surplus from publicness in consumption and its equitable distribution abstract the application of distributive equity has been confined to the allocation of private goods this paper extends this application to economies with public goods after the surplus accruing from publicness in consumption of public goods is defined and quantified we show 1 there exists an efficient allocation such that the surplus from publicness as well as all of the resources available are equitably distributed 2 the surplus from publicness fails to be equitably distributed in lindahl equilibria and in the core even if the economy starts from an equal distribution of endowments 3 a certain income redistribution policy should be undertaken to equitably distribute the surplus from publicness

in search of the good samaritan estimating the impact of altruism on voters preferences this paper continues the development of a theoretical foundation for measuring altruistic behaviour with respect to tax versus expenditure preferences in three specific spheres health education and welfare payments particular emphasis is placed on analysing the choice theoretic calculus that underlies individual preferences using this theoretical foundation econometric techniques allow progress to be made in measuring the characteristics of the underlying utility function the empirical work relates to the uk and confirms that both self interest and public interest with a slight emphasis on the latter determine overall preferences the implications of this for the public choice school are then examined

the poll tax origin errors and remedies this paper begins with an account of the context in which this decision was taken and of the reasons for it it will then be seen that the situation has developed so very differently from expectations that a fresh start is required the over riding objective when the new system was being devised in i984 5 was to check the persistent growth in local expenditure which had caused so much concern to both labour and conservative governments the situation in britain was therefore in sharp contrast to that traditionally envisaged in the literature on fiscal federalism which largely reflects conditions in the united states for it was usually assumed that local government neglects externalities notably in education and should therefore be encouraged to spend more by schemes for rewarding tax effort musgrave i 96 i more recently when brennan and buchanan i980 have discussed the means of reducing total government expenditure they recommended an increase in the scope of local government an astonishing suggestion from a british point of view whatever the reasons for such national differences it should be common ground that the reason for having some taxing power at the local level is to permit some diversity of choice if the choice is to be effectively exercised however an appropriate form of local taxation is clearly required

tax progression in lindahl equilibrium abstract this paper demonstrates that the incidence of benefit taxation depends on the ratio of income and price elasticities of demand for public goods several previously stated special cases of this formula are derived and some conflicting empirical evidence is discussed

toilet cleaning and department chairing volunteering a public service abstract who will do a job that nobody wants but that someone has to do the search for a volunteer is modelled as a war of attrition in which everyone is tempted to just wait for someone else to do it we show that the volunteer will be ceteris paribus the individual for whom the benefit cost ratio of performing the public service is largest the one most impatient to consume it or the one who stands to benefit from it the longest

micro estimates of public spending demand functions and tests of the tiebout and median voter hypotheses responses to questions given to a random sample of michigan households are used to estimate public spending demand functions while income and price elasticities are similar to those obtained from aggregate data positive income elasticities appear to arise because public services are distributed in a prorich manner a relatively small variance in spending demands among urban and suburban communities in metropolitan areas with substantial public service variety suggests that the tiebout mechanism works this interpretation is supported by the fact that actual spending conforms substantially to desired levels in urban areas but less so in rural areas with little public sector choice

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

tax perceptions and preferences over tax structure in the united kingdom do voters know their tax liabilities accurately or do they systematically misperceive them could such misperceptions influence voters choices over alternative tax structures proposed by politicians this paper assesses the accuracy of individuals tax perceptions in the uk using micro data from the british social attitudes survey 1995 and tests an empirical model of the determinants of tax structure preferences including tax misperceptions a systematic bias towards over estimation of income and expenditure tax vat liabilities is found and individ uals tax preferences appear to be both dominated by self interest and distorted by tax misperceptions whether using a traditional utility maximisation framework or a variety of public choice frameworks economists agree that consumer voters or taxpayer voters dislike taxes taxes lower the consumption possibility set and thereby utility politicians proposing higher taxes expect to lose votes unless they can persuade voters that the utility gain from the use of those taxes will exceed the tax induced utility loss of course the extent of individuals losses will depend on their circumstances and how revenues are raised the tax structure traditional tax incidence and excess burden analyses and models of political costs associated with the tax structure hettich and winer 1984 1988 each provide guidance on the extent to which different individuals may be expected to suffer and vote differently under alternative tax structures much will depend on attitudes towards and perceptions of specific taxes especially personal income taxes and consumption taxes underlying most such analyses are two common presumptions i tax preferences are dictated by self interest and ii individuals accurately assess their tax liabilities and so make informed choices two largely independent areas of literature have challenged these assumptions first models incorporating altruism

capitalization and the median voter the past decade has witnessed a strong interest among students of local public finance in models of voting with one s feet and in models of actual voting several authors including noel edelson susan rose ackerman and michael lea have recognized that these two types of voting must be considered simultaneously the capitalization of local fiscal variables into house values which is a by product of voting with one s feet influences the decisions of the median voter and the pattern of local services that arises through actual voting influences the allocation of households to communities a full fleged merger of the two types of voting requires an analysis of capitalization in a model that considers both the housing market and the local voting process in a metropolitan area with diverse local governments financed by property taxes previous articles have focused on pieces of this puzzle this paper reviews my attempt to bring these pieces together my analysis reveals that regardless of supply responses capitalization is a feature of long run equilibrium furthermore in the presence of capitalization an efficient pattern of local services cannot be obtained through voting with one s feet but must be obtained instead through actual voting if preferences in a community are not too diverse the median voter will pick the efficient level of services with or without capitalization however the median voter s choice may not be efficient in an extremely heterogeneous community in addition capitalization breaks the link between tax payments and the choice of a community and thereby insures that the property tax is not a benefit tax in other words it insures that housing is underconsumed relative to other goods these results provide a framework for evaluating state and federal policies toward local governments without much heterogeneity within communities one could achieve efficiency by eliminating the property tax or offsetting it with large subsidies to housing these approaches are not realistic however and a second best solution is to cut back local services the form of such a cutback is important i show that tax limitations do not lead to efficiency but that a second best solution could be obtained by redesigning intergovernmental grants

