redistribution policy and the expansion of the public sector abstract during the first part of this century life cycle and insurance type considerations seem to have dominated redistribution policy in particular when we look at the consequences for the expansion of public spending by contrast during recent decades fragmented horizontal redistributions between various minority groups have probably been the most important mechanisms the self interest of different groups of the electorate seems to have provided the most powerful motive behind these various policies although welfare altruism and what in this paper are called considerations of consequential externalities have probably been important motives behind redistribution in favor of the poor

market access conditions and sub saharan africa s exports diversification summary despite some progress in the last decade sub saharan africa s participation in the global economy remains generally limited and poorly diversified among the various reasons behind the lack of competitiveness of sub saharan africa exports this paper analyzes whether changes in market access conditions affect export diversification the findings of this paper indicate that market access conditions remain important and that the presence of trade relationships depends not only on favorable market access conditions but also on how these compare relative to foreign competitors these results imply that freer trade within sub saharan african countries could provide significant incentive to intra regional trade

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

inherited trust and growth this paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation we show that inherited trust of descendants of us immigrants is sig nificantly influenced by the country of origin and the timing of arrival of their forebears we thus use the inherited trust of descendants of us immigrants as a time varying measure of inherited trust in their country of origin this strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects jel n11 n12 n31 n32 o47 z13

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

property rights and the political organization of agriculture we propose a general equilibrium model where the economic organization of agriculture and the political equilibrium determining the security of property rights are jointly determined in particular because the form of organization may affect the probability and distribution of benefits from future property challenges it may be shaped in anticipation of this impact property rights security may then be secured at the expense of economic efficiency the model provides a framework for understanding why in some contexts land is redistributed primarily via land sales and tenancy markets but via politics and conflict in others we test some implications of the theory using a five decade panel dataset that traces changes in the extent of tenancy and tenancy reform across 15 indian states

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

the quantitative effects of tax foresight not all states are equal abstract this paper explores the effect of federal tax news on state economic activity we estimate a factor augmented vector autoregression favar model which allows us to consider the possibility that unobserved factors such as credit and fiscal conditions might be relevant for modeling the dynamic response of aggregate and state level economic activity we identify tax foresight as a shock to the implicit tax rate measured by the yield spread between the one year tax exempt municipal bond and the one year taxable treasury bond our results suggest that an increase in the implicit tax rate raises national output over much of the anticipation period in addition anticipated tax increases give rise to expansions in state personal income and employment we find that the variation in the responsiveness of economic activity across states is mostly explained by differences in industrial composition and income distribution as well as by some demographic characteristics such as median income and education finally using a proxy for exogenous changes in federal tax revenues we investigate the dynamics of state level personal income and employment our results point to considerable heterogeneity in the response across u s states moreover they reveal that the long run multiplier for an anticipated increase in tax revenues is about a tenth of the short run multiplier for an unanticipated increase in taxes

shrouded costs of government the political economy of state and local public pensions abstract why do public sector workers receive so much of their compensation in the form of pensions and other benefits this paper presents a political economy model in which politicians compete for taxpayers and government employees votes by promising compensation packages but some voters cannot evaluate every aspect of promised compensation if pension packages are shrouded so that public sector workers better understand their value than ordinary taxpayers then compensation will be highly back loaded in equilibrium the welfare of public sector workers could be improved holding total public sector costs constant if they received higher wages and lower pensions centralizing pension determination has two offsetting effects on generosity more state level media attention helps taxpayers better understand pension costs and that reduces pension generosity but a larger share of public sector workers will vote within the jurisdiction which increases pension generosity a short discussion of pensions in two decentralized states california and pennsylvania and two centralized states massachusetts and ohio suggests that centralization appears to have modestly reduced pensions but as the model suggests this is unlikely to be universal

the effects of adaptation measures on hurricane induced property losses which fema investments have the highest returns abstract this paper evaluates the relative effectiveness of fema expenditures on hurricane induced property losses we find that spending on fema ex ante mitigation and planning projects leads to greater reductions in property losses than spending on ex post adaptation programs specifically a one percent increase in annual spending on ex ante risk reduction and warning projects reduces damages by 0 21 percent while a one percent increase in ex post recovery and clean up spending reduces damages by 0 12 although both types of program spending are effective we find the marginal return from spending on programs that target long term mitigation and risk management to be almost twice that of spending on ex post recovery programs with the predicted increases in the frequency and severity of north atlantic hurricanes in the future our findings suggest there are important potential gains that could be realized from the further diversification of fema spending across project categories

an empirical characterization of the dynamic effects of police spending on violent and property crime the study estimates the dynamic effects of shocks to police expenditures on measures of violent and property crime rates using annual u s state level data for the period 1960 2015 we employ a structural panel var model and achieve identification by imposing the restriction that police spending responds to structural shocks to crime with at least a lag of 1 year results indicate that a shock to police spending leads to a persistent and significant decreases in violent and property crime rates and b significant and persistent negative impacts on crime rates in periods of high crime but little impacts in periods of low crime variance decompositions show that shocks to police spending account for moderate to large proportions of the variability of u s state level crime rates our findings are robust across separate measures of violent and property crime rates as well as to the inclusion of additional variables to the baseline panel var model jel k42

