price stability in economies with habit persistence this paper shows that the divine coincidence does not hold in a sticky price model with external habit if a time varying tax rate on labor income is not implemented to fully eliminate the time varying distortions associated with external habit and monopoly power in goods market the required labor income tax rate is inversely related to the risk free real interest rate and the markup in the goods market but it is proportional to the degree of external habit under this circumstance the optimal monetary policy commands a countercyclical interest rate having a perfect negative correlation with tax rate in the sticky price model with external habit if a time invariant tax is the only fiscal instrument then the degree of external habit entails a gap between the private marginal rate of substitution between consumption and labor and the social marginal rate of substitution generating an endogenous trade off between the stabilization of welfare relevant output gap and inflation under this circumstance price stability is not the optimal policy the monetary policy authority should optimally try to undo the time varying distortions associated with external habit and monopoly power in goods market by deviating from price stability

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

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

nonoptimality of the friedman rule with capital income taxation this paper studies the efficient taxation of money and factor income in intertemporal optimizing growth models with infinite horizons transaction costs technologies and flexible prices second best optimality calls for a positive inflation tax and a non zero capital income tax when there are restrictions on taxation of production factors or profits rents our cases of nonoptimality of the friedman rule which differ from those of mulligan and sala i martin 1997 and extend substantially those of schmitt grohe and uribe 2004a follow from the violation of the diamond and mirrlees 1971 principle on production efficiency

coordinating monetary and macroprudential policies this paper studies noncooperative games between a monetary authority and a macroprudential regulator whose objectives are a subset of those in the social loss function the analysis is based on a new keynesian model with a financial sector and a financial friction a la gertler and karadi 2011 when the friction affects the financing of all factors of production equally macroprudential policy is shown to be a powerful additional tool fully eliminating inefficiencies regardless of the source of the shock and no matter whether the central bank and the regulator cooperate but when trade offs are present and policy is discretionary the institutional arrangements become crucial while coordination leads to higher welfare than a setting in which each authority takes the decision rule of the other as given namely the nash equilibrium our analysis shows that a noncooperative setting in which the macroprudential authority acts as a leader within the period can be superior to cooperation finally our conclusions are unaffected by whether the macroprudential instrument affects funding costs or acts as a liquidity requirement

on the international dimension of fiscal policy this paper analyses the international dimension of fiscal policy using a small open economy framework in which the government finances its spending by levying distortionary taxation and issuing non state contingent debt the main finding of the paper is that once the open economy aspect of the policy problem is considered it is not optimal to smooth taxes following idiosyncratic shocks even when prices are flexible and inflation can costlessly act as a shock absorber to restore fiscal equilibrium the presence of a terms of trade externality lead to movements in the tax rate also in contrast with the closed economy the introduction of sticky prices can reduce the optimal volatility of taxes

strategic public policy around population thresholds abstract political economists have long maintained that politicians respond to both re election and financial incentives this article contributes to the latter literature by analysing whether when and how local office holders respond to the economic incentives embedded in exogenously imposed population thresholds leading to an increased number and remuneration of local politicians building on insights from the urban economics and public finance literatures we argue that local politicians may strategically adjust fiscal and housing policies to stimulate in migration when approaching a population threshold where their remuneration increases using data from all 589 belgian municipalities over the period 1977 2016 our results confirm that approaching important population thresholds causes lower local tax rates and the granting of additional building permits particularly for apartments these policy changes occur early in the election cycle and at least for housing policy are restricted to incumbent mayors themselves expecting to benefit from crossing the population threshold

learning over the business cycle policy implications abstract this paper studies the policy implications of the endogeneity of information about the state of the economy the business cycle can be made less noisy and more efficient by incentivizing firms to vary their pricing and production decisions more with their beliefs about the state of the economy this calls for countercyclical taxes complemented by a monetary policy that leans against the wind the optimal policies trade off allocative efficiency for informational efficiency

the optimal mix of taxes on money consumption and income abstract we determine the optimal combination of taxes on money consumption and income in transactions technology models where exogenous government expenditures must be financed with distortionary taxes we show that the optimal policy does not tax money regardless of whether the government can use as alternative fiscal instruments an income tax a consumption tax or the two taxes jointly these results are at odds with recent literature we argue that the reason for this divergence is an inappropriate specification of the transactions technology adopted in the literature