the implications of competition among jurisdictions does tiebout need politics the paper investigates whether compensation among local jurisdiction is by itself sufficient to ensure efficient provision of local public goods jurisdictions have fixed boundaries and each has an entrenched government with the power to tax and supply the public good residents can move costlessly among jurisdictions it is shown that competition among numerous jurisdictions is not sificient to guarantee public sector efficiency though residents can vote with their feet land is immobile hence governments can unsurp some land rents for their own ends increasing the number of jurisdictions limits but cannot completely eliminate the ability to exercise discretionary governmental power

demand for local public spending evidence from the british social attitudes survey the british social attitudes survey bsas is a uk wide survey that provides a rich source of information on individuals attitudes to a variety of topics including locally provided service in this paper we seek to model answers to questions on attitudes to local authority spending which invite the expression of a private demand for local public spending a convincing picture has emerged of locally provided public goods as imperfectly congested public goods with a price elastic and probably income inelastic demand the view that central government grants may induce voter confusion over tax prices of public services also finds support

from theory to practice canadian economists contributions to public finance we survey canadian economists contributions to the field of public finance from the mid 1980s to 2016 we highlight the development and extension of the models and tools of public economics and the empirical studies that have deepened our understanding of the efficiency and distributional issues over a wide range of public finance issues we also highlight contributions to the development of policies through commissioned reports and the important role that canadian institutions the canadian tax foundation the think tanks and the federal and provincial departments of finance have played in shaping tax and fiscal policies de la theorie a la pratique contributions des economistes canadiens a la finance publique on examine les contributions des economistes canadiens au domaine de la finance publique du milieu des annees 1980 a 2016 on souligne le developpement et l extension des modeles et des outils d economie publique et les etudes empiriques qui ont aide a approfondir notre comprehension des enjeux d efficacite et de distribution dans un vaste eventail de questions de finance publique on souligne aussi les contributions des rapports commandites au developpement de politiques publiques ainsi que le role important d institutions canadiennes l association canadienne d etudes fiscales les groupes d experts ainsi que les ministeres des finances du gouvernement federal et des gouvernements provinciaux dans le design des politiques fiscales

voters as fiscal conservatives voters penalize federal and state spending growth this is the central result of my analysis of voting behavior in presidential senatorial and gubernatorial elections from 1950 1988 the composition of federal spending growth seems irrelevant the vote loss to the president s party from an extra dollar of defense or nondefense spending is the same however in gubernatorial elections expansion of state welfare spending exacts a disproportionate political price deficit financing of federal or state spending does not appear to matter politically i conclude by discussing the obvious question of why government budgets have grown in the face of this voter hostility

revisiting the classical view of benefit based taxation this paper explores how the persistently popular classical logic of bene t based taxation in which an individual s bene t from public goods is tied to his or her income earning ability can be incorporated into modern optimal tax theory if lindahl s methods are applied to that view of bene ts rst best optimal policy can be characterized analytically as depending on a few potentially estimable statistics in particular the coe cient of complementarity between public goods and innate talent constrained optimal policy with a pareto e cient objective that strikes a balance controlled by a single parameter between this principle and the familiar utilitarian criterion can be simulated using conventional constraints and methods a wide range of optimal policy outcomes can result including those that match well several features of existing policies to the extent that such an objective re ects the mixed normative reasoning behind prevailing

cops and crime abstract the violent crime control and law enforcement act of 1994 established the community oriented policing services cops program that provided grants to states and localities to pay up to 75 of the cost for new police hires for 3 years to date the cops program has awarded almost 5 billion in hiring grants paying for 64 000 new police officers we use annual data from 1990 through 2001 from 2074 cities with populations in excess of 10 000 to show that for each officer paid for by grant funds the size of the force expands by 0 70 officers the size of cops grants are correlated with population and crime rates but not the pre cops time trends in crime rates or the size of the police force this allows us to use the size of cops grants as an instrument for the size of the police force in regressions where crime is the outcome of interest these models indicate that police added to the force by cops generated statistically significant reductions in auto thefts burglaries robberies and aggravated assaults

utility profits fiscal illusion and local public expenditures the main purpose of this paper has been to examine theoretically and empirically the effects of internal subsidization by municipal utilities on local public expenditures and tax burdens the hypothesis was deduced that internal subsidization severs the link between public benefits received and taxes paid creating a fiscal illusion that induces consumer taxpayers to underestimate the actual cost of government this in turn would lead to larger expenditure levels than would otherwise be forthcoming this hypothesis was tested statistically with a sample of fifty two municipalities in the state of new york which use utility profits to subsidize the general fund and sixty four other municipalities which do not a reduced form public expenditure model was estimated which included a dummy variable to check for any differences in expenditures ceteris paribus between the subsidy cities and others it was found that subsidy cities had larger expenditure levels all other things equal which adds support for the main hypothesis it was also found that while it is possible that utility profits may be substituted for other local revenue sources in the sample of new york municipalities studied internal subsidization is likely to have stimulated expenditures leading to an increase in local tax collections this result adds further support for the main hypothesis

capitalization and the theory of local public finance the tiebout literature is incomplete this paper argues because it has not fully accounted for the capitalization of local fiscal variables into house values the paper explains why capitalization arises why it persists in long run equilibrium how it affects both residential location and the outcome of local voting and why it interferes with the efficiency of a system of local governments the analysis which is based on the main tiebout assumptions plus a property tax combines a model of household bids in a housing market with a median voter model of local public service determination

congestion function specification and the publicness of local public goods abstract this paper is about the measurement of congestion within the median voter demand framework the model of congestion traditionally used in the literature and four others are compared and tested in a median voter framework the results show that a more flexible functional form which imposes fewer a priori restrictions on the data does at least as good a job of explaining variations in local government expenditures furthermore it is shown that measured publicness of local public goods depends entirely on the a priori restrictions imposed on the congestion function

the flypaper effect what happens to a state s spending when it receives an unconditional grant from the federal government the standard theoretical analysis predicts that the increase in spending will be the same as that generated by an equivalent increase in local incomes or roughly 5 10 percent for most states in contrast numerous empirical analyses have found that spending increases by much more with some estimates near 100 percent this result is known as the flypaper effect since the money appears to stick where it hits the authors review this evidence as well as other studies that find similar behavior in firms