partisan alignment effects on total factor productivity aray h partisan alignment effects on total factor productivity regional studies unlike the literature on political effects on real economy that suggests that partisan effects accrue through aggregate demand it is hypothesized that such effects could also accrue through aggregate supply using panel data for the spanish regions over the 1986 2010 period the main results are 1 partisan alignment effects only arise when central government enjoys a majority 2 there exist a positive contemporaneous effect and negative lagged effects and 3 in absolute value such effects vanish over time results are robust to different specifications and measures of total factor productivity tfp and methods of estimation

clientelism and voting behavior evidence from a field experiment in benin the author conducted a field experiment in benin to investigate the impact of clientelism on voting behavior in collaboration with four political parties involved in the 2001 presidential elections clientelist and broad public policy platforms were designed and run in twenty randomly selected villages of an average of 756 registered voters using the survey data collected after the elections the author estimated the effect of each type of message by comparing voting behavior in the villages exposed to clientelism or public policy messages treatment groups with voting behavior in the other villages control groups the author found that clientelist messages have positive and significant effect in all regions and for all types of candidates the author also found that public policy messages have a positive and significant effect in the south but a negative and significant effect in the north in addition public policy messages seem to hurt incumbents as well as regional candidates finally the evidence indicates that female voters tend to have stronger preference for public policy platforms than male voters

estrutura politica como determinante dos gastos federais this paper analyses federal expending distribution between brazilian states the hypothesis is that there are variables other than social and geographic ones that explain federal expending decisions country s political structure is also important to determine these choices positive theories of budget allocation such as congressional partisan and electoral are used to ascertain the role performed by political arrangements on the allocation of federal budget a set of political and electoral variables was used to test the importance of these theories the test of the hypothesis utilized a panel data of 27 brazilian states from 1999 to 2003 and the dependent variables used were states voluntary federal transferences and federal investment on states the results confirm the hypothesis indicating that representatives party alignment and voter s behavior on past elections influence resources distribution among states

does employment protection create its own political support this paper investigates the ability of employment protection to generate its own political support a version of the mortensen pissarides model is used for this purpose if wages are set through nash bargaining workers value employment protection because it strengthens their hand in wage negotiations workers in high productivity matches benefit most from higher wages as they expect to stay employed for longer by reducing turnover employment protection shifts the distribution of match specific productivity toward lower values thus stringent protection in the past actually reduces support for employment protection today introducing involuntary separations reverses this conclusion now workers value employment protection because it delays involuntary dismissals workers in low productivity matches gain most since they face the highest risk of dismissal the downward shift in the productivity distribution is now a shift towards supporters

representative democracy and marginal rate progressive income taxation abstract this paper develops a political economy model that is consistent with the fact that democracies have a preference for increasing marginal tax rates on income we present a model in which there is an exogenous set of political parties with preferences over the set of admissible tax schedules this set contains virtually any increasing and piecewise linear continuous function each party decides whether or not to present a candidate for election there is a fixed cost of running the elected candidate implements one of her preferred tax policies our main results provide conditions under which a strong nash equilibrium exists and a tax schedule with increasing marginal tax rates is implemented in some nash equilibria and in any strong nash equilibrium

interjurisdictional redistribution and public goods with increasing returns to scale this paper builds upon probabilistic voting theory to examine vote maximizing interjurisdictional redistribution with increasing returns to scale in the production of regional public goods we find that with interregional differences in the per capita cost of public goods the vote maximizing interregional redistribution will seem incoherent and unfair when judged on the basis of the availability of public goods or regional incomes

micro targeting and polarization abstract this paper connects the rise in polarization to changes in media technology which allow for higher precision in the advertising strategy of candidates candidates place ads in media outlets whose audiences differ in ideology and size we develop the concept of media centrality which takes into account differences in the media network and in ideology media centrality leads to a simple characterization of both the optimal targeting strategy and policy we show that generally a more fragmented media landscape leads to an increase in polarization

the political intergenerational welfare state abstract using a three period overlapping generations economy framework we characterize an intergenerational welfare state with endogenous education and pension under voting we show that although politically establishing pay as you go payg social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected in contrast politically implementing education pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire however for this the political influence of the old has to be small thus limiting the size of the payg social security program

the provision of public goods under alternative electoral incentives politicians who care about the spoils of office may underprovide a public good because its benefits cannot be targeted to voters as easily as pork barrel spending we compare a winner take all system where all the spoils go to the winner to a proportional system where the spoils of office are split among candidates proportionally to their share of the vote in a winner take all system the public good is provided less often than in a proportional system when the public good is particularly desirable we then consider the electoral college system and show that it is particularly subject to this inefficiency

which dimensions of culture matter for long run growth we present empirical evidence that among a variety of cultural dimensions the individualism collectivism dimension based on hofstede s 2001 data is the most important and robustly significant effect of culture on long run growth other dimensions that have a significant effect albeit less robust are generally strongly correlated with individualism and convey similar information we found no significant or robust effect on growth from cultural dimensions that are independent from the individualism collectivism cleavage

a volatility based theory of fiscal union desirability abstract heterogeneous countries may rationally choose to form a currency union first and a fiscal union later we find and illustrate empirically for the emu countries reasonable volatility conditions under which this sequencing in the deepening process is indeed rationalizable changes in the distribution of expected income shocks require a reassignment of political weights to restore unanimous support for an added fiscal dimension the bargaining space depends on countries relative income size and cross correlation of shocks

