Inter‐regional competition,comparative advantage and environmental federalism

In this paper, we compare endogenous environmental policy setting with centralized and decentralized governments when regions have comparative advantages in different polluting goods. We develop a two‐region, two‐good model with inter‐regional environmental damages and perfect competition in product markets, where both regions produce both goods. Despite positive spillovers of pollution across regions, the model predicts that decentralization may lead to weaker or stricter environmental standards or taxes, depending on the degree of regional comparative advantage and the extent of transboundary pollution. This suggests that federalism can lead to either a “race to the bottom” or a “race to the top,” without relying on inefficient lobbying efforts or capital competition.     

Relative consumption and majority voting: supplementing Oates’ “Decentralization Theorem”

This paper reconsiders the question of whether centralized or decentralized provision of local public goods is preferable, taking into account two new elements: the appearance of relative consumption effects and the possibility of an inefficient election outcome due to a right-skewed income distribution. Surprisingly, our results indicate that (1) decentralization may lead to a strictly higher welfare level than centralization, even if regions are homogeneous, and (2) under certain circumstances centralization may be welfare superior, even though traditional public good spillovers are not considered in our framework. Whether centralization or decentralization is preferable crucially depends on the extent to which social interaction takes place between regions.     

The Superiority of Environmental Federalism in the Presence of Lobbying and Prior Tax Distortions

It is generally believed that environmental federalism tends to generate greater pollution emissions than centralized policymaking. This paper demonstrates that the opposite can occur in the presence of lobbying. Although the decentralized regime gives rise to a tax‐interaction effect, which induces policymakers to set lax environmental policies, it may also reduce the political pressure on enlarging allowed emissions. If the latter outweighs the former, then the decentralized regime will generate less pollution than the centralized regime. Moreover, we also show that the decentralized regime can be more efficient than the centralized regime, which provides an alternative theoretical support for the superiority of environmental federalism.     

Enforcement and environmental quality in a decentralized emission trading system

Should the powers of monitoring compliance and allocating tradeable emissions allowances be appointed to a unique supranational regulator or decentralized to several local regulators? To answer this question, we develop a two stage-two country game where environmental regulators set the amount of emission allowances and the level of monitoring effort to achieve full compliance while the regulated firms choose actual emissions and the number of permits to be held. Various, possibly conflicting, spillovers between countries arise in a decentralized setting. We show that decentralization is socially harmful if no asymmetry among institutional settings is introduced and can be suboptimal even when decentralization features lower monitoring costs than a centralized setting. Lower monitoring costs are therefore necessary, but not sufficient, to justify decentralization. Also, our analysis reveals that welfare can be higher under decentralization even if the corresponding environmental quality is worse than under centralization. Indeed, better environmental quality is sufficient but not necessary for higher welfare under decentralization. Finally, we discuss how these results can provide a theoretical rationale for the recent evolution of the EU ETS design.     

Trade Liberalization and Environmental Taxation in Federal Systems

The literature on trade liberalization and environment has not yet considered federal structures. In this paper, we show how the design of environmental policy in a federal system has implications for the effects of trade reform. Trade liberalization leads to a decline in pollution taxes, regardless of whether pollution taxes are set at the federal (centralized) or local (decentralized) level, and it increases social welfare. The effect under a decentralized system is smaller than if these taxes are set by the federal government, and pollution emissions therefore decline in this case. Moreover, majority bias interacts with trade liberalization if federal taxes are used.     

Does Tax Competition Reduce Corruption?

A vast literature asserts that competition among jurisdictions can mitigate corruption. However, empirical studies do not fully support such a conventional view. This paper points out a drawback of the conventional view, that is, it ignores the role played by the owners of immobile factors. Within a standard tax competition model, we amend the conventional view by incorporating the lobbying of the immobile factor owners, and show that fiscal decentralization can aggravate corruption. We also demonstrate that social welfare can be higher under decentralization than under centralization in some cases, whereas the immobile factor owners' lobbying will prevent such a superiority of decentralization from being the outcome. Moreover, we provide an example to show that a better policy outcome and a higher level of corruption can co‐exist, which contrasts with the general belief.     

The limitations of decentralized world redistribution: An optimal taxation approach

A centralized scheme of world redistribution that maximizes a border-neutral social welfare function, subject to the disincentive effects it would create, generates a drastic reduction in world consumption inequality, dropping the Gini coefficient from 0.69 to 0.25. In contrast, an optimal decentralized (i.e., with no cross-country transfers) redistribution has a miniscule effect on world income inequality. Thus, the traditional public finance concern about the excess burden of redistribution cannot explain why there is so little world redistribution.Actual foreign aid is vastly lower than the transfers under the simulated world income tax, suggesting that voluntary world transfers - subject to a free-rider problem - produces an outcome that is consistent with rich countries such as the United States either placing a much lower value on the welfare of foreigners, or else expecting that a very significant fraction of cross-border transfers is wasted. The product of the welfare weight and one minus the share of transfers that are wasted constitutes the implicit weight that the United States assigns to foreigners. We calculate that value to be as low as 1/2000 of the value put on the welfare of an American, suggesting that U.S. policy is consistent with social preferences that place essentially no value on the welfare of the citizens of the poorest countries, or that implicitly assumes that essentially all transfers are wasted.     