income distribution evaluation and the law of one price abstract the growing literature on evaluating changes in the distribution of income has led recently to a consideration of the conditions under which such evaluation is possible without reference to existing prices this paper provides a complete characterization of the class of preferences social orderings for which this is possible in the case where the law of one price is not assumed different individuals may face different price vectors the relationship of this result to those which are known for the one price case is also briefly considered

migration and income redistribution responsibilities this study examines whether afdc benefits determine or discourage state to state migration flows in the united states a pooled cross section time series model is developed to estimate afdc benefits in a state and recipients and whether benefits in one state affect benefits in other states a second model using data from the 1980 census and the panel study of income dynamics estimates migration of afdc recipients and the level of benefits in in migration and out migration states both models indicate that small but statistically significant amounts of migration occur which may be quite important but only in the long run movers although small in number are much more likely to move to a state with higher benefits states perceive this migration as important indicating that states should have less control and the federal government more control over income redistribution

jurisdictional homogeneity and the tiebout hypothesis abstract in this paper an alternative to the capitalization approach to testing the tiebout model is presented the tiebout foot voting mechanism suggests that households will sort and stratify into approximately homogeneous local public goods jurisdictions at a point in time the efficiency of the sort will be positively related to the number of existing jurisdictions using a measure of homogeneity introduced by theil the relationship between stratification homogeneity within jurisdiction and number of jurisdictions is tested for a sample of school districts within 33 smsas the tiebout stratification hypothesis is confirmed

on the measurement of congestion in the provision of local public goods abstract this paper contends that a measurement problem the zoo effect has led to upwardly biased estimates of the degree to which local public goods are subject to congestion the suggestion is that the observed positive correlation between public expenditure and population size reflects in large measure the wider range of services provided in more populous jurisdictions not simply a high propensity of these goods to become congested

fiscal illusion and political accountability theory and evidence from two local tax regimes in britain local tax reform in britain in 1993 reinstating a propertytax may have reversed some intended fiscal illusion reducing and accountability improving features of the poll tax itself a reform introduced in 1990 with the specific aim ofpromoting accountability we formalize these features withina median voter model of the demand for local publicexpenditure that distinguishes between accountability andfiscal illusion effects the model shows that a prioriaccountability effects on expenditures are ambiguous available data for england and wales are used to test themodel we find strong evidence of grant illusion the flypapereffect similar across tax regimes with evidence of renterillusion and of less accountability under the property tax the degree of local income inequality appears to affectexpenditure levels only with the property tax

financial sector development and growth in small open economies this article investigates the granger causal relationship between financial development and economic growth for four small open economies over the period 1960 to 2003 both long and short run granger causality tests are used to assess the finance growth nexus the results suggest that there is a positive association between financial development and growth in all countries however the long run causality tests show that growth tends to lead financial development in singapore and jamaica financial development leads growth in trinidad and tobago and there is a bidirectional link in barbados these results therefore suggest that cross country studies could overstate the impact of financial development on growth since they ignore differences even in relatively homogenous groups

uniform externalities two axioms for fair allocation abstract positive resp negative preference externalities say that an agent always prefers his actual welfare to his virtual welfare should other agents share his preferences resp prefers his virtual to his actual welfare negative group externalities say that an agent never prefers his actual welfare to his virtual welfare should he be the sole user of the resources these two axioms unify several familiar fairness properties and yield some new ideas as well in the division of unproduced commodities and the cooperative production of a private or a public good we also discuss their compatibility with no envy and resource monotonicity

strategic transfers and private provision of public goods abstract this paper considers strategic monetary transfers between two agents when these contribute to a mutual public good if the agents differ in their contribution productivity then the less productive agent has an incentive to make large unconditional transfers to the more productive agent although agents move simultaneously in each stage of the game the less productive agent becomes a stackelberg leader furthermore the generic subgame perfect equilibrium is characterized by full specialization

quantities qualities and multiple public services in the tiebout model abstract this paper introduces a new more realistic characterization of local public services this characterization fits education parks and streets none of which are a pure samuelsonian good it is shown that tiebout s hypothesis holds for this new type of services provided correct user charges are adopted introducing several local services considerably affects the results the paper emphasizes the difference in tastes with regard to quality as opposed to quantity earlier literature is shown to apply to the role of quality and ignores the role of quantity the effect of the latter makes mixed communities more efficient than segregated ones it is shown that efficient allocation with mixed communities is an equilibrium in a costless mobility tiebout type setting

tax price effects on attitudes to hypothecated tax increases abstract perceptions of private benefits from hypothecated tax increases may be more or less correlated with income both because individuals with different incomes have different interests in expanding public services and because they anticipate bearing different shares of the implied tax burden we report on analysis of cross sectional data from the united kingdom in which respondents have been randomly allocated to different but precisely specified tax instruments in a way which should allow separation of the two effects we estimate perceptions of tax costs and attitudes to tax increases jointly finding little evidence of any effect from tax prices on perceptions of private benefits from increased public spending this renders implausible the suggestion that the weak income correlations in this data might be arising from offsetting income and price effects nonetheless the special features of the data allow us to show perceptions of tax increases are correlated with both observed and unobserved influences on demand in a way which has the potential to generate serious biases in demand estimates if ignored

