Regional Income Disparity and the Size of the Public Sector

This paper explores the impact of income inequality between jurisdictions on government decision making affecting the size of the public sector. We model policy choices as the outcome of regional representatives' negotiations in the legislature. We show that the more unequal interregional income distribution is, the greater the underprovision of public goods. More specifically, greater interregional income disparity leads to a smaller public sector. A wealthier economy as a result may have a relatively smaller government size when income disparity increases.     

HISTORY‐DEPENDENT PATHS AND TRADE GAINS IN A SMALL OPEN ECONOMY WITH A PUBLIC INTERMEDIATE GOOD*

This study reexamines McMillan's (International Economic Review 19 (1978), 665–78) analysis of a dynamic small open economy with a public intermediate good. Concerning the trade patterns of the open economy, we find results that were overlooked in McMillan's analysis. Among others, if labor endowment is of intermediate size, there are two saddle‐point steady states, and the initial stock of the public good determines the long‐run trade pattern. We also add a gains‐from‐trade analysis to McMillan's model and demonstrate that if the economy has a comparative advantage in a good with productivity less sensitive to the public intermediate good, the economy may lose from trade at the steady state.     

Trade and Inequality with Limited Labor Mobility: Theory and Evidence from China

Does globalization increase inequality in developing countries, and if so, how? In a theoretical model of a regionally heterogeneous economy, we show how different regional rates of technical progress due to trade and FDI interact with constraints to unskilled labor mobility. As favored regions benefit more from trade, their growing demand for skills drains skilled workers from disadvantaged areas, and average incomes in the former grow faster than in the latter. Moreover, this unbalanced regional growth may also raise inequality within each region. It could even reduce absolute income per capita in the less favored region. We test these predictions with Chinese data from the Open Door era. Results confirm that different regional growth rates have increased both interregional and intraregional inequality. Moreover, growth of skills‐based export industries in coastal regions is associated, other things equal, with lower incomes for the poor in inland provinces.     

Rational Underdevelopment*

We propose a two‐region two‐sector model of uneven development, where technological change benefits either the lagging or the leading region. In this framework interregional transfers may lead to persistent underdevelopment; by raising wages, transfers reduce the chance of the backward region adopting a new technology and taking off. Due to uncertainty about which region benefits from technological change, the backward region may rationally choose to remain underdeveloped, while the advanced region continues to pay transfers. The model provides a rationale for cases, such as Italy's Mezzogiorno, where the same rich region subsidizes the same poor region on a continuous basis.     

Cournot-Nash and Lindahl equilibria in pure public “bad” economies

Summary. Using a general equilibrium framework, this paper analyzes the equilibrium provision of a pure public bad commodity (for example pollution). Considering a finite economy with one desired private good and one pure public “bad” we explicitly introduce the concept of Lindahl equilibrium and the Lindahl prices into a pure public bad economy. Then, the Lindahl provision is analyzed and compared with the Cournot-Nash provision. The main results for economies with heterogeneous agents state that the asymptotic Lindahl allocation of the pure public bad is the null allocation. In contrast, the asymptotic Cournot-Nash provision of the public bad might approach infinity. Other results were obtained in concert with the broad analysis of the large finite economies with pure public bad commodities. Received: July 26, 2001; revised version: March 12, 2002 RID="*" ID="*" We are indebt to Nicholas Yannelis and anonymous referee for their valuable comments and suggestions. Correspondence to: B. Shitovitz     

收益递增、发展战略与区域经济的分割

本文考察了在收益递增条件下产生重复建设和区域经济分割的根源。由于发达地区在高技术产业拥有比较优势 ,且通常具有较快的技术进步速度 ,所以往往在贸易利益的分享中得到了较大的份额。而落后地区如果选择暂时不加入分工体系 ,它将失去当期分工的收益 ,但却可以提高自己在未来分配分工收益的谈判中的地位 ,甚至可能实现对发达地区的赶超。落后地区的战略性行为虽然在一定条件下对于其自身是有利的 ,但却造成了社会总产出减少和资源配置效率的损失。中央政府的财政转移可以促使落后地区加入分工体系 ,这时 ,财政转移就兼有了改善收入分配和资源配置效率两种功能     

Interregional Trade Linkages and the Commercial Role: The Spanish Case

The development of a national or regional economy depends on its own actions as much as on those of its commercial partners. Trade transmits economic events from one economy to another. The type and the degree of interdependence between territories—regions or countries—determines the consequences of external actions in a region. Multipliers translate the effects of a change in one variable on the others. Using an input–output scheme to express interregional commercial flows, some coefficients are developed to classify and identify the role that each region plays in interregional trade. An empirical application of the methodology on Spanish Comunidades Autonomas is presented. A preliminary version of this paper was presented at the Fifty-Eight International Atlantic Economic Conference, Chicago, October 7–10, 2004. The authors greatly appreciate the comments and suggestions from the participants at the meeting. The authors also wish to thank an anonymous referee and editor for their constructive suggestions and comments. This research was partially supported by the DGI project SEJ2004-07924/ECON.     