分配承诺、产权与经济效率

在政府分配的承诺可置信时,地方政府分权竞争的结果是资方获得了最大利益,而劳方的利益被忽视了。而当政府分配的承诺不可置信时,资方的投资生产激励会受到较大的削弱,社会福利会受到较大损害。关于中国经济增长奇迹的经济解释,文章认为:在改革开放初期,中性政府对经济增长起到了很重要的作用;而随着改革开放的深入,地方政府分权的竞争激励机制可能起到了更为重要的作用。产业结构与产权保护有着密切的关系,要使产业结构完成升级,拥有良好的产权保护制度是一个重要条件。针对地方政府分权竞争带来的问题以及承诺可置信性缺失,文章引入第三方规制和以权力配置作为一种可信承诺等两种解决途径,并指出了其不足之处。     

Does Centralization Affect the Number and Size of Lobbies?

Previous research has shown that the effect of fiscal centralization is to reduce lobbying. However empirical evidence suggests that this is not always the case. This paper attempts to explain the empirical evidence in a two‐jurisdiction political economy model of endogenous lobby formation and policy determination. We measure lobbying in two ways: (i) the number of lobbies formed under the two settings and (ii) their impact on policy decisions. We show that, contrary to the predictions of the preference dilution effect, the effect of centralization on lobbying are ambiguous with respect to both measures of lobbies.     

The Congressional budget process,aggregate spending,and statutory budget rules

This paper compares the Congressional budget process (instituted in 1974) and the piecemeal appropriations process that preceded it. Previous theoretical analysis using spatial models of legislator preferences finds no systematic difference in relative spending levels under the two regimes. This paper instead uses a model of interest group lobbying. A legislature determines spending on a national public good and on subsidies to sector-specific interest groups. In the “appropriations process,” the Appropriations Committee proposes a budget that, because of interest group influence, involves overspending on subsidies. In the “budget process,” the Budget Committee proposes an aggregate level of spending (the budget resolution); then, the Appropriations Committee proposes a budget. A free rider problem among the interest groups inhibits the lobbying of the Budget Committee to increase the aggregate budget. If each group is sufficiently small, it takes the budget resolution as given, and lobbies the Appropriations Committee. Aggregate spending is lower and social welfare is higher under the budget process; however, provision of the national public good is suboptimal. The paper also analyzes statutory budget rules that limit spending levels, but can be revised by a simple majority vote. Here, the free rider problem prevents the groups from securing the required changes to budget rules.     

An endogenous policy model of hierarchical government

Endogenous policy models usually neglect that government policies are frequently the result of decisions taken at different tiers by different agents, each enjoying some degree of autonomy. In this paper, policies are the outcome of the choices made by two agents within a hierarchy. A legislator decides on the budget to be successively spent by a bureaucrat. Both agents are lobbied by one or two interest groups. The combination of sequential decisionmaking and lobbying implies that the interaction between the agent at one tier and the interest group(s) depends on the exchange between the same interest group(s) and the agent at the other tier. Our results concerning multi-tier lobbying and legislatorial oversight substantially qualify the conventional wisdom related to one-tier lobbying. In particular, the reaction of the legislator to lobbying at the bureaucratic tier may make lobbying wasteful even when there is no competition from other lobbies. Moreover, the legislator benefits from lobbying only when there is competition between interest groups at the upper tier. It is also shown that competition for influence at the bureaucratic tier may work as a perfect substitute for legislatorial oversight. Extensions of the model indicate its usefulness for the analysis of decisionmaking in other multilevel governance structures, like federations or firms.     

Taxes versus quotas in lobbying by a polluting industry with private information on abatement costs

We present a model of lobbying by a polluting industry with private information on pollution abatement costs and compare taxes with quotas under such conditions. We also examine the effect of private information on lobbying activity and social welfare under these two instruments. It is found that private information might improve social welfare under taxes when the government has little concern for social welfare, whereas private information does not improve social welfare under quotas. Quotas are generally socially preferred when the slope of marginal abatement costs is steeper than that of marginal damage or when the government does not concern itself with social welfare. However, private information reduces the comparative disadvantage of taxes compared to quotas when the government has little concern for social welfare. Finally, the results of numerical examples suggest that quotas are employed rather than taxes if the difference in natural emission levels between high- and low-cost industries is large.     

Decentralization and international tax competition

This paper models tax competition between two countries that are divided into regions. In the first stage of the game, the strategy variable for each country is the division of a continuum of public goods between central and regional government provision. In the second stage, the central and regional governments choose their tax rates on capital. A country's decentralization level serves as a strategic tool through its influence on the mix of horizontal and vertical externalities that exists under tax competition. In contrast to standard tax competition models, decentralizing the provision of public goods may improve welfare.     