the impressive contribution of canadian economists to fiscal federalism theory and policy the study of fiscal federalism has been central to the research of canadian economists since the rowell sirois report to mark the 50th anniversary of the founding of the canadian economics association it is fitting to take stock of their contributions we focus on the period since 1982 and emphasize the main scholarly publications of an inclusive array of canadian economists and economists in canadian universities our attention is devoted to applications in the context of federal and provincial governments setting aside related issues in municipal government finance we briefly discuss instances where the fiscal federalism literature has informed policy debates including through policy research institutes government commissions and international organizations la contribution impressionnante des economistes canadiens a la theorie et a la politique du federalisme fiscal l etude du federalisme fiscal a ete un element central de la recherche des economistes canadiens depuis la commission rowell sirois au moment de celebrer le 50eme anniversaire de la fondation de l association canadienne d economique le moment est approprie pour prendre la mesure de leurs contributions on se concentre sur la periode apres 1982 et on souligne les principales publications savantes d un ensemble inclusif d economistes canadiens et d economistes dans les universites canadiennes une attention particuliere est portee aux applications dans le contexte federal et provincial mettant de cote les enjeux relies a la finance municipale on discute brievement des instances ou la litterature sur le federalisme fiscal a eclaire les debats de politiques publiques y compris a travers les instituts de recherche sur les politiques publiques les commissions gouvernementales et les organisations internationales

cost share equilibria a lindahlian approach abstract we offer a new formalization of lindahl s equilibrium notion for public goods which yields an endogenous theory of profit distribution in line with the benefit approach to taxation increasing returns in the production of public goods are not a priori excluded our equilibrium notion coincides with kaneko s ratio equilibrium for economies with only one public good by reinterpreting the commodity space the equilibrium concept can be applied to economies with purely private goods or with externalities in the pure private good case our concept singles out allocations that are efficient and where individual net payments agree with average cost

tax competition uniform assessment and the benefit principle abstract in previous discussions it has been argued that tax competition between local governments results in a tax burden on business that is less than the cost of public services for business and in suboptimal levels of public expenditures for residents however this conclusion has never been substantiated by a full theoretical treatment here a theoretical model of tax competition is developed between metropolitan areas with labor perfectly immobile and two local public goods one for residents and one for business for plausible parameter values numerical solutions of the optimality conditions are computed by means of a nonlinear programming algorithm

differential capitalization of local public service characteristics analysis of the capitalization of property tax and public service differentials has come a long way since oates s pathbreaking work oates 1969 it is now well established that interjurisdictional differentials in local property tax rates and public service levels are reflected to some degree in house prices heinberg and oates 1970 meadows 1976 mcdougall 1976 king 1977 in addition intrajurisdictional tax capitalization may occur due to local assessment practices church 1974 black 1977 edelstein 1974 bloom ladd and yinger 1980 however there has been little research undertaken exploring the possibility of intrajurisdictional public service capitalization intrajurisdictional tax and publicservice capitalization represents an important extension of the tiebout analysis of the local public sector tiebout 1956 while individuals may respond to differentials in public service levels and tax rates in their mobility and house purchase decisions it is not at all clear that these attributes are valued uniformly for all units within a jurisdiction it may be that the proximity of a unit to a school rather than school quality determines value or capitalization may depend more on structural characteristics such as the size of a house the neglect of this point has been in large part due to data limitations most studies assume either explicitly or implicitly that benefits from public services are uniform within jurisdictions studies using aggregate data on a jurisdiction or census tract unit of observation focus on the impact of interjurisdictional service differentials on the median valued house such data do not permit an exploration of the interrelationship between housing and public service characteristics studies utilizing micro data relate housing prices to jurisdiction wide expenditures or quality measures such as reading scores to test the capitalization hypothesis however these public sector characteristics are seldom related to individual housing characteristics and there has been little systematic study of the possibility of significant interaction between public sector and other housing and location characteristics

the causes of government expenditure growth a survey of the u s evidence abstract the growth of government budgets can be broken down into a institutional and institutional components the former component the familiar substitution income and population public goods tax sharing effects is estimated to contribute about two fifths of the growth of u s government spending the latter component rent seeking political redistributions bureaucracy and perceptual informational impedimentia is important too but an exact imputation cannot be asserted given the state of the art in empirical public choice theory the cross effects on spending of the growth of regulation and tax preferences or tax expenditures though interesting is not pursued

the historical slave trade and firm access to finance in africa access to finance helps explain the link between the historical african slave trade and current gross domestic product we first present mistrust weakened institutions and ethnic fractionalization as plausible historical channels linking the slave trade to modern finance and development we then show i the slave trade is consistently linked to reduced access to the formal and trade credit needed by modern firms ii this shortage particularly reduces capital investment in smaller firms not in business groups and iii the slave trade cannot explain most other business obstacles suggesting that long term societal shocks are exceptionally important for finance received december 16 2014 editorial decision june 29 2017 by editor philip strahan

public goods an exercise in calibration this paper considers a measure of the publicness of goods and services implicit in responses that individuals make when asked about public sector spending at the limit all consumers consume equal amounts of a public good thus any differences between an individual s self interest preferences and public interest preferences cannot be based on differential provision but only on differences in the individual s public and self interest utility functions if we rule out the latter self interest and public interest preferences for a pure public good are identical using sample survey data it is possible to calibrate the public good content of different public goods

justifying the lindahl solution as an outcome of fair cooperation the motivation for the lindahl equilibrium is mostly a rather artificial price mechanism even though the analogy to a competitive market was emphasised by lindahl himself his approach does not directly explain the normative ideas behind his concept in the present paper we therefore show how the lindahl equilibrium can be deduced from some simple equity axioms these normative assumptions are the benefit principle on the one hand and the equal sacrifice principle or equivalently a non envy condition as a postulate for distributional equity on the other fairness among agents with different preferences and incomes is taken into account by considering their marginal willingness to pay as shadow prices in this way the reason why the lindahl solution can be perceived as an outcome of fair cooperation might become more understandable

mental accounting of public funds the flypaper effect in the lab abstract we report evidence from a series of laboratory experiments that focus on mental accounting of public funds groups of three players decide upon how much to redistribute within the group we measure the preference to redistribute when transfers are made either out of individual accounts the players own money or out of a common account the group s money since the common account is dissolved after each round and paid out to individuals its size should not affect the decision to redistribute the experiment is designed to control for anchoring as a potential confounding effect we find that the size of the common account significantly affects redistribution behavior specifically the transfer increases in the size of the common account this effect is significantly more pronounced when the transfer is paid out of the common account instead of the individual account we interpret these findings as evidence for a flypaper effect due to mental accounting