Reducing Inefficiency in Public Good Provision Through Linking

We characterize the optimal mechanism for the provision of n public goods in an economy with m agents, binary valuations. The mechanism “links” the n problems together because decisions and transfers are based on the whole vector of valuations of the agents. In particular, the decision on whether or not to provide a public good depends not only on the valuations of the agents for that good but, in some cases, also on the valuations for the other goods reported by the low‐valuation agents. For the two‐agent case, we show that the mechanism is asymptotically efficient and we provide an example that compares its relative efficiency with optimal separate provision and with another asymptotically efficient mechanism in the literature.     

Voluntary Participation and Provision of Public Goods in Large Finite Economies

We consider a public good provision game with voluntary participation. Agents participating in the game provide a public good and pay the fees according to a mechanism (allocation rule), while nonparticipants can free‐ride on the participants. We examine how the equilibrium public good provision level is affected by enlarging the population of an economy. We introduce a condition for an allocation rule, the asymptotic uniform continuity in replication (AUCR), which requires that small changes in the population must yield only small changes in the public good provision and which is satisfied by many mechanisms. We show that under AUCR, the equilibrium level of the public good converges to zero as the economy is replicated in the sense of Milleron.     

The influence analysis on public expenditure to the technique efficiency of China

In this paper, we use SFA to estimate the time-variant stochastic frontier model of 31 cities in China. The results tell us that raising the proportion of public expenditure in GDP can lower the technological efficiency, but raising some parts of public expenditure in GDP can promote the technological efficiency. Its realistic meaning is that it is excellent to turn the public expenditure structure to promote the technological efficiency. We computed the technological efficiency of 31 provinces/cities and the results show that the gap between the eastern region and western region is growing much. Finally, we decompose total factor productivity (TFP) and get the following result: from three regions, the biggest influence factor on technological efficiency is the scales economy. Technological progress and allocation efficiency have a smaller influence. From our results, we suggest that technological progress and allocation efficiency from public expenditure and income be raised to influence the TFP rate of change, and have a more efficient public expenditure. __________ Translated from Journal of Finance and Economics (财经研究), 2005, (12) (in Chinese)     

Pork versus public goods: an experimental study of public good provision within a legislative bargaining framework

We experimentally investigate a legislative bargaining model with both public and particularistic goods. Consistent with the qualitative implications of the model: there is near exclusive public good provision in the pure public good region, in the pure private good region minimum winning coalitions sharing private goods predominate, and in the “mixed” region proposers generally take some particularistic goods for themselves, allocating the remainder to public goods. As in past experiments, proposer power is not nearly as strong as predicted, resulting in public good provision decreasing in the mixed region as its relative value increases, which is inconsistent with the theory.     

Costly Tax Enforcement and Financial Repression

Using an overlapping generations production‐economy model characterized by financial repression, purposeful government expenditures and cost of tax collection, we analyse whether financial repression can be explained by the cost of raising taxes. We show that with public expenditures affecting utility of the agents, modest costs of tax collection tend to result in financial repression being pursued as an optimal policy by the consolidated government. However, when public expenditures are purposeless, the above result only holds for relatively higher costs of tax collection. But, more importantly, costs of tax collection cannot produce a monotonic increase in the reserve requirements. What are critical, in this regard, are the weights the consumer assigns to the public good in the utility function and the size of the government.     

Information Advantage in a Public Good Economy with Multiplicative Structure of Utilities

This paper extends results on information advantage in Cournot oligopoly to a public good economy with uncertainty and private information where the state‐dependent utilities have a multiplicative structure. We show that in a Bayesian–Nash equilibrium where consumers’ contributions are positive in all states of nature, a consumer with superior information is rewarded with a higher ex ante expected utility. Our counter example shows that in the case where one consumer does not contribute, information disadvantage might emerge. Thus, the interiority assumption is essential to obtain our results.     

