Markets as beneficial constraints on the government

We study the role of anonymous markets in which trades cannot be monitored by the government. We adopt a Mirrlees approach to analyze economies in which agents have private information and a benevolent government controls optimal redistributive tax policy. While unrestricted access to anonymous markets reduces the set of policy instruments available to the government, it also limits the scope of inefficient redistributive policies when the government lacks commitment. Indeed, the restrictions that anonymous markets impose on the optimal fiscal policy, especially on capital taxation and the history-dependence of income taxation, can have positive welfare effects in this case.     

US federal redistributive income policies

The purpose of this paper is to present a statiscial model of inequality that allows us to analyse simultaneously the impact of several major redistributive expenditure policies, as well as analysing the impact of income taxation on inequality. The paper includes multivariate exogeeity tests to determine whether the policies have ‘caused’ the observed income distribution or if there is feedback, i.e. inequality in the distribution has lead to enhanced (or diminished) redistributive policies. The direction of causality for these policies has not, to ourr knowledge, been previously examined. This paper examines the usual redistributive vehicles of transfer payments, Social Security, Medicare and Medicaid, as well as analysing the impact of the personal income tax system on inequality. Using time series analysis we can allow for lagged effects of these policies as well as current period effects. This lagged effects specification may be sugggestive of behavioural responses to policy changes.     

Inter‐Jurisdictional Competition for Firms*

Regions inhabited with an immobile population of disabled and able individuals compete to attract mobile firms that provide jobs. The redistributive goal of regional governments is to support the disabled, who cannot work. Able individuals may work, be involuntary unemployed because of frictions in the labor market, or choose to be voluntary unemployed. Labor force participation decisions depend on regional redistributive policies. Both the size of workforce and tax on firms affect profits and therefore, firms’ location decisions. Allowing regions to engage in tax competition may be efficient. If regions cannot tax firms, they compete by implementing inefficient redistributive policies.     

Income distribution, borrowing constraints and redistributive policies

This paper sheds light on the relationship between income inequality and redistributive policies and provides possible guidance in the specification of empirical tests of such a relationship. We model a two-period economy where capital markets are imperfect and agents vote over the level of taxation to finance redistributive policies that enhance future productivity. In this context, we show that the pivotal voter is not necessarily the agent (class) with median income. In particular, the poor, who are more likely to be liquidity constrained, may form a coalition with the rich and vote for low redistribution. The effects of an increase in income inequality on the level of redistribution turn out to depend on whether the increase in inequality is concentrated among the poor or the middle class. Empirical results from a panel of 22 OECD countries provide preliminary evidence consistent with our main theoretical implications.     

Strategic Inter–Regional Transfers

We derive the equilibrium level of redistribution from one mobile factor (say, the rich or capital) to another possibly mobile factor (say, the poor or labour) when regions choose both their inter–regional transfers and redistributive policies non–cooperatively. It is shown that inter–regional transfers are always desirable (to mitigate the fiscal competition), but cannot be sustained (as a Nash equilibrium) when chosen simultaneoulsy with the redistributive policy. On the other hand, if regions can pre–commit to inter–regional transfers before setting their redistributive policy, their strategic effect makes efficient inter–regional transfers sustainable. However, there are also equilibria with inefficiently small inter–regional transfers or no transfers at all. The effects of regional asymmetries and additional regions on these results are also analyzed.     

Public goods provision,inequality and taxes

The impact of redistributive policies on voluntary contributions is still not well understood. While a higher level of redistributive taxation decreases the price of voluntary giving, it also changes the income distribution by decreasing income inequality. This paper provides a controlled laboratory experiment to investigate the net impact of the tax rate on public goods provision. The experimental findings show that while the participants decrease their voluntary contributions as the pre-tax income distribution becomes more equal, they increase their contributions with taxation. These findings have important implications for government policies regarding privately provided public goods.     

Federal transfers, environmental policy and economic growth

We study the effects of commonly used cross-country transfer programs on uncoordinated national environmental policies, economic growth and natural resources in a federal economy. Natural resources are a federation-wide public good. In each member country, production degrades the environment, but clean-up policy can improve it. Clean-up policy is financed by taxes on polluting firms’ output and cross-country redistributive transfers. We solve for a symmetric Nash equilibrium among national governments. Transfer policies that lead to higher pollution taxes make existence harder, and are harmful not only to growth but also to the environment. The best way to improve environmental quality is to implement a taxation system that stimulates growth and broadens tax bases to finance national clean-up policies.     