financial development and economic growth abstract this paper examines the empirical relationship between long run growth and financial development proxied by the ratio between bank credit to the private sector and gdp we find that this proxy is positively correlated with growth in a large cross country sample but its impact changes across countries and is negative in a panel data for latin america we argue that the latter findings is the result of financial liberalization in a poor regulatory environment our findings also show that the main channel of transmission from financial development to growth is the efficiency rather than the volume of investment

an empirical study of matching grants the cap on cap abstract funding mechanisms for social expenditures are currently being reformed in many countries while the theoretical implications of these changes are often easily identified their empirical magnitude is not always as clear for example in federal systems social expenditure is often funded by matching grants and estimates of the effect of varying matching rates on expenditures by sub national governments vary widely the ambiguity is due in part to inherent difficulties identifying price and income effects of federal grants given the structure of the funding mechanisms in most countries in this paper we examine a recent reform in canada in which federal grants for welfare expenditures were capped converted from an open ended to a closed ended matching grant importantly the cap applied to only three of 10 provincial governments our empirical strategy exploits the time series cross section variation in the funding mechanism provided by the differential application of the reform this approach potentially surmounts some of the difficulties which have beset earlier studies we find that the affected provinces did respond to the reform by reducing the growth rate of expenditures it was 8 to 9 percentage points lower than predicted in the absence of the cap over the medium term

the roles of jurisdictional competition and of collective choice institutions in the market for local public goods having discovered and neatly portrayed the conditions for efficient provision of public goods paul samuelson concluded that there was no viable mechanism for eliciting the information about preferences required to determine optimal public goods supply much subsequent theorizing about public finance decisions may be viewed as a quest for some demand revealing mechanism which would refute samuelson s assertion charles tiebout in particular countered with the claim that a viable mechanism did exist for determining the optimal supply of local public goods in his view selfinterested individuals reveal their preferences for local public goods by their choice of jurisdiction tiebout reasoned that each individual adopts from the menu of local fiscal environments that local community which most closely reflects his preferences he further argued that the greater the number and variety of communities the more efficient would the public goods provision be without empirical support this ingenious idea lay dormant for several years the question remained as to whether the mechanism described by tiebout even if it existed operated so that local jurisdictions effectively elicited and satisfied preferences for local public goods fundamental to answering this question was the necessity of designing an experiment which would reveal the result of voting with one s feet no such experiment existed until wallace oates 1969 reasoned that operation of the tiebout mechanism would result in the capitalization of differentials in fiscal variables into property values his test findings indicated that indeed such capitalization was evident at first the results obtained by others who repeated and extended his experiment were generally consistent with his findings and hence his interpretation of the link between the tiebout mechanism and the capitalization of fiscal variables it was not long however before an alternative interpretation was suggested by matthew edel and elliot sclar who argued that in the long run the tiebout mechanism would result in no capitalization of differentials in taxes and public service levels their interpretation was precisely the opposite of that offered by oates and their empirical work which indicated little evidence of capitalization supported their interpretation in retrospect conflicting interpretations of the tiebout hypothesis were almost inevitable given the absence of a formal model embodying the tiebout mechanism in an earlier paper with michael visscher we argue that tiebout s hypothesis is as follows if individuals are able to choose from among a multiplicity of local jurisdictions the result will be a pareto efficient provision of local public goods we present two alternative models which differ in the technology for production of local public goods one embodies the efficiency properties claimed by tiebout the other does not using these models we demonstrate that 1 tax capitalization cannot be tested by the procedure proposed by oates because the tax capitalization parameter is not econometrically identified a possible reason for the contradictory empirical findings of oates and of edel and sclar and 2 a test of capitali associate professor carnegie mellon university and assistant professor tulane university respectively

a political theory of populism when voters fear that politicians may have a right wing bias or that they may be in uenced or corrupted by the rich elite signals of true left wing conviction are valuable as a consequence even a moderate politician seeking reelection chooses populist policies i e policies to the left of the median voter as a way of signaling that he is not from the right truly right wing politicians respond by choosing more moderate or even left of center policies this populist bias of policy is greater when the value of remaining in o ce is higher for the politician when there is greater polarization between the policy preferences of the median voter and right wing politicians when politicians are indeed more likely to have a hidden right wing agenda when there is an intermediate amount of noise in the information that voters receive when politicians are more forward looking and when there is greater uncertainty about the type of the incumbent we show that similar results apply when some politicians can be corrupted or in uenced through other non electoral means by the rich elite we also show that soft term limits may exacerbate rather than reduce the populist bias of policies

property taxes tax cost illusion and desired education expenditures the extensive tax cost illusion found in the marshall survey is interesting both in terms of its magnitude and the direction of its impact counter to the common view that tax illusion will result in higher expenditures there appears to be at least one case where the overestimation of tax cost has the potential of leading to lower expenditure levels

fiscal incidence at the local level this paper represents an attempt to make aaron and mcguire s 1 approach to incidence operational 2 the tax paid by any individual is interpreted by aaron and mcguire as the sum of two components the first is a lindahl tax equal to the individual s marginal rate of substitution between the public good and income times the amount of the public good provided the second component is a negative or positive transfer equal to the lindahl tax minus the tax the individual has actually paid this second component is used to measure the incidence or redistributional impact of a particular budget program empirically aaron and mcguire found that the computation of lindahl taxes is highly sensitive to the choice of individual utility functions under certain assumptions that sensitivity is reflected in the value of a coefficient related to the marginal rate of substitution between the public good and income maital 16 later on used three separate identical estimates of this coefficient to reduce the ambiguity in the computation of lindahl taxes this paper offers an alternative computational approach to aaron and mcguire s the key information on lindahl tax prices or marginal rates of substitution is obtained from individual demand curves for public goods which are estimated using the median voter model see 5 an advantage of this approach over aaron and mcguire s is that it does not assume separability of the public good and income in taxpayers preferences the present approach also permits the study of the incidence of a budget policy on groups defined by socio demographic characteristics other than income on the other hand and because of empirical reasons which will become apparent below the present approach is useful for the study of incidence at the local level only section 1 of the paper restates the measure for the simultaneous incidence of taxes and one public good henceforth called fiscal incidence in the context of a formalized political process this section also discusses some of the theoretical difficulties involved in extending the case with one public good to the multi

public goods and the distribution of income abstract this article addresses conceptual issues concerning the distributive incidence of public goods solutions depend on the specific purposes for asking the question of distributive incidence notably assessing the extent to which various public goods should be provided determining how the provision of public goods affects the desirability of income redistribution and providing a meaningful description of the distribution of well being in the course of the analysis a simple and intuitive version of the benefit principle of taxation qualitatively different from those commonly advanced in pertinent literatures is presented and some of the problems confronting empirical attempts to measure the distributive incidence of public goods are resolved