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

institutions infrastructure and trade we work with a panel of bilateral trade flows from 1988 to 2002 exploring the influence of infrastructure institutional quality colonial and geographic context and trade preferences on the pattern of bilateral trade we are interested in threshold effects and so emphasize those cases where bilateral country pairs do not actually trade we depart from the institutions and infrastructure literature in this respect using selection based gravity modeling of trade flows we also depart from this literature by mixing principal components to condense our institutional and infrastructure measures with a focus on deviations from expected values for given income cohorts to control for multicollinearity infrastructure and institutional quality are significant determinants not only of export levels but also of the likelihood exports will take place at all our results support the notion that export performance and the propensity to take part in the trading system at all depends on institutional quality and access to well developed transport and communications infrastructure indeed this dependence is far more important empirically than variations in tariffs in explaining sample variations in north south trade this implies that policy emphasis on developing country market access instead of support for trade facilitation may be misplaced

cultural differences and institutional integration if citizens of different countries belonging to an economic union adhere to different and deeply rooted cultural norms when these countries interact they may find it impossible to agree on efficient policies especially in hard times political leaders are bound to follow policies that do not violate their country s cultural norms this paper provides a simple positive theory and a compelling case study of the euro area crisis to highlight the importance of cultural clashes when economies integrate we also provide a normative argument about the desirability of institutional integration a political union with a common enforcement agency is the more beneficial the greater is cultural diversity in an economic union

ambiguous information permanent income and consumption fluctuations abstract this paper studies asymmetric responses in consumption where the asymmetries are endogenously generated by agents preferences and incomplete knowledge about information quality agents form expectations about the future based on incomplete information which is assumed to be ambiguous and these future expectations distorted by ambiguity affect spending asymmetrically with a noisy signal of uncertain quality consumption features asymmetric responses the absolute size of the responses depends on whether the signal delivers good or bad news i estimate the model on the data for g7 countries by maximum likelihood and the estimation results suggest that the ambiguity mechanism plays a modest role in driving observed skewness in the data

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

distributive politics and electoral competition abstract within the framework of pure redistribution dividing one unit of a homo geneous good among identical individuals the paper analyses the redistribution that arises from downsian two party electoral competition it appears that the strategic behavior of vote maximizing parties leads them to propose divisions which are not far from the egalitarian one journal of economic literature classification numbers c72 d63 d72

aging population and education finance abstract conventional wisdom suggests that aging of population will increase political pressure to tilt the composition of social spending in favor of the elderly while potentially sacrificing other publicly provided goods such as education this view seems to be supported by recent empirical findings that per child public education spending tends to be lower in us jurisdictions with higher fraction of elderly residents do these cross sectional findings also carry the dynamic implication that longevity will lead over time to waning political support for funding of public education this paper challenges such implication we present a model that is consistent with the aforementioned cross sectional regressions yet predicts an overall positive impact of increasing longevity on public education funding and economic growth

policy divergence and voter polarization in a structural model of elections abstractone of the most widely discussed phenomena in american politics today is the perceived increasing partisan divide that splits the u s electorate a contested question is whether this diagnosis is actually true and if so what the underlying cause might be we propose a new method that simultaneously estimates voters preferences and parties positions on economic and cultural issues we apply the model to u s presidential elections between 1972 and 2008 the model recovers candidates positions from voters behavior and decomposes changes in the overall political polarization of the electorate into changes in the distribution of voters ideal positions voter radicalization and consequences of elite polarization sorting

public education and pensions in democracy a political economy theory a dynamic political economy theory of scal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies the driving force of the model is the intergenerational conict over the allocation of the public budget successive generations of voters choose scal policies through repeated elections the political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities we characterize the markov perfect equilibrium of the voting game in a small open economy the equilibrium reproduces salient features of intergenerational

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

electoral outcomes with probabilistic voting and nash social welfare maxima abstract this paper provides unexpected support to nash s view of how bargaining determines the social choice we first present a spatial model of electoral competition with probabilistic voting and a very close relation between voters preferences and their choice probabilities the outcome of the electoral competition game is then shown to be precisely the social alternative that maximizes a nash type social welfare function theorem 1 this electoral outcome is also interpreted as a unanimity likelihood maximum corollary 1 within our framework existence and uniqueness of such an outcome are guaranteed corollaries 2 and 3

the need for enemies we develop a model where some politicians have an edge in undertaking a task and this gives them electoral advantage creating an incentive to underperform in the task we test the empirical implications in the context of fighting against insurgents using colombian data the main prediction is that large defeats for the insurgents reduce the probability that these politicians fight them especially in electorally salient places we find that after the largest victories against farc rebels the government reduced its counterinsurgency efforts especially in politically important municipalities politicians need to keep enemies alive in order to maintain their political advantage

alfred marshall lecture social capital as good culture to explain the extremely long term persistence more than 500 years of positive historical experiences of cooperation putnam 1993 we model the intergenerational transmission of priors about the trustworthiness of others we show that this transmission tends to be biased toward excessively conservative priors as a result societies can be trapped in a low trust equilibrium in this context a temporary shock to the return to trusting can have a permanent effect on the level of trust we validate the model by testing its predictions on the world values survey data and the german socio economic panel we also present some anecdotal evidence that these priors are reflected in novels that originate in different parts of the country jel 04 016 043 p16