Credible redistributive policies and migration across U.S. states

We ask whether worker mobility has undermined the ability of U.S. states to redistribute income. We build a tractable model where both migration decisions and redistribution policies are jointly determined. Our model features a large number of heterogeneous regions and skilled and unskilled workers with idiosyncratic migration costs. The calibrated model is able to account for the main features of interstate migration, as well as some qualitative features of the cross-sectional distribution of redistributive policies. We conduct a counterfactual experiment in order to isolate the effect of worker mobility on state-level redistributive policies. We find that migration has induced substantial convergence in tax rates across U.S. states, but no race to the bottom. Interestingly, the degree of convergence has been much lower for transfers due to an offsetting tax-base effect.     

EFFECTS OF TAXES AND BENEFITS ON INCOME DISTRIBUTION IN KOREA

This paper examines the redistributive effects of Korea's fiscal policies, including consumption taxes and in‐kind benefits. Using the Household Income and Expenditure Survey of 2007, we find that taxes and transfers reduce income inequality in Korea by 13.8 percent. Contrary to the popular belief that direct taxes are the key tool for redistribution, in‐kind benefits, direct taxes, and social security contributions all decrease the Gini coefficient by 6.7, 4.7, and 2.9 percentage points, respectively. The redistributive effect of consumption taxes is small and negative (?0.5 percentage point). Policy simulations indicate that education spending financed by the personal income tax has a positive redistributive effect and that the lower 70 percent of households enjoy positive net benefits. Spending targeting the poor has a strong redistributive effect, which implies low popularity because the majority of households face net losses.     

Capital tax competition: bane or boon

This paper reviews potential advantages and disadvantages of capital tax competition. Tax competition may introduce, mitigate, or exacerbate inefficiencies in both the private sector and the public sector. In different models, tax competition may either limit or increase public expenditures and taxes on mobile factors, with differing welfare consequences. We also discuss the implications of tax competition for redistributive policies and for policies dealing with risk, and we identify some of the possible empirical implications of tax competition.     

Correlated Pollutants, Interregional Redistribution and Labor Attachment in a Federation

We examine the efficiency of federal policies in a federation characterized by decentralized leadership, imperfect labor mobility and transboundary pollution. Selfish regional governments regulate correlated pollutant emissions by choosing pollution tax and abatement levels in anticipation of the center’s redistributive policy. The center’s objective function obeys a proportional equity principle, which implies that its choice of interregional transfer satisfies the equalization of weighted regional welfare levels. Regional and central governments make their choices subject to migration incentives. We show that the subgame perfect equilibrium for the sequential game played by regional and central governments yields socially optimal policies. An erratum to this article can be found at     

Fiscal Transfers and Distributive Conflict in a Simple Endogenous Growth Model with Unemployment

Abstract. In the simplified formal treatment proposed in this paper, a decrease in a policy parameter – the ratio of total tax revenues to GDP – can monotonically increase long-term growth rate and may lead to a higher employment level. This notwithstanding, the paper shows that the redistributive implications of such a decrease may induce the wage earners to oppose it. As a consequence, policy-makers reflecting social preferences may undertake redistributive transfers generating persistent unemployment and lowering growth even if commitment technologies allowing them to follow preannounced tax policies were feasible.     

Optimal nonlinear taxation of income and savings without commitment

When a government is unable to commit to its future tax policies, information about taxpayers' characteristics revealed by their behavior may be used to extract more taxes from them in the future. We examine the implications of this ratchet effect for the design of redistributive income and savings tax policies in a two‐period model with two types of individuals who only differ in their skill levels. When commitment is not possible, it may be optimal to separate, pool, or partially pool different types in period one. The nature of the distortions to labor supplies and savings are investigated for each of these three regimes. The identification of the optimal regime is investigated numerically.     

Does Distributional Skewness Lead to Redistribution? Evidence from the United States

This paper presents time-series, cross-section, and historical evidence from the United States to test whether distributional skewness leads to the adoption of redistributive policies. On all accounts the theory performs poorly: we fail to find evidence either of a long-run stable relationship or of short-run causation between distributional skewness and redistribution in the time-series data; the cross-section data uncover no correlation between skewness and welfare spending or support of the Democratic Party; and analysis of the historical evidence shows that key changes in redistributive institutions in the United States were not preceded by increases in distributional skewness.     

