecture level cities by analysing the evolution of local governments roles in different periods of china s growth in transition this paper explores local fiscal incentives to use subsidised land and infrastructure as key instruments in regional competition for manufacturing investment since the mid 1990s local land development behaviour is related to china s current land use institutions and intergovernmental arrangements on the basis of panel data covering prefectural level cities from 1999 to 2003 the paper empirically identifies and compares the fiscal impacts of different forms of land leasing by negotiation versus by auction tender policy implications are drawn from this analysis for the further reform of china s urban land system and fiscal institutions

the limits of tax and expenditure limits tel implementation as a principal agent problem previous scholarship has shown that tax and expenditure limits tels often fail to constrain government growth this paper views the implementation of tels as a principal agent problem agency theory predicts that delegation is affected by the preferences of agents and the costs of monitoring those agents using panel data for the us states from 1970 through 2008 i conduct an empirical test of the validity of the principal agent model for tels i find that state spending limitations are only effective at cutting the growth of state and local spending under the direction of agents who have a preference for limited government additionally state property tax limitations are only effective when monitoring does not require costly coordinated action these findings contradict an alternative theory of tel implementation that looks towards the policy s origin my research suggests that the arrangements of delegation determine when and under what conditions tels effectively reduce government growth

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

an evolutionary pattern of innovation diffusion the case of flexible automation abstract the aim of this paper is to provide evidence supporting an evolutionary model of the process of innovation diffusion relying on an extensive field study the paper analyses the pattern of adoption of the entire set of innovations deriving from the flexible automation paradigm on the part of a large sample of italian metalworking firms owing to the relevance of the technology examined and to the size of the sample the case illustrates quite representatively the dynamics of the early stage of development of radical and complex innovations the main results of the paper confirm the importance of firm size and market structure to explain the characteristics of the innovation diffusion process at the same time they emphasize that the localized search procedures on the part of potential users involve a step by step approach to adoption namely the technological and organizational profile of firms turns out to play a decisive role in favouring diffusion moreover empirical support is provided for the existence of persistent market disequilibria along the diffusion paths witnessed by the extent of the retrofitting phenomenon

leviathan in a dual economy this paper studies the policies of a leviathan state with an ambition to make money and to stay in power the economic framework is a developing country characterized by dual markets government revenue is raised by taxing the agricultural sector part of this revenue is offered to the politically influential urban population in the form of low productive but well paid public sector employment i calculate the optimal level of rural taxation from the point of view of the leviathan and investigate its effects on migration industrialization public sector employment and urban unemployment in different political scenarios

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

optimal central banker contracts and common agency this paper considers the contracting approach to centralbanking in a simple common agency model we suggest thatcentral banker contracts that do not consider the possibilityof more than one principal existing are incomplete contracts such incomplete contracts can be a poor form ofmonetary policy delegation under common agency we develop amodel with two principals society government and ageneric interest group whose objective conflicts withsociety s ex ante preferences by incorporating an inflationarybias we determine when the government offered orinterest group offered contract dominates the central banker sdecision the results largely depend on whether theinterest group offered contract is written in terms of outputor inflation

interdependencies between transport fuel demand efficiency and quality an application to austria abstract this paper focuses on the interdependencies between technical efficiencies and energy demand which are often either treated in isolation or do not get the sufficient attention in the literature more precisely this paper uses technical efficiencies as one crucial determinant of energy demand in order to integrate at least two issues that are usually investigated separately from each other the rebound effect resulting from improved technical efficiencies and the asymmetry of energy demand in this regard our paper sets out a theoretical framework which has the following implications higher efficiency increases service demand first order rebound low fuel prices and higher efficiency increases the demand for quality second order which in turn increases service demand further third order ceteris paribus energy price shocks should increase scrapping rates fuel prices direct the rd those on engine efficiency are irreversible which has the consequence that energy price elasticities depend on the history of energy prices rather than being asymmetrical derived implications are subsequently tested on austrian data in particular the purchasing decision diesel versus gasoline powered cars allows to refute the myth that consumers apply high implicit rates for discounting the future benefit from efficient cars

the evolution of tax structures certain themes recur throughout this paper the traditional account of the evolution of tax structures through the interaction of increasing efficiency and the claims of special interests plays a role but is not the whole story different taxes create tradeoffs between the costs of administration and compliance specification of these costs creates a framework in which long term trends like the growth and centralization of revenues and the increasing dependence on direct taxation can be understood this framework applies to observable collective decisions to alter tax structures uncertainty about ultimate incidence plays a major role in such decisions it also applies to the decentralized context of adjustment and resistance this framework can be used to investigate the extent of redistribution within tax systems and of the requirement of frequent reforms to sustain redistribution against resistance the simultaneous consideration of economic and political aspects of taxation can only improve future research