transparency and economic policy we provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary government spending is larger than in a world of perfect observability transfers are partly financed through government debt and the size of the debt is higher in less transparent political systems the model provides an explanation of fiscal churning it also predicts that groups whose transfers are less visible to others receive higher transfers and that imperfect transparency of transfers may lead to underprovision of public goods from the policy perspective the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues we show that the transparency of the political system does not unambiguously improve efficiency transparency of spending is beneficial but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending

tax policy and aggregate demand management under catching up with the joneses this paper examines the role for tax policies in productivity shock driven economies with catching up with the joneses utility functions the optimal tax policy is shown to affect the economy countercyclically via procyclical taxes i e cooling down the economy with higher taxes when it is overheating in booms and stimulating the economy with lower taxes in recessions to keep consumption up thus models with catching up with the joneses utility functions call for traditional keynesian demand management policies but for rather unorthodox reasons

fiscal federalism and redistributive politics abstract we consider the interaction between redistributive politics at central and local levels in a federal system and characterize the factors influencing success in redistributive politics in both federal and unitary systems we examine how the political characteristics of different states and groups give them better or worse outcomes in a federal system as opposed to a unitary system we examine possibilities of multiple equilibria with divided government between the two layers we analyze the choice between block grants and matching grants we also examine the impact of federalism on the incentives for geographic mobility

social ideology and taxes in a differentiated candidates framework many observers argue that political polarization particularly on social and cultural issues has increased in the united states how does this influence the political competition on economic issues we analyze this question using a framework in which two officemotivated candidates differ in their fixed ideological position and choose a level of government spending to maximize their vote share in equilibrium candidates cater to a set of swing voters who contain socially conservative and economically liberal voters as well as socially liberal and economically conservative voters we analyze how voters cultural preferences and candidates cultural positions influence equilibrium economic positions jel d72 e62 h50 z13 many observers have argued that polarization between the two major parties in the united states particularly on noneconomic cultural matters has increased this is reflected both at the elite level in particular in congress poole and rosenthal 1984 1985 2000 and among democratic and republican activists and voters abramowitz and saunders 2008 harbridge and malhotra 2011 in the american national election survey respondents report their own ideological position on a scale from 1 very liberal to 7 very conservative the number of respondents who report one of the extreme positions 1 2 6 or 7 has grown from 20 and 21 percent in 1972 and 1976 to 31 and 30 percent in the 2004 and 2008 respectively moreover liberal and conservative voters have become considerably more reliable supporters of democrats and republicans respectively over the last generation 1 if we accept the widespread view that reagan s conservative revolution has created a cultural wedge between the parties that only widened in the 1990s and 2000s what consequences for the parties economic policies should we expect

the right look conservative politicians look better and voters reward it previous research has established that good looking political candidates win more votes we extend this line of research by examining differences between parties on the left and on the right of the political spectrum our study combines data on personal votes in real elections with a web survey in which 2 513 non finnish respondents evaluated the facial appearance of 1 357 finnish political candidates we find that political candidates on the right are better looking in both municipal and parliamentary elections and also have a larger beauty premium in municipal but not in parliamentary elections we discuss possible explanations for these patterns based on the fact that municipal candidates are relatively unknown jel code d72 j45 j70

export performance and trade facilitation reform hard and soft infrastructure summary we estimate the impact of aggregate indicators of soft and hard infrastructure on the export performance of developing countries we derive four new indicators for more than 100 countries over the period 2004 07 estimates show that trade facilitation reforms do improve the export performance of developing countries this is particularly true with investment in physical infrastructure and regulatory reform to improve the business environment the findings provide evidence that the marginal effect of the transport efficiency and business environment improvement on exports appears to be decreasing in per capita income in contrast the impact of physical infrastructure and information and communications technology on exports appears increasingly important the richer a country becomes we also find statistical evidence on the complementarity between hard infrastructure and soft infrastructure as captured by our indicators finally drawing on estimates we compute illustrative ad valorem equivalents of improving each indicator halfway to the level of the top performer in the region

the size and scope of government comparative politics with rational politicians we try to demonstrate how economists may engage in research on comparative politics relating the size and composition of government spending to the political system a downsian model of electoral competition and forward looking voting indicates that majoritarian as opposed to proportional elections increase competition between parties by focusing it into some key marginal districts this leads to less public goods less rents for politicians more redistribution and larger government a model of legislative bargaining and backward looking voting indicates that presidential as opposed to parliamentary regimes increase competition between both politicians and voters this leads to less public goods less rents for politicians less redistribution and smaller government we confront these predictions with cross country data from around 1990 controlling for economic and social determinants of government spending we nd strong and robust support for the prediction that the size of government is smaller under presidential regimes and weaker support for the prediction that majoritarian elections are associated with less public goods

discretionary tax changes and the macroeconomy new narrative evidence from the united kingdom abstract this paper provides new estimates of the macroeconomic effects of tax changes using a new narrative dataset for the united kingdom identification is achieved by isolating exogenous tax policy changes using the romer and romer narrative strategy i find that a 1 percent cut in taxes increases gdp by 0 6 percent on impact and 2 5 percent over three years the findings are remarkably similar to romer and romer narrative estimates for the united states reinforcing the view that tax changes have powerful and persistent effects exogenous tax changes are also shown to have contributed to important episodes in the uk business cycle jel e23 e32 e62 h20 h61

