inequality and the dynamics of public opinion the self reinforcing link between economic inequality and mass preferences this article assesses the influence of income inequality on the public s policy mood recent work has produced divergent perspectives on the relationship between inequality public opinion and government redistribution one group of scholars suggests that unequal representation of different income groups reproduces inequality as politicians respond to the preferences of the rich another group of scholars pays relatively little attention to distributional outcomes but shows that government is generally just as responsive to the poor as to the rich utilizing theoretical insights from comparative political economy and time series data from 1952 to 2006 supplemented with cross sectional analysis where appropriate we show that economic inequality is in fact self reinforcing but that this is fully consistent with the idea that government tends to respond equally to rich and poor in its policy enactments

why are taxes so high in egalitarian societies in an analysis of the relative income or relative consumption hypothesis it is shown that if the ratio of agent i s consumption to agent j s consumption enters into the utility function a tax on labor income may increase welfare for all agents if pretax wage inequality is low all agents will unanimously be in favor of such a tax thus there will be a tendency for taxes to be high in societies where pretax wage inequality is low copyright 1995 by the editors of the scandinavian journal of economics

the power of parties evidence from close municipal elections in norway we show that small shifts in representation can affect policy in proportional election systems using data from norway we find that a larger left wing party leads to more property taxation higher child care spending and less elderly care spending while local public goods appear to be a non partisan issue these effects are partly due to shifts in bloc majorities and partly due to changes in the left right position of the council keeping the majority constant the estimates on spending allocations are rather imprecise but they are consistent with evidence on politicians fiscal preferences and patterns in media attention this article is protected by copyright all rights reserved

tests of a rational theory of the size of government in many countries the political party holding power changes more frequently than the trend growth rates in government spending and taxes shifts of political power are often preceded by rhetoric about meeting needs or cutting taxes which post election performances rarely match yet changes in the size of government up and down occur on average the size of government measured by the share of taxes or spending to output has increased in many countries during the past century but changes in size occur at diffrent rates and at times the relative size of government declines

income inequality size of government and tax progressivity a positive theory abstract i investigate the relationship between income inequality and the composition of public spending in redistributive policies i extend the meltzer richard model of voting over redistribution allowing voters to choose not only the amount of a uniform lump sum transfer but also the level of provision of a public good the governmental budget is balanced thus these two choices determine the tax rate on labor income the multidimensionality of the policy space implies that there is no condorcet winner i adopt a citizen candidate model of electoral competition to tackle this problem i show that the progressivity of the tax system is increasing in the mean to median income ratio while the size of the government need not be this means that higher income inequality implies a more progressive tax system but in contrast with the traditional analysis it may also result in a smaller size of government such results are consistent with the most recent findings in the empirical literature

inequality redistribution and growth a challenge to the conventional political economy approach abstract this paper reconsiders the conventional political economy view that 1 1 more unequal societies tend to make more redistribution and 2 2 more redistribution is harmful to growth we present a number of theoretical arguments suggesting that the two previous implications are not necessarily true and that the empirically observed negative correlation between inequality and growth might just come from the fact that more unequal societies tend to redistribute less which in turn is actually detrimental to growth

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

real wage indices this paper examines real wage measures that include leisure and nonlabor income in consumption decisions with respect to the advantages and disadvantages of partial versus complete welfare orderings and of utility based versus utility free wage indices in addition we argue that the usefulness of a real wage measure beyond welfare comparison has been ignored to test the robustness of utility based indices these real wage measures are calculated for two different utility function specifications the indirect addilog system and the linear expenditure system further comparisons are made against index bounds that are independent of the functional form for preferences

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

local choice of property taxation evidence from norway fiscal competition may influence the design of tax systems the tax competition literature has concentrated on mobility of tax base and tax levels while we turn the attention to the political decision making system and the determination of tax structure in the norwegian setting local governments make a discrete choice whether to have property tax the local choice is investigated in an econometric model allowing for yardstick competition our results indicate that yardstick competition explains the distinct geographic pattern in local property taxation observed grants have no effect on the propensity to have property taxation consistent with the flypaper effect the main methodological challenge handled concerns spatial interaction with discrete choice

asymptotic efficiency in large exchange economies with asymmetric information the authors provide conditions on an exchange economy with asymmetric information that guarantee that when the economy is replicated sufficiently often there will be an allocation that is incentive compatible individually rational and nearly efficient the main theorem covers both the case in which aggregate uncertainty remains when the economy is replicated and the case in which replication eliminates aggregate uncertainty in addition the authors demonstrate how their theorem does or does not apply to standard asymmetric information problems such as the buyer s bid double auction problem akerlof s lemons problem and insurance with asymmetric information copyright 1992 by the econometric society

redistributive public employment abstract politicians may use disguised redistributive policies in order to circumvent opposition to explicit tax transfer schemes first we present a theoretical model that formalizes this hypothesis next we provide evidence consistent with the prediction of the model namely that in u s cities politicians use public employment as such a redistributive device we find that city employment is significantly higher in cities where income inequality and ethnic fragmentation are higher

federal deductibility and local property tax rates abstract recent econometric work has suggested that federal deductibility of state and local taxes has raised the proportion of these taxes especially property taxes in local budgets this paper lends additional support to these earlier findings by showing that one channel through which deductibility leads to higher local property tax revenues is by increasing the rate of local property taxation specifically we find that if deductibility were eliminated the mean property tax rate in our sample would fall by 0 00715 7 15 per 1000 of assessed property or 21 1 of the mean tax rate