political rents in a non corrupt democracy abstract a fundamental problem in all political systems is that the people in power may extract rents to the detriment of the general public in a democracy electoral competition and information provided by the media may keep such rent extraction at bay we develop a simple model where rents are decreasing in the degree of political competition and voter information in line with our theoretical predictions we find that both increased political competition and increased local media coverage substantially reduce direct measures of legal political rents among local governments in a non corrupt democracy sweden

on the vote purchasing behavior of incumbent governments a couple of months before the swedish election in 1998 the incumbent government distributed 2 3 billion sek to 42 out of 115 applying municipalities this was the first wave of a four year long grant program intended to support local investment programs aimed at an ecological sustainable development this temporary grant program differs from traditional intergovernmental grants in several aspects most importantly in the sovereign decision making power given to the incumbent central government in this paper we investigate whether there were any tactical motives behind the distribution of these grants we find support for the hypothesis that the incumbent government used the grant program under study in order to win votes in particular we find strong support for the lindbeck weibull dixit londregan model in which parties distribute transfers to regions where there are many swing voters this result is statistically as well as economically significant we do however not find any support for the model that predicts that the incumbent government transfer money to its own supporters

ghost citizens using notches to identify manipulation of population based grants this paper analyzes how local governments misreport population figures to obtain higher per capita grant allocations in 1998 the allocation of a formula based grant in spain switched from using the centrally administered census to local population registers administered by municipalities the value of this per capita grant changes at fixed population thresholds for the entire local population we exploit these notches to analyze the size distribution of municipalities to detect deliberate manipulation of the grant assignment variable this allows us to causally identify the effect of grant generosity on population over reporting we document an excess mass of municipalities to the right of the notch threshold and a density hole to the left of it local registers included a proportion of ghost citizens that is people who presented no trace of actually residing in the municipalities which benefit the most from inflating population figures to pass the relevant threshold we document that manipulation rather than real population responses is the mechanism at work the main channel behind manipulation is the incorrect treatment of foreign residents to inflate total local population

strategic control of growth in a system of cities abstract this paper provides an analysis of the supply restriction model of growth controls growth controls in such a model harm consumers while enriching landowners and they will only be adopted if landowners have political power in the model this power is manifested in the city government s use of a social welfare that takes both landlord and consumer welfare into account since cities cannot be small if the supply restriction inherent in growth controls is to have an impact strategic interactions must be considered in the analysis of city choices a general model is presented and an extended example based on leontief preferences is then considered comparative static analysis of nash equilibria in the leontief case shows that perturbations of preferences or other characteristics of a single city can have important spillover effects that alter the choices of all cities in the region

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

optimal money creation in pure currency economies a conjecture in a pure currency economy money is the only durable object and people have private histories in such economies taxation is not feasible and in some of them trade is enhanced through the use of money for economies of that kind in which a nondegenerate distribution of money part of the state of the economy affects trades and real outcomes and in which trades affect the state at the next date the conjecture is that there are transfer schemes financed by money creation that improve ex ante representative agent welfare relative to what can be achieved holding the stock of money fixed jel codes e52 e58 copyright 2014 oxford university press

a direct test of the homevoter hypothesis abstract we propose a methodology that facilitates a direct test of the homevoter hypothesis which posits that homeowners vote in favor of public projects they perceive increase residential property values and against those that do not first we estimate how pre referendum events that signal a higher probability that the public project will be undertaken impact local residential property values before the referendum is held these pre referendum impacts are considered noisy signals to homeowners about the market s assessment of the net marginal benefits of the project second we aggregate these market signals to the precinct level and relate them to precinct level voting results concerning the proposed project we apply this two step approach to the 2004 referendum in arlington texas for a publicly subsidized stadium for the nfl dallas cowboys the analysis supports the homevoter hypothesis and establishes a possible methodology for future evaluations in this small but growing empirical literature