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

pareto optimality of policy proposals with probabilistic voting this paper studies the pareto optimality properties of policy proposals and electoral outcomes when there is probabilistic voting theorem 1 proves that when the position of one candidate is taken as fixed the other candidate will propose a pareto optimal alternative this implies that whenever there is an electoral equilibrium in pure strategies the electoral outcome is pareto optimal it also implies that even if there is no such equilibrium the electoral outcomes from a sequence of elections will be pareto optimal except possibly for an initial status quo

identifying the effect of unemployment on crime abstract in this paper we analyze the relationship between unemployment and crime using u s state data we estimate the effect of unemployment on the rates of seven felony offenses we control extensively for state level demographic and economic factors and estimate specifications that include state specific time trends state effects and year effects in addition we use prime defense contracts and a state specific measure of exposure to oil shocks as instruments for unemployment rates we find significantly positive effects of unemployment on property crime rates that are stable across model specifications our estimates suggest that a substantial portion of the decline in property crime rates during the 1990s is attributable to the decline in the unemployment rate the evidence for violent crime is considerably weaker however a closer analysis of the violent crime of rape yields some evidence that the employment prospects of males are weakly related to state rape rates

tripling africa s primary exports what how where abstract income growth in africa that is high enough to achieve the internationally agreed development goals implies a rise in the region s per capita income by the early 2020s to about latin america s current level the paper shows that such income growth would be associated roughly with a nine fold increase in africa s manufactured exports but also with a tripling of its primary exports which in absolute terms would account for two thirds of the increase in the region s total exports focusing on the demand potential for such an increase in africa s primary exports the paper argues that rising global demand from sustained rapid growth in natural resource poor asian countries particularly china provides sizeable new opportunities for africa s primary exports in africa extractive industries are poised best to benefit directly from china s rising imports while exporters of agricultural products are more likely to benefit indirectly from rising world market prices associated with asia s growing prim

asymmetric effects of exogenous tax changes abstract we study whether output responds symmetrically to tax increases and decreases in postwar us data using the identification strategy in romer and romer 2010 we find evidence of important asymmetries the output response to a tax increase is statistically insignificant but output shows a significantly positive and permanent increase following a tax decrease we show that this asymmetry appears to be driven by individual income tax changes and is transmitted to the economy through asymmetric response in aggregate consumption to tax increases and tax decreases we also present a simple model that rationalizes our empirical findings and illustrates how asymmetric output and consumption responses to sign based tax changes can be generated by plausible consumption adjustment costs

intergenerational altruism with future bias abstract we show that standard preferences of altruistic overlapping generations exhibit future bias which involves preference reversals associated with increasing impatience this underlies a conflict of interest between successive generations we explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time we argue that future bias creates incentives to legislate and sustain a pay as you go pension system which every government views as a self enforcing commitment mechanism to increase future old age transfers

nonlinear effects of fiscal policy over the business cycle abstract is fiscal policy more effective measured by the government spending multiplier or the tax multiplier when the economy is weak than when it is strong results in the empirical literature have been mixed using local projection techniques i estimate the impulse responses of real output and real government spending to a shock to military spending i also estimate the responses of real output and real tax revenues to a shock in taxes in both cases i allow for nonlinearity in the effects according to whether the unemployment rate is above or below a given threshold value i find that raising the threshold unemployment rate incrementally leads to a higher multiplier on government purchases in the bad state of the world though it is not significantly greater than 1 the results for tax changes are even less precisely estimated due to lower instrument relevance of the exogenous tax shocks

capital taxation under political constraints this paper studies optimal dynamic tax policy under the threat of political reform a policy will be reformed ex post if a large enough coalition of citizens supports reform thus sustainable policies are those that will continue to attract enough political support in the future we find that optimal marginal capital taxes are either progressive or u shaped so that savings are subsidized for the poor and or the middle class but are taxed for the rich u shaped capital taxes always emerge when individuals political behavior is purely determined by economic motives

export diversification what s behind the hump hy should export diversification be taken as a policy objective per se there are two reasons that it should not first according to ricardo countries should specialize not diversify second the heckscher ohlin model implies that export patterns are largely determined by endowments so if anything we should worry about factor accumulation not diversification yet export diversification is a constant preoccupation of policymakers in developing countries as de ferranti et al 2002 note a recurrent preoccupation of latin american policymakers is that their natural riches produce a highly concentrated structure of export revenues which then leads to economic volatility and lower growth p 38 the notion that export patterns are fully determined by endowments is of course naive the relationship of endowments trade and growth is a complex and imperfectly understood one intra industry trade models showed long ago that many factors other than endowments including market failures and policies can affect trade patterns more recently hausmann hwang and rodrik 2007 argued that export patterns can display path dependence in the presence of externalities

presidential address institutions and culture how and why does distant political and economic history shape the functioning of current institutions this paper argues that individual values and convictions about the scope of application of norms of good conduct provide the missing link evidence from a variety of sources points to two main findings first individual values consistent with generalized as opposed to limited morality are widespread in societies that were ruled by non despotic political institutions in the distant past second well functioning institutions are often observed in countries or regions where individual values are consistent with generalized morality and under different identifying assumptions this suggests a causal effect from values to institutional outcomes the paper ends with a discussion of the implications for future research jel a10 d7 e00

political competition and mirrleesian income taxation a first pass we study downsian competition in a mirrleesian model of income taxation the competing politicians may dier in competence if politicians engage in vote share maximization the less competent politician s policy proposals are attractive to the minority of rich agents whereas those of the competent politician are attractive to the majority of poor agents the less competent politician wins with positive probability which gives rise to a political failure in the sense of besley and coate 1998 political failures are avoided if politicians maximize winning probabilities nevertheless the two equilibria cannot be pareto ranked the minority may be better o under vote share maximization