Does fiscal decentralization affect local governments' strategic behaviours? Evidence from South Korea

Local governments tend to show strategic behaviours when making their spending decisions. However, few studies have examined strategic behaviours when promoting fiscal decentralization. Thus, this study empirically examines the presence of strategic interactions in expenditure decisions in South Korea as well as how fiscal decentralization affects those interactions, using a panel data set from 2010 to 2017. The results demonstrate that a local government mimics other governments' spending when those governments' residents share similar age demographics. Moreover, local governments in South Korea engage in strategic interactions as their expenditure side becomes more decentralized. However, local governments tend to demonstrate less isomorphic behaviour in welfare spending decisions when they have higher revenue decentralization. This is because local governments have no motive to emulate other welfare policies, as the central government delegates the provision of social services to local governments by providing grants with strings attached.     

Human Fallibility, Complementarity, and Fiscal Decentralization

This paper examines economic growth properties under alternative fiscal organizations when a bureau's decisions are fallible. A country consists of J jurisdictions, which need a public service. In a centralized government, one authority decides on services in every jurisdiction. In a decentralized government, J authorities are in charge of each public service. An authority can have high ability or low ability, and an authority with high ability draws a good project with higher probability. We first show that the decentralized government provides the same average quality of public services, with lower variance, than does the centralized government. We then apply this result to an economic growth model where the value of the Solow residual is a constant elasticity of substitution (CES) function of public services. We show that there is a critical value of the degree of complementarity below which fiscal decentralization is more desirable than fiscal centralization for an expected economic growth, and the decentralized government has a lower variance of GDP growth.     

Welfare effects of competitive lobbying efforts in international oligopoly markets

Conventionally, rent-seeking activities have been considered to deteriorate social welfare and to distort resource allocation. This paper examines whether rent-seeking behavior can improve social welfare by focusing on the welfare effects of firms’ competitive lobbying efforts when governments can impose market entry regulation against foreign firms. We demonstrate that competitive lobbying efforts can improve social welfare when such lobbying efforts are directed to reduce market entry barriers. In addition, social welfare can be maximized when the government shows the maximum sensitivity to the foreign firm's political contributions while maintaining competitive market structure. Moreover, it is shown that the dominant strategy for a domestic firm is to allocate more resources to R&D sectors while it is optimal for foreign firms is to exert more efforts in lobbying to reduce the market entry barriers when a government makes political economic approach in market entry regulations.     

Union structure and firms' incentives for cooperative R&D investments

Abstract .  We investigate the impact of alternative unionization structures on firms' incentives to invest on cost-reducing R&D and to form Research Joint Ventures (RJVs), in the presence of R&D spillovers. We show that if firms invest non-cooperatively and spillovers are low, R&D investments are higher under centralized rather than under decentralized wage-setting. In contrast, investments are always higher under decentralized wage-setting in the case of RJVs. Firms' incentives to form an RJV are stronger under centralized wage-setting if and only if spillovers are low enough. Finally, centralized wage-setting may hinder the formation of costly RJVs and their potential welfare benefits.     

A search model of centralized and decentralized trade

This paper presents a search model of centralized and decentralized trade. In a centralized market, trades are intermediated by market makers at publicly posted bid–ask prices. In a decentralized market, traders search counterparties. Prices are negotiated and transactions are conducted in private meetings among traders. Traders can choose which market to enter. The determinants of bid–ask spreads and liquidity are analyzed. The welfare consequence of the market fragmentation is also analyzed. It is shown that compared to the competitive market-making, monopolistic market-making may improve social welfare.     

Common agency lobbying over coalitions and policy

This paper presents a theory of common agency lobbying in which policy-interested lobbies can first influence the choice of a proto-coalition and then influence the legislative bargaining over policy within that coalition. The equilibrium policy in the legislative bargaining stage maximizes the aggregate policy utility of the coalition members and the lobbies, but lobbying can also lead to the preservation of the status quo and lobby-induced gridlock. When the status quo does not persist, the policy outcome is largely determined by the selection of a coalition, since legislative bargaining under unanimity within the coalition leads to a coalition-efficient policy regardless of the identity of the proposer. An example is presented to identify the types of equilibria and provide a full characterization of an equilibrium.     

人口流动性、公共收入与支出--户籍制度变迁动因分析

本文分析了人口流动性的内生决定 ,以此解释中国户籍管理政策变迁的动因。文章表明 ,分权框架下的区际竞争将推动政府降低人口流动成本。一般而言 ,集权 ①框架下的最优流动性水平普遍低于分权框架下的流动性水平。与我国近 2 0年来户籍政策变化相一致的是 ,跨区劳动力配置需求的上升增加了户籍管制的效率损失成本 ,将推动人口流动成本下降。我们认为 ,除了协调地方公共品供给外部性、限制地区间税收竞争以最大化税收收入这两个基本原因之外 ,我国户籍管制的另一个特殊原因是便于执行地区差别政策。而设置流动成本的效率性取决于政府目标与社会福利最大化的一致性程度。