Competition Among National Football Leagues. Does It Exist? Should We Regulate?

It is often supposed that the stakeholders of a national football league draw more satisfaction from their sport if the league is balanced, that is, if a large number of clubs have a reasonable chance of winning. This is the so‐called Competitive balance hypothesis. This hypothesis can be challenged, however, in the context of international competition like the European champions league. It could be that the utility of national leagues' stakeholders would be higher if the probability of victory for their nation's club at the international level were higher. If this were the case, a league's governing body intending to maximize the quality of the national league by making use of redistributive schemes would face a trade‐off between national competitive balance and international performance of the national representative club. We propose a simple microeconomic framework to model this trade‐off. If a non‐cooperative game exists among the national league governing bodies, whether it is a Nash or a Stackelberg one, this game would result in inefficient redistributive policies. We find ‘soft’ empirical evidence of such a competition among the big 5 football leagues in Europe. This result supports the idea of the creation of an international regulatory body. We derive the conditions under which the international regulatory body should ensure that the leagues' governing bodies implement redistributive schemes guaranteeing the respect of the national competitive balance. We also emphasize the risk of experiencing a drop in the quality of leagues if one of them becomes too big relatively to the others, what we call the tragedy of the wealthy.     

Support for bigger government: The principle-implementation gap and COVID-19

We study the COVID-19 pandemic's effect on government and market attitudes using within-subject comparisons of survey responses elicited before and after the onset of the pandemic. We find that participants develop significantly less favorable opinions toward government and markets; and that participants increase support for bigger government significantly and for redistribution, in general, marginally significantly. There is no evidence this leads to an increase in support for specific redistributive policies, nor for government to play a larger role in specific functions. Our results echo the stubbornness of American preferences for redistribution and suggest the presence of a principle-implementation gap.     

Optimal Redistribution with Endogenous Social Norms

In this paper, we examine the effect of social norms on redistributive policies, where social norms are reflected in the degree of work participation among the different skill classes. Participation is driven both by the material incentives and heterogeneous preferences for leisure of each skill class, and by an endogenous social norm. Results for optimal redistributive taxation show that when the social norm enters as a benefit or cost for participants, participation taxes are generally lower than in its absence. Multiple participation equilibria can occur, and an engineered shift from a low‐ to a high‐participation equilibrium can be Pareto‐improving in the long run.     

EVALUATING THE DISTRIBUTIONAL EFFECTS OF FISCAL POLICIES USING QUANTILE REGRESSIONS

The objective of this paper is to propose and apply a new method to evaluate the distributional impact of fiscal policies and potential marginal reforms. The econometric tool adopted is structural quantile treatment effects regression, which allows a complete picture of the effects of the fiscal policy of interest on households with different incomes, abilities, and needs. We apply this method to personal income taxation and non‐cash transfers in Italy for the year 2004. Our estimates suggest that, although heterogeneous, the redistributive effects of the potential fiscal reforms are almost zero.     

Immigration vs. poverty: Causal impact on demand for redistribution in a survey experiment

We investigate how demand for both the financing and the provision of redistributive policies is affected by information about immigration and poverty. Information about immigration has a positive impact on desired tax progressivity among low-income respondents and a negative one among higher income earners. Information about poverty has no impact. On the provision side, middle- and high-income respondents increase desired public education expenditure in response to poverty, while low-income respondents reduce desired education spending in response to immigration. These heterogeneities are consistent with protectionist reactions to immigration and poverty.     

Redistribution and entrepreneurship with Schumpeterian growth

We examine the effects of redistributive taxation on growth and inequality in a Schumpeterian model with risk-averse agents. There are skilled and unskilled workers, and the growth rate is determined by the occupational choice of skilled agents between entrepreneurship and employment. We show that redistribution provides insurance to entrepreneurs and increases the growth rate. The effects on inequality are such that low tax rates increase inequality relative to laissez-faire due to changes in wages, but higher tax rates can simultaneously raise growth and reduce inequality. We contrast the optimal linear income tax with alternative policies for promoting R&D and find that it is preferable on both equity and efficiency grounds.