lobbying political competition and local land supply recent evidence from spain abstract we analyze whether local land supply is influenced by the degree of political competition and interpret the findings as indications of the influence wielded by land developer lobbies we use a new database including both political and land supply data for more than 2 000 spanish municipalities for the period 2003 2007 in spain land use policies are largely a local responsibility with municipalities needing periodically to pass comprehensive land use plans the main policy variable in these plans and the one analyzed here is the amount of land classified for potential development we measure local political competition as the margin of victory of the incumbent government this variable is however potentially endogenous since not only do votes affect policy but also policy is expected to affect votes to deal with this problem we instrument this variable using the votes at the first national legislative elections following the re establishment of democracy and votes actually obtained regionally at the same type of election the results indicate that stiffer political competition does indeed reduce the amount of new land designated for development this effect is found to be most marked in suburbs in towns with a high percentage of commuters and homeowners and in municipalities governed by the left

using a discontinuous grant rule to identify the effect of grants on local taxes and spending when investigating the effects of federal grants on the behavior of lower level governments it is hard to defend the handling of grants as an exogenous factor federal governments often set grants based on characteristics and performance of decentralized governments in this paper we make use of a discontinuity in the swedish grant system in order to estimate the causal effects of general intergovernmental grants on local spending and local tax rates the formula for the distribution of funds is used as an exclusion restriction in an iv estimation we find evidence of crowding in where federal grants are shifted to more local spending but not to reduced local tax rates

the optimum quantity of money rule in the theory of public finance this paper examines optimal tax policy in a monetary economy in which money serves as an intermediate good that helps facilitate the conversion of scarce resources into tinal consumption goods by enabling consumers to economize on the costs of transacting it is shown that in such an environment even though distorting taxes must be levied for revenue purposes the optimal tax structure calls for abstaining from inflationary finance and adopting the optimum quantity of money rule

immigration and housing rents in american cities is there a local economic impact of immigration immigration pushes up rents and housing values in us destination cities the positive association of rent growth and immigrant inflows is pervasive in time series for all metropolitan areas i use instrumental variables based on a shift share of national levels of immigration into metropolitan areas an immigration inflow equal to 1 of a city s population is associated with increases in average rents and housing values of about 1 the results suggest an economic impact that is an order of magnitude bigger than that found in labor markets

gaps and triangles we derive principles of optimal short run monetary policy in a real business cycles model with money and prices set in advance the optimal allocation is achieved under the friedman rule however given that policy the allocation is indeterminate we move away from the friedman rule take the interest rate path as exogenous and characterize the optimal money supply policy we identify the conditions under which it is optimal to replicate the allocation under exible prices in general sticky prices provide the planner with tools to improve upon a distorted exible prices allocation

optimal maturity of government debt without state contingent bonds abstract this paper shows that state contingent debt can be synthetically constructed using non contingent debt of different maturities a main policy implication of this principle is that the ramsey allocation with complete markets can be sustained with non contingent debt only by properly managing its maturity structure the numerical experiments however suggest that this policy implication ought to be taken with care we find that the debt positions that sustain the ramsey allocation are very high on the order of a few hundred times total gdp for a very simple four state economy and increasing in the number of states in addition they are very sensitive to small variations in the parameters of the model

the public demand for open space the case of connecticut communities abstract at both the state and national levels public policies are being designed to stimulate the demand for locally owned open space yet very little is known about the factors that influence the demand for open space and the sensitivity of demand to price and income to fill the void this study uses data for connecticut cities and towns to estimate the public demand for open space the empirical results suggest that the demand for open space is relatively insensitive to changes in price but highly responsive to changes in income the findings also show that federal and state open space may tend to crowd out locally owned open space and that locally owned open space represents a highly congestable good finally the analysis indicates that privately owned open space is not a good substitute for locally owned public open space

housing booms and local spending abstract this paper examines how local governments adjust their spending in response to a temporary revenue windfall generated by a housing boom we focus on spanish local governments because of the intensity of the last housing boom bust experienced there and the large share of construction related revenues they obtain we find that windfall revenues were mostly used to increase expenditures above all current we seek to determine whether this behaviour was due to political myopia incumbents in contested elections increasing expenditures to convince uninformed voters about their competence or to extrapolation bias leading to the overstatement of the persistence of revenue shocks we find evidence for both mechanisms the propensity to spend is higher where local incumbents were elected by a narrow vote margin and lower in places with past volatility experience finally we also examine what happens during the bust and find that governments enjoying large windfalls during the boom had to cut their spending abruptly above all capital and raise taxes the adjustment during the bust was actually greater in those places that overspent more during the crisis