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply

political support and tax reforms with an application to italy in 2001 the italian government introduced a personal income tax reform to be implemented in successive phases in 2004 taxes were reduced to all income levels with higher gains for low income and high income individuals than for middle income ones a large debate arised this paper explores the political economy reasons under this tax reform mainly the attempt of the government to attract the uncertain voters swing voters a probabilistic voting model is introduced to capture the importance of swing voters the model predicts that the average personal income tax rate tends to be lower for groups of lower income higher preference for leisure and containing more politically mobile voters swing voters however data from italian polls show that while the tax reform was a good strategy to attract swing voters the specific design of the reform which favored high income and low income individuals but not the middle class was not the more appropriate strategy

the effects of military spending on economic activity evidence from state procurement spending the authors use state data from the period 1963 94 to estimate the response of employment growth to military procurement spending the state year panel provides greater variation in both variables than aggregate data there are two main findings first military procurement spending does explain a statistically significant degree of the variation in employment growth across states even in the presence of fixed effects for time and state and other controls second the authors find evidence in support of a nonlinear relationship between procurement spending and employment growth in particular large adverse state procurement shocks have proportionately larger effects on state employment growth rates copyright 1997 by ohio state university press

trade facilitation and manufactured exports is africa different summary trade facilitation defined as reducing the transaction costs associated with the enforcement regulation and administration of trade policies has been at the forefront of discussions on policy measures for reducing the costs of exporting and importing in developing countries this study uses a new panel dataset for 124 developed and developing countries available for the period 2003 04 to assess the impact of trade facilitation and other trade related institutional constraints on manufacturing export performance with particular reference to africa we estimate a standard gravity model augmented with trade facilitation regulatory quality and infrastructure indicators our results show that trade facilitation reforms could contribute to improve export performance in africa but other reforms including the quality of the regulatory environment and the quality of the basic transport and communications infrastructure are also needed furthermore improvements in on the border and behind the border policies yield a higher return in terms of increasing manufacturing export performance in african countries than in the rest of the world

political competition between differentiated candidates abstract we introduce a framework of electoral competition in which voters have general preferences over candidates immutable characteristics such as gender race or previously committed policy positions as well as their policy positions which are flexible candidates are uncertain about the distribution of voter preferences and choose policy positions to maximize their winning probability we characterize a property of voter utility functions uniform candidate ranking ucr that captures a form of separability between fixed characteristics and policy when voters have ucr preferences candidates equilibrium policies converge in any strict equilibrium in contrast notions like competence or complementarity lead to non ucr preferences and policy divergence in particular we introduce a new class of models that contains the probabilistic voting model as a special case and in which there is a unique equilibrium that generically features policy divergence

openness external risk and volatility implications for the compensation hypothesis a central assumption in the globalization literature is that economic openness generates economic insecurity and volatility based on this assumption schol ars of international political economy have proposed the compensation hypothesis which claims that globalization bolsters rather than undermines the welfare state by increasing public demand for social protection against externally generated eco nomic instability the openness volatility link is dubious however on both theoret ical and empirical grounds in this study i revisit the volatility assumption focusing on a crucial difference between openness and external risk in their effect on volatil ity my statistical analysis of a panel data set from 175 countries 1950 2002 finds a consistent effect of external risk on volatility of the major economic aggregates but a largely insignificant effect of openness these findings suggest that economic volatility may be a mistaken link in explaining the openness spending nexus calling for further research on the causal mechanisms linking the two the general growth of government in the post world war ii era is one of the most important empirical regularities in political science measured by general govern ment consumption or sectoral expenditures government size grew dramatically during most of the postwar period intrigued by this phenomenal government growth political scientists offered numerous accounts some viewing this growth as a corollary of economic phenomena such as modernization industrialization income distribution or fiscal illusion and others attributing government growth to political causes such as bureaucratization interest group politics and electoral competition 1

the slave trade and the origins of mistrust in africa in a recent study nunn 2008 examines the long term impacts of africa s slave trade he finds that the slave trade which occurred over a period of more than 400 years had a significant negative effect on long term economic development although the article arguably identifies a negative causal relationship between the slave trade and income today the analysis is unable to establish the exact causal mechanisms underlying this reduced form relationship in this article we examine one of the channels through which the slave trade may affect economic development today combining contemporary individual level survey data with historical data on slave shipments by ethnic group we ask whether the slave trade caused a culture of mistrust to develop within africa initially slaves were captured primarily through state organized raids and warfare but as the trade progressed the environment of ubiquitous insecurity caused individuals to turn on others including friends and family members and to kidnap trick and sell each other into slavery sigismund wilhelm koelle 1854 p e h hair 1965 charles piot 1996 we hypothesize that in this environment a culture of mistrust may have evolved which may persist to this day we show that current differences in trust levels within africa can be traced back to the transatlantic and indian ocean slave trades combining contemporary individual level survey data with historical data on slave shipments by ethnic group we find that individuals whose ancestors were heavily raided during the slave trade are less trusting today evidence from a variety of identification strategies suggests that the relationship is causal examining causal mechanisms we show that most of the impact of the slave trade is through factors that are internal to the individual such as cultural norms beliefs and values jel j15 n57 z13