Can a raise in your wage make you worse off? A public goods perspective

We show that a seemingly paradoxical result is possible—an increase in one's wage can reduce one's welfare. Such outcome can occur in an economy populated by agents who value a private good bought using labor income and a public good produced by voluntary time contributions. A raise in the wage (in general, opportunity cost of time) makes each agent substitute away from contributing to the public good, failing to internalize the negative externality imposed on others. The result is a decrease in public good provision. Under quite general conditions, the implied cumulative negative effect on agents' welfare can more than offset the positive effect of the wage raise from increased private good consumption and lead to an equilibrium in which all agents are worse off. Our result is particularly relevant for developing economy settings as it holds for relatively low initial wage levels. We discuss the applicability of our findings to a number of important problems in development, such as market integration, cooperation in common pool resource conservation and social capital.     

我国区际技术性贸易壁垒的成因与管治探讨

地方政府作为利益主体、经济主体、管理主体是我国区际贸易技术性壁垒产生的主要原因。产品市场准人机制的统一、市场质量监管的统一、技术服务网络的统一是克服区际贸易技术性壁垒,加速区域市场一体化,进而达到全国市场一体化的根本途径。     

Is the public sector too large in an economy with club goods? A case when consumers differ in both tastes and incomes

In an archetypal economy with a single private good and a single shared good, the latter represents the public sector. With the shared good a club good, we ask if second-best (SB) provision of it is too small, as usually claimed for pure public goods. When consumers differ only in exogenous incomes, if the club good is a superior good in a single-club economy, overprovision in the SB occurs if club good demand is convex in income. We show this can extend to an economy where consumers differ in both tastes and incomes, depending on the covariances between consumers' incomes and their relative strength of preference for the club and private goods, and the covariances between incomes and taste parameters.     

Is firm-sponsored training a palliative? A common agency approach

We analyse the issue of firm-sponsored training under product market imperfections. In this setting, qualification becomes a public good for firms when their profits are increasing in the stock of skilled workers but remains a private good to students/workers. Students have to pay a tuition fee but at the same time firms sponsor education: universities sell training to both. We prove that the proportion of skilled workers is larger in more competitive economies/industries while the share of firms in the financing of training is a monotonically decreasing function of the degree of competition. An increase of the latter indeed increases the equilibrium skilled wage while reducing its sensitivity to an increase of the supply of skilled workers. The firms’ aggregate expenditures on training per worker are nevertheless a nonmonotonic function of the competitiveness of the economy.     

Bayesian Equilibrium in a Public Good Economy

This paper studies the provision of a public good via voluntary contributions in an economy with uncertainty and differential information. Consumers differ in their private information regarding their future endowment as well as in their preferences. Each consumer selects her consumption ex ante, i.e., before knowing the state of nature. Contributions to the provision of the public good are determined ex post, i.e., when the state of nature is realized. Assuming that some normality conditions hold, a Bayesian equilibrium exists. Further, equilibrium is unique, regardless of the number of consumers, when either (1) the information partitions of consumers can be ranked from the finest to the coarsest, or (2) there are only two types of consumers.     

Interregional negotiations and strategic delegation under government subsidy schemes

We examine the strategic delegation problem in the context of interregional negotiations under the subsidy policies of a central government. It is well known that when such negotiations are delegated to representatives, each region in a country elects its representative strategically, resulting in inefficient negotiation outcomes. This study focuses on a common subsidy policy called a cost-matching grant to examine whether an optimal grant exists that restores the efficiency of negotiation outcomes. Our results show that the central government obtains this optimal grant if the manipulability of the negotiation breakdown outcome is sufficiently weak. The strength of the manipulability is important because introducing a grant generates a new kind of manipulation of negotiation breakdown outcomes. However, when a new representative is elected after a negotiation breaks down, the new manipulability is negated. Hence, the central government always obtains the optimal cost-matching grant.     

The importance of considering optimal government policy when social norms matter for the private provision of public goods

We study optimal government policy in a reference model (Rege, 2004, Journal of Public Economic Theory, 6, 65–77) of public good provision and social approval in a dynamic setting. We show that even if complete adherence to the social norm maximizes social welfare it is by no means necessarily optimal to push society toward it. We stress the different roles of social externality and the public good problem. We discuss the problem with the standard crowding in and out argument and analyze the relationship with Pigouvian taxes. We discuss the role of the cost of public funds and show how it can create path dependency, the multiplicity of both optimal equilibria and optimal paths, and discuss the role of parameter instability.