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

do lenders favor politically connected firms rent provision in an emerging financial market corruption by the politically connected is often blamed for economic ills particularly in less developed economies using a loan level data set of more than 90 000 rms that represents the universe of corporate lending in pakistan between 1996 and 2002 we investigate rents to politically connected rms in banking classifying a rm as political if its director participates in an election we examine the extent nature and economic costs of political rent provision we nd that political rms borrow 45 percent more and have 50 percent higher default rates such preferential treatment occurs exclusively in government banks private banks provide no

public choice perspectives on the poll tax the community charge which was introduced to england and wales on i april i990 is part of a reform of local government finance with the avowed intention of enhancing local accountability by creating a direct link between local expenditure local taxation and local voting this paper applies public choice theories to evaluate both the economics of its introduction and the responses of the public to the charge in its initial months section ii reviews the main public choice rationale for the community charge and relates accountability to efficient resource allocation section iii examines evidence on voter awareness and fiscal illusion in order to consider whether the replacement of domestic rates by this tax will increase local accountability the stance taken in sections ii and iii is one in which the conservative government is privy to the messages of public choice theory and acts as if to further the public interest by eliciting the correct responses to slay the local government leviathan however any government may have interests other than and divergent with those of the public and this will introduce distortions even in the implementation of public choice prescriptions this point is developed in section iv to offer one explanation of the recent history of the community charge

progression under the benefit approach to the theory of taxation abstract the implications for progression of the benefit approach to the theory of taxation are studied in this paper it is concluded that the case for progression rests on the degree of substitutability between public and private goods

a dynamic approach to pes pricing and finance for interlinked ecosystem services watershed conservation and groundwater management a theory of payment for ecosystem services pes pricing consistent with dynamic efficiency and sustainable income requires optimized shadow prices since ecosystem services are generally interdependent this requires joint optimization across multiple resource stocks we develop such a theory in the context of watershed conservation and groundwater extraction the optimal program can be implemented with a decentralized system of ecosystem payments to private watershed landowners financed by efficiency prices of groundwater set by a public utility the theory is extended to cases where land is publicly owned conservation instruments exhibit non convexities on private land or the size of a conservation project is exogenous in these cases conservation investment can be financed from benefit taxation of groundwater consumers while volumetric conservation surcharges induce inefficient water use a dynamic lump sum tax finances investment without distorting incentives since the optimal level of conservation is generated as long as payments are correct at the margin any surplus can be returned to consumers through appropriate block pricing the present value gain in consumer surplus generated by the conservation induced reduction in groundwater scarcity serves as a lower bound to the benefits of conservation without explicit measurement of other benefits such as recreation biodiversity and cultural values

what is happening to the impact of financial deepening on economic growth i introduction among the strongest elements of the modern economists canon is that financial sector development has a significant impact on economic growth a generation ago economists like goldsmith 1969 1 and mckinnon 1973 began to draw attention to the benefits of financial structure development and financial liberalization by the early 1990s mckinnon 1991 12 could write with confidence that now however there is widespread agreement that flows of saving and investment should be voluntary and significantly decentralized in an open capital market at close to equilibrium interest rates since the 1990s a burgeoning empirical literature has illustrated the importance of financial sector development for economic growth despite the growing consensus however we find that the link between finance and growth in cross country panel data has weakened considerably over time at the very time that financial sector liberalization spread around the world the influence of financial sector development on economic growth has diminished the seminal empirical work that established the growth finance link is king and levine 1993 which extended the cross country framework introduced in barro 1991 by adding financial variables such as the ratios of liquid liabilities or claims on the private sector to gross domestic product gdp to the standard growth regression they found a robust positive and statistically significant relationship between initial financial conditions and subsequent growth in real per capita incomes for a cross section of about 80 countries in the subsequent decade numerous empirical studies expanded upon this using both cross country and panel data sets for the post 1960 period 2 in this paper we reexamine the core cross country panel result and find that the impact of financial deepening on growth is not as strong with more recent data as it appeared in the original panel studies with data for the period from 1960 to 1989 we consider various explanations for this clear shift first we suggest that financial deepening has a positive effect on growth if not done to excess rapid and excessive deepening as manifested in a credit boom can be problematic even in the most developed markets because it can both weaken the banking system and bring inflationary pressures we test this hypothesis by looking at the finance growth nexus among countries that have or have not experienced financial sector crises we find that once crisis episodes are removed the finance growth relationship remains intact its weakening over time thus seems to be a result of an increased incidence of crises in later years our second and related hypothesis is that the widespread liberalization of financial markets that occurred in the late 1980s and early 1990s made financial deepening less effective this is reminiscent of robert lucas s 1975 critique of econometric policy evaluation advanced three decades ago policies that have promoted and or forced increases in financial depth over the past two decades may have altered the basic structural relationship between finance and growth this could occur if the observed benefits of financial deepening led many countries to liberalize before the associated legal and regulatory institutions were sufficiently well developed as a consequence the impact of financial deepening on growth would become smaller our evidence does not indicate that recent liberalizations are responsible for the breakdown of the finance growth link however there may be an indirect link as premature financial development can lead to financial crises that have real effects third we examine the role of global equity markets that have grown in importance and prominence in the years over which the finance growth relationship disappeared however we do not find any evidence to suggest that equity market growth has substituted for the role of credit markets and banks in particular

