Search costs and corporate income tax competition

If a small cost applies for learning the corporate tax rules in different countries, this can completely eliminate tax competition. This modified version of the Diamond paradox and can also explain the empirically observed tax cuts cum base broadening.     

Public health spending, tax reform, and long-run growth

Public health spending is introduced into an endogenous growth model to examine the effect of a tax reform on the growth and learning time. Unlike previous studies, the calibrated model produces an increase in the learning time, consistent with the US data.     

Can national infrastructure spending reduce local unemployment? Evidence from an Australian roads program

We examine the effect of a federally-funded local infrastructure spending program on local unemployment rates. To address the likely funding endogeneity problem, we exploit variation in spending due to pork-barreling, and find that higher government expenditure on roads substantially reduces local unemployment.     

Valuing improved hurricane forecasts

The value to households of improved hurricane forecasts is estimated from a pilot survey using discrete choice econometric methods. Each household is willing to pay approximately $13 for improvements in forecast attributes such as landfall time and position, wind speed, and storm surge.     

The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty

The effects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the firm's profit maximization problem under taxes and fixed quotas. We find that the optimal adoption threshold under taxes is always larger than the adoption threshold under fixed quota, even in a setting characterized by ecological uncertainty and ambiguity – in the form of Choquet–Brownian motions – on future costs and benefits over adopting environmental policies.     

Growth, income distribution, and fiscal policy volatility

The relationship between income distribution and economic growth has long been an important economic research subject. Despite substantial evidence on the negative impact on long-term growth of inequality in the literature, however, there is not much consensus on the specific channels through which inequality affects growth. The empirical validity of two most prominent political economy channels - redistributive fiscal spending and taxes, and sociopolitical instability - has recently been challenged. We advance a new political economy channel for the negative link between inequality and growth, a fiscal policy volatility channel, and present strong supporting econometric evidence in a large sample of countries over the period of 1960-2000. Our finding also sheds light on another commonly observed negative relation between macroeconomic volatility and growth. We carefully address the robustness of the results in terms of data, estimation methods, outlier problem, and endogeneity problem that often plague the standard OLS (ordinary least squares) regression.     

Political regimes and foreign intervention

We present a theory of endogenous political regimes that emphasizes foreign direct investment as a motive for foreign governments to either induce regime transitions or promote regime consolidations. We characterize different forms of foreign intervention and identify the conditions under which they occur. We highlight new channels through which economic factors affect political regime choices. Foreign intervention is most likely to originate from countries where the government has a substantial pro-investor bias and to be directed at destinations where FDI is highly profitable and where income inequality is high. Foreign-sponsored coups d'état are more likely to be directed at democratic governments of poor countries. In destinations where FDI is highly profitable but the domestic elite is weak, foreign intervention tends to be aimed at stabilizing dictatorships. We relate the analysis to evidence on foreign intervention from around the world.     

Rent-seeking distortions and fiscal procyclicality

Recent research has demonstrated that while government expenditures are countercyclical in most industrialized countries, they tend to be procyclical in developing countries. We develop a dynamic political-economy model to explain this phenomenon. In the model, public expenditures provide insurance to uninsured households, and optimal fiscal policy is countercyclical. The introduction of a political friction, in which successive governments disagree on the desired distribution of public spending, can lead to procyclical fiscal policies. Numerical simulations of the model allow us to compare quantitatively the relative role of common explanations for fiscal procyclicality. We conclude that political distortions in the fiscal process can explain fiscal procyclicality better than other common explanations, such as borrowing constraints and macroeconomic volatility.     

Agriculture production versus biodiversity protection: The impact of North-South unconditional transfers

The purpose of this paper is to explore whether international income transfers can improve or worsen the global level of biodiversity and global social welfare by changing the relative contributions to biodiversity protection and to agricultural production. Because of the public good nature of biodiversity, Warr's neutrality theorem suggests that such transfers may have no effects at all (Warr, 1983). A model is developed, based on the simplifying assumption that northern countries have little biodiversity whereas southern countries are endowed with natural capital in the form of (generally unspoilt) biodiversity-rich land. Southern countries allocate optimally land and capital to two competing productive activities, agriculture and eco-tourism. When transfers are organized from the North to the South, we show that Warr's neutrality theorem collapses. Transfers can either reduce or increase the natural capital in the South, depending on some empirically verifiable hypotheses concerning the characteristics of the eco-tourism and agricultural production functions. In addition, we demonstrate that welfare improvements can be obtained even with reductions in the level of biodiversity.     

Information-constrained optima with retrading: An externality and its market-based solution

This paper studies the efficiency of competitive equilibria in environments with a moral hazard problem and unobserved states, both with retrading in ex post spot markets. The interaction between private information problems and the possibility of retrade creates an externality, unless preferences have special, restrictive properties. The externality is internalized by allowing agents to contract ex ante on market fundamentals determining the spot price or interest rate, over and above contracting on actions and outputs. Then competitive equilibria are equivalent with the appropriate notion of constrained Pareto optimality. Examples show that it is possible to have multiple market fundamentals or price-islands, created endogenously in equilibrium.