technological regimes and innovation in services the case of the italian banking industry abstract in this paper we propose a conceptual model to analyse innovations originating from the diffusion of information technologies in the banking sector we argue that technical change in this industry exhibits a revolutionary character a distinction is made between the mass automation regime focusing mainly on the mechanization of back office procedures in the 1960s and 1970s and the smart automation regime originating from the introduction of distributed data processing and network technologies and centered around the supply of electronic banking services a theoretical model is developed which emphasizes the crucial role played by demand pull variables in stimulating innovative behaviour under the smart automation regime in contrast limited importance is attributed to cumulative and learning by doing effects relating to back office automation at least for banks endowed with sufficient absorptive capacity the theoretical hypotheses are tested through an econometric analysis of the determinants of the innovative behaviour in electronic payment systems of a sample of italian commercial banks

rival precedence and the dynamics of technology adoption an empirical analysis this study employs information on the adoption of automatic teller machines by banking firms to examine the nature of firm reactions to rival precedence in the adoption process using a failure time estimation procedure it is found that the ado ption of this innovation by rivals increases the conditional probabil ity that a decision to adopt will be made the effect of spillovers f rom technology adoption and the interaction of market concentration a nd rival precedence are also investigated finally the study shows w ith an example how the estimation procedure may be used to test the u nderpinnings of diffusion processes copyright 1987 by the review of economic studies limited

does competition among public schools benefit students and taxpayers comment school choice policies promise to align the incentives of school administrators with the demands of parents and may therefore lead to more efficient educational production milton friedman 1962 geoffrey brennan and james buchanan 1980 john chubb and terry m moe 1990 absent a large scale school voucher program in the united states however this prediction has been difficult to test several authors e g melvin v borland and roy m howsen 1992 clive r belfield and henry m levin 2002 have suggested studying the effects of tiebout choice the use of the residential location decision to select among local monopoly education providers the idea here is that fragmented governance induces competition among school districts analogous to that which would occur among schools with nonresidential choice in an influential paper caroline m hoxby 2000 points out that current governance structures are potentially endogenous to school productivity and proposes that variation in topography which may have influenced optimal jurisdiction size before modern transportation technologies provides a source of exogenous variation she estimates instrumental variables regressions of individual test scores and school spending on a metropolitan level tiebout choice index defined as one minus a herfindahl concentration index with districts enrollments as their market shares using as excluded instruments the number of larger and smaller streams in the area she reports substantial positive effects of district fragmentation on student test scores and negative effects on spending this comment presents a reanalysis of hoxby s test score results which form the core of her empirical analysis these results turn out to be quite sensitive to plausible alterations to hoxby s specification in particular the large significant effect of choice on achievement obtains

towards a theory of innovation in services abstract the paper sets out some foundations for a theory of innovation in service industries and indicates the role that such innovation may play in the generation of growth cycles the discussion starts with the origins of a major new technology in the capital goods sector and its subsequent development according to the normal product cycle theory this is followed by a consideration of the transmission process by which the new technology is taken up in user industries within the consumer goods and services sector a reverse product cycle is then proposed to describe the innovation process which takes place in user industries such as services once the new technology has been adopted this cycle starts with process improvements to increase the efficiency of delivery of existing services moves on to process innovations which improve service quality and then leads to product innovations through the generation of new types of services finally the existence of two out of phase innovation cycles in the capital and consumer sectors deriving from a technology transmission process which causes disequilibrium in technical progress between the two is put forward as a mechanisms helping to create the long wave fluctuations in economic development associated with schumpeterian technological revolutions

reviving leviathan fiscal federalism and the growth of government this article revisits the influential leviathan hypothesis which pos its that tax competition limits the growth of government spending in decentralized countries i use panel data to examine the effect of fiscal decentralization over time within countries attempting to distinguish between decentralization that is funded by intergovernmental transfers and local taxation first i explore the logic whereby decentralization should restrict government spending if state and local governments have wide ranging authority to set the tax base and rate especially on mobile assets in countries where this is most clearly the case decentralization is associated with smaller government second consistent with theoretical arguments drawn from wel fare economics and positive political economy i show that governments grow faster as they fund a greater portion of public expenditures through intergovernmental transfers