decentralized welfare will there be underprovision abstract this paper develops an asymmetric nash equilibrium model of welfare provision by states when the benefit payment is a local public good and a fixed population of welfare recipients distributes itself between states with logistic migration function the model shows that state size is an important demand shifter across states because it alters the supply elasticity of recipients the model provides estimates of how the degree of benefit under provision varies with this migration elasticity other demand instruments such as taxpayer resources and generosity likewise generate positive correlation between benefits and recipients while supply shifters generate negative correlation between benefits and recipients the model s predictions are closely matched empirically when examining the reduced form impact of these instruments on the pattern of welfare benefits and recipients across states using these impacts to assign the instruments to either supply or demand sides of the model it is possible to estimate the model s structural elasticities these turn out to be high enough so that simulated solutions to the model generate considerable welfare underprovision and thus raise concern about a race to the bottom with decentralized control over afdc

permanent differences in unemployment and permanent wage differentials this paper tests for the existence of wage premiums based on geographic and industry unemployment differences these differences are broken down into permanent and transitory components in equations controlling for variation in state generosity of unemployment insurance benefits findings indicate that wage premiums arise for long run unemployment differences but that negative short run shocks to industries generate wage cuts while positive shocks generate wage hikes therefore labor contracts accommodate long term anticipated unemployment and entail sharing of short term unemployment risks

property taxation as incentive for cost control empirical evidence for utility services in norway recent theoretical research suggests that property taxation has incentive effects that can help control cost problems in the public sector the institutional setting in norway allows this first empirical investigation of the incentive effect of property taxation since we can separate between local governments with and without property tax the raw data of the variation in the unit cost level for utilities show that local governments with property tax have about 20 lower unit cost using both linear regression and propensity score matching we are not able to wash out the difference in unit costs our interpretation is that having a visible and controversial local tax related to property stimulates voter interest in local government activities and thereby may help cost control the incentive effect is of interest for the design of fiscal federalism

inflation unemployment and public opinion polls it is well known that public opinion polls report that the public regards inflation as a more serious problem than unemployment in this paper we examine public opinion surveys with the aim of discovering what if anything the poll results mean we describe in some detail the questions about inflation and unemployment asked in the surveys and analyze the determinants in both cross section and time series of answers to those questions the typical opinion poll question about inflation and unemployment is which of the two problems inflation or unemployment do you think will cause the more serious economic hardship for people during the next year or so 1 section 1 discusses the possible issues to which opinion poll questions about inflation and unemployment might be relevant section 2 tabulates a variety of questions that have been asked along with the responses and examines the views expressed and their consistency both internal and across different polls section 3 presents a regression analysis of the cross sectional determinants of responses to the michigan poll question cited above while section 4 studies determinants of changes over time

tax and expenditure limitations and the fiscal relationships between state and local governments this paper uses comprehensive data on state and local tax and spending limitations for forty nine states between 1976 and 1990 to estimate the effects of these limits on the fiscal relationships between state and local government results indicate that tax and spending limits on local governments are only partially effective in reducing revenues because political agents bypass limitations by transferring revenue reliance to unconstrained revenue sources or because unconstrained levels of government take on additional revenue responsibilities in particular the empirical analysis demonstrates that binding local government fiscal constraints are associated with reductions in local revenues and increases in state aid to local governments in contrast state government limitations are related to reductions in both state and local own source revenues

income distribution and tax structure empirical test of the meltzer richard hypothesis abstract the meltzer richard hypothesis that more unequal income distribution will create a majority for more redistribution has generated much research but little empirical support the empirical literature has concentrated on cross country studies and the size of the public sector and the results broadly do not indicate more redistribution with more inequality this analysis suggests that the hypothesis should be investigated in a more homogenous setting with comparable institutions and with an explicit decision about redistribution here tax structure new data on poll tax and property tax in decentralized government in norway are exploited we show how the multi dimensional decision can be analyzed as majority rule assuming intermediate preferences in the econometric analysis instruments are used to account for endogeneity of income level and income distribution the estimated model supports the understanding that more unequal income distribution implies a shift in the tax burden from poll tax to property taxes and thereby gives more redistribution

loss aversion in politics we study how loss aversion affects the political equilibrium in a simple majority voting model first we show a status quo bias which leads to path dependence second loss aversion implies a moderating effect on the most extreme voters third in a dynamic setting the effect of loss aversion diminishes with the length of the planning horizon of voters however in the presence of a projection bias majorities are partially unable to understand how fast they will adapt to a new policy this makes changes less likely and induces time inconsistency policy changes are timid at the beginning while in later periods they are made progressively more radical fourth in a stochastic environment loss aversion yields a significant distaste for risk but also a smaller attachment to the status quo the application of these results to a model of redistribution leads to empirically plausible implications

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

what drives u s immigration policy evidence from congressional roll call votes abstract immigration is today one of the most hotly debated policy issues in the united states despite marked divergence of opinion even within political parties several important reforms have been introduced in the post 1965 era the purpose of this paper is to carry out a systematic analysis of the drivers of the voting behavior of us representatives on immigration policy in the period 1970 2006 and in particular to assess the role of economic factors at the district level our findings suggest that representatives from more skilled labor abundant districts are more likely to support an open immigration policy towards the unskilled whereas the opposite is true for representatives from more unskilled labor abundant districts this evidence is robust to the introduction of an array of additional economic and non economic characteristics of the districts and suggests that a simple factor analysis model can go a long way in explaining voting on immigration policy