a critique of tiebout s theory of local public expenditures the last section of this paper presents a rigorous version of tiebout s theory of local public goods it is shown that equilibria exist and are pareto optimal this rigorous theory follows closely the more rigorous part of tiebout s work this rigorous theory makes a number of very special assumptions which make local public goods essentially private the body of this paper presents a series of examples which show that if one tries to generalize the rigorous version of tiebout s theory in a number of interesting directions then equilibria may no longer exist or may not be pareto optimal the conclusion is that tiebout s idea does not lead to a satisfactory general theory of local public goods the goal of this paper is to point out that tiebout s notion of equilibrium with local governments does not have the nice properties of general competitive equilibrium except under very restrictive assumptions tiebout 39 suggested that there are competitive forces which tend to make local governments allocate resources in a pareto optimal fashion consumers choose to live in those towns with the mix of taxes and public goods they prefer local governments choose this mix so as to attract inhabitants this idea may seem intriguing for it suggests that the invisible hand solves an important part of samuelson s perplexing public goods problem 32 tiebout in fact makes an argument which is nearly rigorous i give a rigorous version of his argument at the end of the paper however in this rigorous version so many restrictive assumptions are made that public goods become essentially private in the body of the paper i give a series of examples with which i try to convince the reader that one is forced to adopt tiebout s restrictive assumptions the idea is that if one changes any of his assumptions then either equilibria may not exist or may not be pareto optimal my examples are presented in the context of a general class of tiebout models i consider several subclasses one of which is the special case considered by tiebout in each of the subclasses except that considered by tiebout i give a counterexample either to the existence of equilibrium or to its pareto optimality the subclasses are so chosen that the difficulties they reveal would be shared by any reasonable tiebout model which differed from his special case i believe that my examples controvert tiebout s suggestion 39 last paragraph that his theory compares favorably with competitive equilibrium theory most of the examples in this paper have already appeared in the literature i cite related work as i go along what is new here is that i assemble the examples in a unified argument

the nonexcludable publicness of primary and secondary public education abstract existing theoretical models of education as with most practical applications of public good theory suggest some form of joint public private financing empirical work has only rarely addressed these theoretical considerations employing individual level observations we model and estimate the private and social demands for public education in a community an ordered probit model with known thresholds is used to obtain unique parameter estimates the individual private and social demands are then employed to construct a measure of the publicness of education at various quantities

what is benefit taxation abstract benefit taxation is a system in which individuals are taxed according to the benefits they receive from public expenditures this paper describes an alternative to the standard lindahl method of determining the distribution of individual benefits from government provided public goods and uses this alternative to calculate benefit taxes this alternative avoids some of the paradoxial features of lindahl pricing and generates outcomes in which all consumers benefit from reduced costs of providing public goods an illustrative calculation shows that benefit taxes defined in this way may be quite regressive

the tiebout model bring back the entrepreneurs several recent papers in the literature have reformulltlated the nature of equilibrium in ifiebout mo lels by alssliuim ing an exogenous number of communities inflexible commullity l ou alaries anti in pirticular inactive lantlowners and developers ihis paper argues that these assumptions are unwarranted and resul1t iin in eterminate solutions and incorrect analyses determinate lon1g run1 solutions require equilibrium in intercommui land markets which in turn require giving lantlowners and or entrepreneurial leveloelers an active role in the models the role of politics in these models and its juxtaposition with entrepreneurial activities are also analyzed

voluntary income redistribution with migration abstract this paper examines theoretically the welfare magnet problem brought about by income redistribution in a small area where disparities across jurisdictions in transfer policies may induce both recipient and resource migration we show that the level of redistribution determined by majority rule may either rise or decline as household mobility increases and that this level will be either higher or lower than the efficient level to an extent that depends on local market conditions the social value of migrants and the mobility of both the rich and the poor in particular an economy may benefit from the immigration of transfer recipients we also derive the form of an efficient community specific subsidy to transfers which in some cases will be negative

fiscal migration and the london boroughs an amended version of the aronson schwartz model and a more detailed econometric model are used to test the proposition that population movements within the london metropolitan area are related to the value for money provided by local authorities both approaches reveal evidence of a significant relationship which has a variety of implications for policy towards local government finance

the impact of congestion on local public good production abstract this paper models local public goods production where allocation of the publicly provided input occurs simultaneously with production of the final service output the framework models local public goods as developed in club theory where congestion is an increasing function of population central to identification of the model is that the quantities of the input police are differentiated from the produced output safety estimation is across neighborhoods within a single city the results show there is a very low elasticity of congestion on average but safety in some neighborhoods in more congested than private goods

tiebout bias and the demand for local public schooling institute of university of ii business and california economic research berkeley center for real estate and urban economics working paper series working paper 86 109 tiebout bias and the demand for local public schooling by daniel l rubinfeld perry shipiro judith roberts these papers are preliminary in nature th urpose 39 to stimulate 39 ussion comment therefore they are not t cited or quoted 39 ny p ation wit express permissio the author graduate school of business administration

egalitarian equivalent cost sharing of a public good in an economy with one public and one private good egalitarian equivalent cost sharing consists of finding the highest public good level x such that consuming x for free yields a feasible utility distribution the corresponding feasible allocation typically unique called egalitarian equivalent is in the core of the economy conversely any cost sharing method satisfying pareto optimality cost monotonicity nobody suffers a utility loss if the production technology improves upon ceteris paribus and individual rationality no single agent coalition objects or no private transfers no agent receives a positive amount of private good must select an egalitarian equivalent allocation in every economy copyright 1987 by the econometric society

market provision of price excludable public goods a general analysis the demand distribution is employed as a novel and powerful basis for analyzing monopoly provision of price excludable public goods and could be used to analyze other market structures or in some circumstances private goods provision for uniform per unit all or none two part and multipart pricing we identify characteristics of revenue functions relative profitability and operational procedures for selecting price output levels under all these strategies rationing of some consumers by output is required and a positive price output relationship may arise in general the revenue ranking of pricing strategies is sensitive to the distribution of demand and though multipart pricing can be expected to be revenue dominant uniform per unit pricing emerges as a surprisingly robust strategy even before operational complexity is fully taken into account