interactive innovation in financial and business services the vanguard of the service revolution abstract the concept of the reverse product cycle as a theoretical model of innovation in services is developed further in this paper using the vanguard sector of financial and business services as a case study example of how innovation operates as an interactive process the parallels between the emerging service revolution and the nineteenth century industrial revolution are explored in order to identify the key characteristics of the vanguard sectors in each technological revolution the particular nature of the new techno economic paradigm based on information technology is then identified leading to a discussion of the unique conjunction of factors favouring financial and business services as the vanguard sector of the service revolution the central part of the paper then offers an elaboration of the reverse product cycle model stressing the interactive nature of the innovation process as it reflects the prevailing technological opportunities market conditions and industry structures within the adopting sector the example of retail banking is used to illustrate how the innovation cycle proceeds from increases in efficiency through improvements in service quality to the generation of new network service products there is then a discussion of the question of the optimal industry structure for innovation suggestion that in the reverse product cycle large corporations are likely to dominate the early stage of incremental process innovations whereas later in the cycle there is an important role for small entrepreneurial firms to advance more radical process and product innovations the concluding section summarises six major characteristics of the service revolution and suggests how it may proceed from its first to its second phase as the focus of innovation shifts from the vanguard sector of financial and business services to a much broader range of higher level knowledge based services many of which are currently delivered by the public sector

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

municipal annexation and local monopoly power we have found that the fiscal power of a city can be increased by extension of its borders within a land area that is homogeneous with respect to earning opportunities even when numerous rival jurisdictions exist in the area we hypothesized that extending municipal boundaries will have a positive effect on discretionary outlays and on expenditures per capita the evidence presented supports these hypotheses furthermore municipal wages appear to be significantly increased in cities experiencing annexation growth therefore we would expect to find that municipal employees are more inclined to favor annexation than the rest of the electorate from a policy standpoint this study suggests that significant perverse effects on fiscal efficiency may follow adoption of legal reforms that facilitate the ability of municipalities to extend their borders or that restrict the formation of new municipalities

tax structure and public sector growth abstract it has been hypothesized that a jurisdiction s tax structure exerts an indipendent effect upon the growth of its public sector we test this hypothesis by examining the relationship between the growth of state general expenditure and the elasticity of tax revenues with respect to income the work takes advantage of a very careful set of income elasticities for the personal income and sales tax systems for each state for every year from 1978 to 1983 the main conclusion is that the data do not support the notion that the form of the tax structure exerts an independent effect on public sector growth

intrafirm diffusion of new technologies an empirical application research on the diffusion of new technologies has centred on the study of the interfirm rate of diffusion paying much less attention to intrafirm aspects this paper attempts to overcome this gap in the literature by analysing the factors that influence the speed with which a new technology the atm is fully adopted the data over which the hypotheses are tested belongs to the spanish savings banks market the results show that the rate of intrafirm diffusion is explained by innovation firm and market characteristics in testing our hypotheses we make use of both traditional methods and survival analysis techniques

political economy of mechanisms we study the optimal mirrlees taxation problem in a dynamic economy in contrast to the standard approach where the taxation mechanism is operated by a benevolent planner with full commitment power we focus on economies in which policy decisions are made by self interested politicians who cannot commit to policies the society controls politicians using elections we show that the provision of incentives to politicians can be partly separated from redistribution across agents and that political economy constraints can be modeled as introducing additional aggregate distortions in the dynamic mirrlees problem we provide conditions under which the political economy distortions persist or disappear in the long run if the politicians are as patient as the agents the best sustainable mechanism leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear in contrast when politicians are less patient than the citizens positive aggregate labor and capital taxes remain even asymptotically we conclude by providing a brief comparison of centralized

public choice social choice and political economy since world war ii a large literature has arisen that uses the methodology of economics to examine the behavior of governments and the actors in them some scholars refer to their research as public choice some as social choice and still others as political economy this article discusses the distinctions among these three terms it concludes that all of the research falling under these three headings has much in common and that people who refer to their work as public choice or political economy are essentially employing identical methodologies contributions to public choice narrowly defined are more often positive and empirical analyses of government behavior than those in social choice narrowly defined

interview with edmund s phelps edmund s phelps has been mcvickar professor of political economy at columbia university in new york city new york since 1982 and director of the center on capitalism and society at columbia university s earth institute since 2001 in 2006 he was awarded the nobel memorial prize in economic science for his analysis of intertemporal tradeoffs in macroeconomic policy we interviewed professor phelps at his hotel in san francisco on january 3 2009 while attending the annual meeting of the allied social science associations

bailout for sale the vote to save wall street this paper provides a public choice analysis of the 2008 banking bailout in the united states the paper introduces heterogeneity of congressional districts into the common agency problem in special interest politics district heterogeneity implies district specific electoral constraints on legislators ability to collect rents from and cast dissonant votes in support of special interests an empirical analysis examines legislative voting on the initial bailout proposal using campaign contributions to legislators from special interest groups and the importance of financial services for employment within congressional districts as the main explanatory variables the empirical analysis corrects for possible endogeneity bias using valid instruments and considers several intuitive sub sample estimations as alternative methods for addressing the endogeneity issue the paper provides empirical evidence that campaign contributions from the financial services sector influenced legislative voting on the banking bailout