rethinking optimal currency areas the traditional mundellian criterion which implicitly assumes commitment to monetary policy is that countries with similar shocks should form unions without such commitment a new criterion emerges countries with dissimilar temptation shocks namely those that exacerbate time inconsistency problems should form unions critical to this new criterion is the idea that monetary policy is benevolent in that it takes into account the interests of all the countries in the union when countries have dissimilar temptation shocks benevolent unions can help overcome the time inconsistency problems that individual countries face existing unions can strictly gain by admitting new members with more severe time inconsistency problems because policy in the expanded union is less sensitive to the temptation shocks of members of the existing union

on the political economy of zoning abstract households choose a community in a metropolitan area and collectively set a minimum housing quality and a property tax to finance a local public good the collective imposition of a lower bound on housing consumption induces an income stratified equilibrium in a specification where meaningful community differentiation would not arise without zoning we show computationally that zoning restrictions are likely to be stringent with a majority facing a binding constraint in communities that permit it by inducing a stratified equilibrium zoning causes tiebout welfare gains in aggregate but with large welfare transfers relative to stratified equilibrium without zoning the zoning equilibrium is significantly more efficient as it reduces housing market distortions

crop biodiversity risk management and the implications of agricultural assistance this paper presents a theoretical and empirical analysis of the impact of financial assistance to farms on crop biodiversity in an uncertain setting the findings reveal that risk aversion is an important driving force for crop biodiversity conservation risk averse farmers can hedge against the uncertainty they face by allocating land to different crop species however policies intended to stabilize revenues by supporting particular species may alter this link by delinking crop biodiversity from the management of revenues risk

is the friedman rule optimal when money is an intermediate good in contrast to the recent literature on the optimal inflation tax we show that in models where money reduces transactions costs it is optimal to set the inflation tax to zero when seigniorage is replaced by revenue from distortionary taxes the main reasons for this result are that the variable costs of supplying real balances are negligible and the inflation tax is a unit tax we also show that the intermediate good optimal taxation rules in the public finance literature cannot be directly applied both when money is costless and when it requires resources to be produced

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

monetary policy and welfare in a small open economy this paper analyzes optimal monetary policy in a small open economy featuring monopolistic competition and nominal rigidities it shows that the utility based loss function for this economy can be written as a quadratic expression of domestic inflation output gap and real exchange rate the presence of an internal monopolistic distortion and a terms of trade externality drives optimal policy away from domestic inflation targeting and affects the optimal level of exchange rate volatility when domestic and foreign goods are close substitutes for each other the optimal policy rule implies lower real exchange rate volatility than a domestic inflation targeting regime the reverse is true when the elasticity of substitution between goods is low

political competition policy and growth theory and evidence from the us this paper develops a simple model to analyse how a lack of political competition may lead to policies that hinder economic growth we test the predictions of the model on panel data for the us states in these data we find robust evidence that lack of political competition in a state is associated with anti growth policies higher taxes lower capital spending and a reduced likelihood of using right to work laws we also document a strong link between low political competition and low income growth

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

optimal fiscal and monetary policy equivalence results in this article we analyze the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy we consider standard monetary economies that differ in the price setting restrictions imposed on the firms we show that independently of the degree or type of price stickiness it is possible to implement the same efficient set of allocations and that each allocation in that set is implemented with policies that are also independent of the price stickiness in this sense environments with different price setting restrictions are equivalent

the causal effect of coalition governments on fiscal policies evidence from a regression kink design proportional election systems are widespread across countries and often lead to coalition governments this creates interest in how the form of government single party or coalition governments causally influences fiscal policies it is difficult to estimate this causal effect empirically because the form of government is not randomly assigned to political units i overcome this problem by using a regression kink design which exploits that there is a slope change in the treatment probability at the 50 vote share of the strongest party this method is applied to a large panel data set of german local governments i find that contrary to the theoretical prediction coalition governments significantly decrease expenditures