the effects of grants in aid on state and local expenditures abstract this paper develops econometric methods to estimate the effect of the piecewise linear budget constraints created by grant formulas in which the subsidy rate is not constant over expenditures e g closed end grants the methods are applied to the afdc program the results show that because of the kinked nature of the grant formula 1 the present federal formula actually increases cross state inequality in afdc benefits 2 several subsidy rates in the formula actually reduce benefits and 3 the so called flypaper effect disappears

searching for economic rationale behind gated communities a public choice approach as millions of people world wide now live in residential areas with restricted access to the public the ascent of gated communities can no longer be attributed to incidental or deviant development hence this paper makes an attempt to discover the economic rationale behind the gated community phenomenon it discusses the mainstream theses and outlines 10 theorems for an alternative proposition based on theories of public choice and fiscal federalism the core theorem asserts that a centrally featured system of government diminishes the ability of local municipalities properly to reflect citizens demands for local public goods and services and that this constitutes a strong incentive for people to move into gated communities in particular gated and guarded residential developments represent an exit option when local municipalities fail to deploy vital governmental rules and instruments such as fiscal equivalence and benefit taxation

selfishness versus public regardingness in voting behavior abstract the selfishness hypothesis in voting behavior is formalized and tested for the first time individual net benefits from a bond proposal computed using the median voter model are used to explain voting behavior it was found that taxpayers in general voted according to their self interest as defined by net benefits however high income groups voted in favor of proposals that would have redistributed income to the poor their behavior is consistent with either the public regardingness hypothesis or with an extension of the selfishness hypothesis which includes real estate speculation

beliefs and errors in voting choices a restatement of the theory of fiscal illusion this paper reformulates the theory of fiscal illusion to make it more compatible with the median voter model of collective choice it emphasizes the requirement that misperceptions about marginal tax costs and benefits must be permanent to have any significant effect on the level of public expenditures the lancaster becker model of consumer demand is then used to demonstrate the peculiar effects of permanent misperceptions on consumer demand it can be shown for example that other things being the same a republican who underestimates continuously the marginal benefits of public activities may demand more public goods than a democrat who overestimates those same benefits in a permanent fashion

optimal jurisdictional fragmentation and mobility abstract tiebout s hypothesis is examined in a model with the continuum of income classes and no economies of scale of population in public output provision any efficient allocation of resources can be achieved in this model by a system of jurisdictions each containing a separate income class and each using a local property tax to finance local public output however in general at most one such allocation will be an equilibrium if residents can vote with their feet conditions are derived under which higher income residents will locate in jurisdictions providing a higher level of public output these are shown necessary given a separable utility function for any optimal allocation to be sustainable as an equilibrium when residents are mobile

endogenous public sector budgeting to centralize or not in this paper the impact of budget size on a government s choice to centralize or decentralize the budgetary process is investigated using asymmetric information differing preferences and endogenous budgetary arrangements the central government chooses between a budgetary process that excludes the regional board centralization and one that includes the board decentralization in the determination of program budget levels it is predicted that the central government will decentralize the budgetary process at low and centralize at high overall budget levels switching from decentralization to centralization is predicted to

has the finance growth link been broken panel data evidence from latin america and the caribbean abstract this paper examines the two way relationship between economic growth and financial development for latin america and the caribbean lac the sample consists of 32 emerging and developing countries from lac spanning the period 1970 2014 controlling for country and time fixed effects the first central finding indicates that financial development is not a significant factor driving economic growth the evidence suggests however that larger government has a robust and significant effect on economic growth the second key finding is that the effect of economic growth on financial development is not significantly different from zero together these two main findings indicate that the finance growth link in lac has been broken over the 1970 2014 period the empirical results inform economic debates in lac and highlight the importance of public policy to improve the finance growth relationship

estimating property tax capitalization a further comment in recent years an increasingly popular area of empirical investigation has concerned attempts to test tiebout s 1956 hypothesis that allocative efficiency in the provision of public services may be attained through a system of local governments 1 in his seminal contribution to the analysis of the tiebout hypothesis and the capitalization of property taxes oates 1969 reasoned that if consumers are sensitive to the public service benefits and property tax costs associated with home ownership these factors should be reflected in housing prices until recently most studies of the capitalization phenomenon have followed oates s specification in which housing values are regressed on a vector of housing characteristics public service measures and a tax price term 2 as several analysts have noted 3 however attempts to test the tiebout hypothesis by using an oates type equation must certainly lead to failure this is so because in a perfect tiebout equilibrium a marginal increase in housing value brought about by increased provision of public services must necessarily be offset by a marginal decrease in housing value caused by the added tax cost assuming that

does one size fit all a reexamination of the finance and growth relationship abstract recent research has found a strong positive effect of a country s financial development on economic growth we propose that this relationship may vary according to the level of financial development divided in three regions in the low region countries with very low levels of financial development additional improvements in financial markets have an uncertain effect on growth in the intermediate region financial development has a large positive effect on growth finally in the high region the effect is positive but smaller we examine a panel of 74 countries using generalized method of moments gmm dynamic panel techniques and find support for the different regions

trade in a tiebout economy the purpose of this paper is to explore both the positive and normative aspects of commodity trade in a tiebout economy by tiebout economy i mean an economy with a large number of small regions for example communities or states and no impediments to the mobility of individuals between these regions this type of economy has received widespread attention since the appearance of charles tiebout s classic 1956 article on local public goods in part because it bears a close relation to the standard competitive model this relation suggests that tiebout economies may serve as an

effect of remittances on poverty and financial development in sub saharan africa summary this paper assesses the effect of the steadily growing remittance flows to sub saharan africa though the region receives only a small portion of the total recorded remittances to developing countries and the volume of aid flows to sub saharan africa swamps remittances this paper finds that remittances which are a stable private transfer have a direct poverty mitigating effect and promote financial development these findings hold even after factoring in the reverse causality between remittances poverty and financial development the paper posits that formalizing such flows can serve as an effective access point for unbanked individuals and households