the state dependent effects of tax shocks abstract this paper studies the state dependent effects of shocks to tax rates we begin with a stylized model in which clean analytical expressions are available the model predicts that a tax rate cut is most stimulative for output in periods in which output is relatively high the model is also used to discuss some conceptual issues related to the construction of tax multipliers we then consider a medium scale dsge model with tax rates on labor and capital income and on consumption the model is solved via a third order perturbation consonant with the intuition from the analytical model tax multipliers for all three types of tax rates vary significantly across states and are most stimulative for output in states in which output is high to evaluate the normative desirability of tax cuts as a tool to combat recessions we also study the properties of the tax cut welfare multiplier which measures the change in aggregate welfare conditional on a tax rate change in contrast to output multipliers welfare multipliers are found to be countercyclical a number of extensions and modifications are considered and our conclusions are generally robust

what explains the low survival rate of developing country export flows successful export growth and diversification require not only entry into new export products and markets but also the survival and growth of export flows this paper uses a detailed cross country dataset of product level bilateral export flows to illustrate that exporting is an extremely perilous activity and especially so in low income countries the authors find that unobserved individual heterogeneity in product level export flow data prevails despite controlling for a wide range of observed country and product characteristics this questions previous studies that have used the cox proportional hazards model to model export survival the authors estimate a prentice gloeckler model amended with a gamma mixture distribution summarizing unobserved individual heterogeneity the empirical results confirm the significance of a range of products as well as country specific factors in determining the survival of export flows from a policy perspective an interesting finding is the importance of learning by doing for export survival experience with exporting the same product to other markets or different products to the same market are found to strongly increase the chance of export survival a better understanding of such learning effects could substantially improve the effectiveness of export promotion strategies

the protestant fiscal ethic religious confession and euro skepticism in germany during the european sovereign debt crisis most countries that ran into fiscal trouble had catholic majorities whereas countries with protestant majorities were able to avoid fiscal problems we find that christian conservative members of the german parliament from constituencies with higher shares of protestants were more likely to vote against a third bailout for greece survey data show that views on the euro differ between german protestants and non protestants at the individual level too among protestants concerns about the euro have compared to non protestants increased during the crisis we show that this increase in concern is linked to a reduction of protestants subjective well being we use the timing of survey interviews and news events in 2011 to account for the endogeneity of euro concerns emphasis on moral hazard concerns in protestant theology may thus still shape economic preferences jel d72 e00 i31 z12

rethinking trade preferences how africa can diversify its exports this paper argues that the contribution of trade preferences to economic development needs to be reappraised in light of the growth of globalised trade in manufactures trade preferences may be able to act as a catalyst for manufacturing exports leading to rapid growth in exports and employment to do so preferences need to be designed to be consistent with international trade in fragmented tasks as opposed to complete products and need to be open to countries with sufficient levels of complementary inputs such as skills and infrastructure recent experience with the african growth and opportunities act shows that in the right conditions sub saharan african countries have had large manufacturing export supply response to trade preferences

redistributive politics and economic efficiency the political process often compensates the losers from technical change or international competition in an economically inefficient way namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses we find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome to achieve economically efficient outcomes it is necessary that those making economically inefficient choices not be given offsetting transfers but the political process distributes income on the basis of political characteristics which are in general different from the economic characteristics that are rewarded by the market we identify circumstances in which the inefficient choosers have desirable political characteristics and are therefore immune from threats of having to face the economic consequences of their choices

the hidden cost of raising voters expectations reference dependence and politicians credibility abstract two politicians compete to get elected each politician is characterized by a valence which is unobservable to the electorate and can take one of two values high or low the representative voter prefers politicians with high valence but random shocks may lead him to appoint a low valence politician politicians make statements concerning their valence if the voter is a standard expected utility maximizer politicians statements lack any credibility and no information transmission takes place by introducing reference dependence and loss aversion we show that truthful communication is possible in equilibrium and we characterize the conditions under which it can arise intuitively these behavioral biases introduce a cost of overstating one s valence as overstatements may shift the electorate s preferences toward better skilled opponents

budget deficits and redistributive politics this paper proposes a new view of the forces in the political process that cause governments to accumulate debt the analysis builds on a model of redistributive politics that contrary to median voter models does not restrict the set of policies that politicians can propose i show that deficits occur even in an environment where voters and periods are homogeneous this is an environment where previous political theories of debt would predict budget balance in the model deficits are a way for candidates to better target promises to voters and are therefore used as tools of redistributive politics the main contribution of the analysis is to show that the same forces that push candidates to redistribute resources across voters to pursue political advantage are forces that generate budget deficits most countries have sizeable national debts indeed thinking of governments as debtors seems so customary that it feels awkward to talk about a national credit this suggests that there are systematic forces pushing governments to regularly borrow to cover the excess of spending over receipts at the same time a significant amount of government spending consists of transfers to special interest groups that are hard to justify on efficiency or equity grounds this paper presents a political economic model that suggests that these two phenomena are connected debt is at least in part caused by the fact that in order to get elected candidates need to appeal to groups of voters with promises of transfers debt allows candidates a finer control over the promises they make to these groups