election goals and income redistribution recent evidence from albania this paper examines the impact of political competition on block grants from federal to sub federal levels of government we model the extent and direction of income redistribution as determined proximately by the political agendas of central decision makers and at a deeper level by the institutions within which they nd themselves operating we contrast two political objective functions that yield di erent empirical predictions of the ways in which politics should a ect scal policy lessons learned here may prove important in understanding limits on the types of redistribution possible via block grants given the institutional framework in both developing and developed countries 2001 elsevier science b v all rights reserved jel classixcation h1 h7 o1

unconventional fiscal policy at the zero bound when the zero lower bound on nominal interest rates binds monetary policy cannot provide appropriate stimulus we show that in the standard new keynesian model tax policy can deliver such stimulus at no cost and in a time consistent manner there is no need to use inecient policies such as

the effects of party competition on budget outcomes empirical evidence from local governments in spain this paper investigates the link between local budget outcomes and the intensity of party competition measured as the margin of victory obtained by the incumbent in the previous local election i e the difference between the vote share and 50 two competing hypotheses are tested in the paper on the one hand the leviathan government hypothesis suggests that the lower the intensity of party competition is the greater is the increase in the size of the local public sector irrespective of the ideology of the party in power on the other hand the partisan government hypothesis suggests that the incumbent will find it easier to advance its platform when intensity of competition is low i e parties on the left right will increase decrease the size of the local public sector when the intensity of the challenge from the opposition is low these hypotheses are tested with information on spending own revenues and deficit for more than 500 spanish local governments over 8 years 1992 1999 and information on the results of two local electoral contests 1991 and 1995 the evidence favors the partisan hypothesis over the leviathan one we found that for left wing governments spending taxes and deficits increased as the electoral margin increases whereas for right wing governments a greater margin of victory led to reductions in all these variables

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

evolution of modern business cycle models accounting for the great recession modern business cycle theory focuses on the study of dynamic stochastic general equilibrium dsge models that generate aggregate fluctuations similar to those experienced by actual economies we discuss how these modern business cycle models have evolved across three generations from their roots in the early real business cycle models of the late 1970s through the turmoil of the great recession four decades later the first generation models were real that is without a monetary sector business cycle models that primarily explored whether a small number of shocks often one or two could generate fluctuations similar to those observed in aggregate variables such as output consumption investment and hours these basic models disciplined their key parameters with micro evidence and were remarkably successful in matching these aggregate variables a second generation of these models incorporated frictions such as sticky prices and wages these models were primarily developed to be used in central banks for short term forecasting purposes and for performing counterfactual policy experiments a third generation of business cycle models incorporate the rich heterogeneity of patterns from the micro data a defining characteristic of these models is not the heterogeneity among model agents they accommodate nor the micro level evidence they rely on although both are common but rather the insistence that any new parameters or feature included be explicitly disciplined by direct evidence we show how two versions of this latest generation of modern business cycle models which are real business cycle models with frictions in labor and financial markets can account respectively for the aggregate and the cross regional fluctuations observed in the united states during the great recession

on the relevance of exchange rate regimes for stabilization policy this paper assesses the relevance of the exchange rate regime for stabilization policy using both fiscal and monetary policy we conclude that the exchange rate regime is irrelevant this is the case independently of the severity of price rigidities independently of asymmetries across countries in shocks and transmission mechanisms the only relevant conditions are on the mobility of labor and financial assets the results can be summarized with the claim that every currency area is an optimal currency area however with labor mobility or tradable state contingent assets additional policy instruments would be required to establish the irrelevance result

electoral competition and political selection an analysis of the activity of french deputies 1958 2012 abstract in this paper we study the relation between electoral competition and political selection using a unique dataset containing detailed yearly information about members of the french national assembly from 1958 to 2012 first we innovate by proposing a measure of deputy activity to obtain insight into political selection as we gathered information on the many aspects of deputies individual work we use a nonparametric composite indicator of deputy activity that fully acknowledges the multidimensional nature of parliamentary work we argue that this measure of activity is positively correlated with competence and intrinsic motivation two components of politicians quality second we exploit the large time span of our dataset to study the evolution of the relationship between electoral competition and political selection over time overall our results show that deputies elected in a priori contested districts have a higher overall activity with the intensity of this relationship reaching its peak in the 80 s but constantly decreasing since then

career incentives of city leaders and urban spatial expansion in china this paper develops a theoretical framework to study the critical role that politics play in shaping the spatial dimension of china s urbanization and the related welfare implications utilizing a

intergovernmental grants as a tactical instrument empirical evidence from swedish municipalities are grants to swedish municipalities tactical in this essay i derive testable implications from a theoretical voting model and test these on a panel of 255 swedish municipalities 1981 1995 in order to decide which regions that are politically powerful both election results and survey data from the swedish election studies are used the results although somewhat ambiguous support the hypothesis that intergovernmental grants are used in order to win votes

electoral competition and special interest politics have fixed positions on some issues but vary their positions on others in order to attract votes and campaign contributions in this context we examine whether special interest groups are governed by an electoral motive or an influence in their campaign giving and how their contributions affect the equilibrium platforms we show that each party is induced to behave as if it were maximizing a weighted sum of the aggregate welfares of informed voters and members of special interest groups the party that is expected to win a majority of seats caters more to the special interests

capital taxation and ownership when markets are incomplete this paper is a normative investigation of the properties of optimal capital taxation in the neoclassical growth model with aggregate shocks and incomplete markets the model features a representative agent economy with linear taxes on labor and capital i first allow the government to trade only a real risk free bond optimal policy has the following features labor taxes fluctuate very little capital taxes are volatile and feature a positive negative spike after a negative positive shock to the government budget and capital taxes average to roughly zero across periods i then consider the implications of allowing the government to trade capital

the political economy of pollution taxes in a small open economy abstract this paper develops a positive theory explaining pollution tax policy outcomes in a small open economy the equilibrium tax rate depends on lobby group membership the relative importance of lobbying activities and the tax elasticity of pollution the equilibrium properties are investigated the model is extended to incorporate pollution abatement and a pollution abatement subsidy we show that total pollution may be increasing in the pollution abatement subsidy rate this effect arises because the equilibrium pollution tax rate may be decreasing in the subsidy rate due to altered political influence of the lobby groups in the political equilibrium

the role of countercyclical monetary policy when firms set nominal prices in advance optimal monetary policy insulates aggregate output against shocks to demand it can do so however by following the constant money growth rule advocated by milton friedman it need not respond to the shocks in an actively countercyclical way in addition to the extent that output fluctuations are driven by shocks to supply money growth should be procyclical

clean money dirty system connected landowners capture beneficial land rezoning we use a unique regulatory event that occurred in queensland australia from 2007 to 2012 to examine the predictive power of landowner relationship networks and lobbying behaviour on successfully gaining value enhancing rezoning a state authority the urban land development authority ulda took planning control away from local councils in selected areas in order to increase the speed and scale of development in those areas in the process increasing land values using micro level relationship data from multiple sources we compare the relationship network characteristics of landowners of comparable sites inside and outside the ulda areas finding that connected landowners owned 75 of land inside the rezoned areas and only 12 outside capturing 410 million in land value gains out of the total 710 million from rezoning we also find that engaging a professional lobbyist is a substitute for having one s own connections scaling up from our sample of six rezoned areas to the hundreds of rezoning decisions across queensland and australia in the last few decades suggests that many billions of dollars of economic rent are being regularly transferred from the general population to connected landowners through political rezoning decisions

optimal monetary policy optimal monetary policy maximizes the welfare of a representative agent given frictions in the economic environment constructing a model with two sets of frictions costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods we find optimal monetary policy is governed by two familiar principles first the average level of the nominal interest rate should be sufficiently low as suggested by milton friedman that there should be deflation on average yet the keynesian frictions imply that the optimal nominal interest rate is positive second as various shocks occur to the real and monetary sectors the price level should be largely stabilized as suggested by irving fisher albeit around a deflationary trend path since expected inflation is roughly constant through time the nominal interest rate must therefore vary with the fisherian determinants of the real interest rate although the monetary authority has substantial leverage over real activity in our model economy it chooses real allocations that closely resemble those which would occur if prices were flexible in our benchmark model there is some tendency for the monetary authority to smooth nominal and real interest rates