on fiscal multipliers estimates from a medium scale dsge model this paper contributes to the debate on fiscal multipliers in the context of a structural model i estimate a micro founded dynamic stochastic general equilibrium model that features a rich fiscal policy block and a transmission mechanism for government spending shocks using bayesian techniques for us data

the monopoly of violence evidence from colombia many states in latin america africa and asia lack the monopoly of violence even though this was identified by max weber as the foundation of the state and thus the capacity to govern effectively in this paper we develop a new perspective on the establishment of the monopoly of violence we build a model to explain the incentive of central states to eliminate nonstate armed actors paramilitaries in a democracy the model is premised on the idea that paramilitaries may choose to and can influence elections since paramilitaries have preferences over policies this reduces the incentives of the politicians they favor to eliminate them we then investigate these ideas using data from colombia between 1991 and 2006 we first present regression and case study evidence supporting our postulate that paramilitary groups can have significant effects on elections for the legislature and the executive next we show that the evidence is also broadly consistent with the implication of the model that paramilitaries tend to persist to the extent that they deliver votes to candidates for the executive whose preferences are close to theirs and that this effect is larger in areas where the presidential candidate would have otherwise not done as well finally we use roll call votes to illustrate a possible quid pro quo between the executive and paramilitaries in colombia language en

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

the political economy of intergovernmental grants evidence from a maturing democracy we evaluate the impact of political forces in the allocation of intergovernmental grants in portugal as it matured from a young to an established democracy using a large and unexplored dataset we show that political variables condition the granting system and that their importance changed over time while tactical manipulation in the distribution of grants among municipalities seems to exist only in the early years of democracy opportunistic effects are stronger in the latter years we argue that the latter effect is due to a change in the political environment and to the electorate s lack of information on intergovernmental grants

varieties of clientelism machine politics during elections although many studies of clientelism focus exclusively on vote buying political machines often employ diverse portfolios of strategies we provide a theoretical framework and formal model to explain how and why machines mix four clientelist strategies during elections vote buying turnout buying abstention buying and double persuasion machines tailor their portfolios to the political preferences and voting costs of the electorate they also adapt their mix to at least five contextual factors compulsory voting ballot secrecy political salience machine support and political polarization our analysis yields numerous insights such as why the introduction of compulsory voting may increase vote buying and why enhanced ballot secrecy may increase turnout buying and abstention buying evidence from various countries is consistent with our predictions and suggests the need for empirical studies to pay closer attention to the ways in which machines combine clientelist strategies

electoral goals and center state transfers a theoretical model and empirical evidence from india we construct a model of redistributive politics where the central government is opportunistic and uses its discretion to make transfers to state governments on the basis of political considerations these considerations are the alignment between the incumbent parties at the central and state levels and whether a state is a swing state or not a testable prediction from the model is that a state that is both swing and aligned with the central government is especially likely to receive higher transfers we test this prediction using indian data for 14 states from 1974 75 to 1996 97 we find that a state which is both aligned and swing in the last state election is estimated to receive 16 higher transfers than a state which is unaligned and non swing

trade policy trade costs and developing country trade this paper briefly reviews new indices of trade restrictiveness and trade facilitation that have been developed at the world bank the paper also compares the trade impact of different types of trade restrictions applied at the border with the effects of domestic policies that affect trade costs based on a gravity regression framework the analysis suggests that tariffs and non tariff measures continue to be a significant source of trade restrictiveness for low income countries despite preferential access programs this is because the value of trade preferences is quite limited a new measure of the relative preference margin developed in the paper reveals that this is very low for most country pairs most countries with very good duty free access to a market generally have competitors that have the same degree of access the empirical analysis suggests that measures to improve logistics performance and facilitate trade are likely to have the greatest positive effects in expanding developing country trade increasing the trade impacts of lowering remaining border barriers by a factor of two or more

the direct and relative effects of preferential market access abstract the proliferation of preferential trade agreements has resulted in a complex system of preferences in which market access conditions are often discriminatory in this paper we investigate how market access conditions have evolved between 2000 and 2009 and how this has affected international trade our results show that the proliferation of preferential access has increased bilateral trade not only due to lower tariffs but also because preferential access often resulted in higher preferential margins vis a vis foreign competitors the results also indicate that the evolution of the system of preferences has been disadvantageous for countries that did not actively engage in forming new trade agreements

clientelism and vote buying lessons from field experiments in african elections electoral clientelism and vote buying are widely perceived as major obstacles to economic development this is because they may limit the provision of public goods in this paper we review the literature on clientelism and vote buying and propose the use of field experiments to evaluate empirically the consequences of these phenomena we provide an overview discuss implementation and interpret the main results of recent field experiments conducted by the authors in west african countries clientelism and vote buying seem to be effective and to enjoy widespread electoral support the results suggest that increased access to information and political participation by women may limit clientelism in addition voter education campaigns may undermine the effects of vote buying on voting behaviour we argue that our findings may inform the design of development aid interventions as a way effectively to increase public good political accountability we also discuss directions for fruitful future research copyright 2009 oxford university press