interest rate rules vs money growth rules a welfare comparison in a cash in advance economy abstract this paper considers the welfare consequences of two particularly simple rules for monetary policy an interest rate peg and a money growth peg the model economy consists of a real side that is the standard real business cycle model and a monetary side that amounts to imposing cash in advance constraints on certain market transactions the paper also considers the effect of assuming a rigidity in the typical household s cash savings choice the competitive equilibrium of the economy is not pareto efficient partly because of two distortions a distortion on the capital accumulation decision and a distortion on portfolio choice that arises from the assumed rigidity the principal result of the paper is that the interest rate rule but not the money growth rule entirely eliminates these two distortions and is thus the benevolent central banker s policy choice

women and power unpopular unwilling or held back we use spain s equality law to test for the existence of agency problems between party leaders and their constituents the law mandates a 40 percent female quota on electoral lists in towns with populations above 5 000 using pre and postquota data by party and municipality we implement a triple difference design we find that female quotas resulted in slightly better electoral results for the parties that were most affected by the quota our evidence shows that party leaders were not maximizing electoral results prior to the quota suggesting the existence of agency problems that hinder female representation in political institutions

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

optimal fiscal and monetary policy with sticky prices in this paper i consider the role of state contingent inflation as a fiscal shock absorber in an economy with nominal rigidities i study the ramsey equilibrium in a monetary model with distortionary taxation nominal non state contingent debt and sticky prices with sticky prices the ramsey planner must balance the shock absorbing benefits of state contingent inflation against the associated resource misallocation costs for government spending processes resembling post war experience introducing sticky prices generates striking departures in optimal policy from the case with flexible prices for even small degrees of price rigidity optimal policy displays very little volatility in inflation tax rates display greater volatility compared to the model with flexible prices with sticky prices tax rates and real government debt exhibit behavior similar to a random walk for government spending processes resembling periods of intermittent war and peace optimal policy displays extreme inflation volatility even when the degree of price rigidity is large as the variability in government spending increases smoothing tax distortions across states of nature becomes increasingly important and the shock absorber role of inflation is accentuated

determinants of local public policies for farmland preservation and urban expansion a french illustration we outline the determinants of local public policies for farmland preservation and urban expansion we first rely on the literature and on a purposely designed field study of municipalities in southern france to propose a theoretical framework better suited to the french situation the model considers aspects of land consumption includes two interest groups as well as the median voter and is then econometrically tested we confirm the expected effects of certain sociodemographic determinants and highlight the impact of municipal budgetary considerations and the role of the agricultural sector we also find more counterintuitive determinants like local political regime or unbalanced neighboring relationships

optimal fiscal policy in a stochastic growth model although most neoclassical growth models focus on competitive equilibria which are pareto optimal and ignore the role of government recent works by romer 28 29 judd 20 baxter and king s and bizer and judd 7 have shown that government can be introduced into and suboptimal equilibria can be studied in these models as well their studies however are positive analyses of the effects of fiscal policy in competitive equilibria the purpose of this paper is to apply ramsey s 27 theory of optimal taxation to the normative study of fiscal policy in a stocastic growth model ramsey studied a static representative consumer economy with many goods in his formulation a government consumes a fixed amount of these goods which it purchases at market prices and finances by levying flat rate excise taxes prices and quantities are determined in a competitive equilibrium the government is benevolent and its objective is to choose the optimal tax rates to maximize the representative consumer s utility a number of economists among them kydland and prescott 23 barro 3 turnovsky and brock 31 and lucas and stockey 26 have noted that ramsey s formulation can be applied to dynamic economies with uncertainty if one reinterprets the goods in static problems as dated state contingent goods in this framework a fiscal policy is a rule which specifies state contingent tax rates and the amount of public debt issue in each date the optimal fiscal policy is defined as the one which leads to a quantity