Conspicuous Leisure: Optimal Income Taxation When Both Relative Consumption and Relative Leisure Matter*

In previous studies on public policy under relative‐consumption concerns, leisure comparisons have been ignored. In this paper, we consider a two‐type optimal non‐linear income tax model, in which people care about both their relative consumption and their relative leisure. Increased consumption positionality typically implies higher marginal income tax rates for both ability types, whereas leisure positionality has an offsetting role. However, this offsetting role is not symmetric; concern about relative leisure implies a progressive income tax component (i.e., a component that is larger for the high‐ability type than for the low‐ability type). Leisure positionality does not modify the policy rule for public‐good provision.     

Agglomeration,migration cost and intergovernmental transfers

The purpose of this article is to investigate the central government redistribution policies across local governments that affect regional agglomeration. Though full agglomeration is efficient, in many cases factor mobility is imperfect and the full agglomeration is not realized. This article analysed whether or not the central government should adjust the distribution of populations through local governments. The result is as follows: If individuals are relatively mobile, the central government can improve the aggregate income. In this case, when the private production and public sector are small, the central government should transfer from the productive regions local government to low-productive regions.     

INTER‐REGIONAL MIXED OLIGOPOLY WITH A VERTICAL STRUCTURE OF GOVERNMENT *

This paper incorporates the vertical structure of governments into a mixed oligopoly model by considering the public firms owned by different government levels, namely, a state‐owned public firm and a local public firm. As in the existing literature, a state‐owned public firm is assumed to maximise the welfare of an entire country comprising two regions. On the other hand, a local public firm is assumed to maximise the welfare of only one region. In such a setting, we find that when the central and local governments independently consider whether to privatise their respective public firms, only the state‐owned public firm should be privatised. Furthermore, we show that for the welfare of a country, a mixed oligopoly with a vertical structure of government can be more desirable than a mixed oligopoly without it.     

An Economic Analysis of Public Transfers

This paper develops simple models of public transfers. The sources of income inequality are differences in ability and in luck. The government employs a redistribution policy that arises from altruistic motives in the case of ability differences. I consider the case where the government re-optimizes income transfers after it observes the outcome of private activities. When the source of income inequality is differences in luck, the economy creates a mutual insurance or provides public goods out of risk-sharing motives. I derive the paradoxical result that a more able individual would not enjoy higher welfare than a less able individual. I also investigate how public transfers react to increases in income level and income inequality.
JEL Classification Numbers: F21, F35.     

中央政府供给地区生态补偿的内生缺陷——对补偿原则和收益原则内在矛盾的分析

我国现在实施的生态补偿以财政补偿为主，其中，中央对地方的财政补偿所占的比例最高。鉴于这种情况，作者从地方公共品供给的角度，考察了由于补偿原则和收益原则的内在矛盾——在功利主义回报原则下，中央政府的转移支付难以达到完全补偿；在自然回报原则下，中央政府的转移支付显著的使分配非中性，违背自然回报原则所要求的中立性——不能同时达到补偿的完全性与中性。由于这种内生缺陷的存在，中央政府供给地区生态补偿时难以使所有地区都满意，其本身也陷入难以进退的矛盾境地。本文认为在我国纵向转移支付占据主导地位的今天，政府若要有效供给诸如环境保护类型的溢出性地方公共品，就应该转变单线条的由上至下的转移支付模式，强化地方供给，加强地区之间的横向交流，如让地区之间直接谈判如何划分合作的收益或如何进行横向的补偿，以使地方政府承担更多的地区生态补偿责任。     

Useful Government Spending and Macroeconomic (In)stability under Balanced-Budget Rules

It has been shown that an otherwise standard one‐sector real business cycle model may exhibit indeterminacy and sunspots under a balanced‐budget rule that consists of fixed and “wasteful” government spending and proportional income taxation. However, the economy always displays saddle‐path stability and equilibrium uniqueness if the government finances endogenous public expenditures with a constant income tax rate. In this paper, we allow for productive or utility‐generating government purchases in either of these specifications. It turns out that the previous indeterminacy results remain unchanged by the inclusion of useful government spending. By contrast, the earlier determinacy results are overturned when public expenditures generate sufficiently strong production or consumption externalities. Our analysis thus illustrates that a balanced‐budget policy recommendation which limits the government's ability to change tax rates does not necessarily stabilize the economy against belief‐driven business cycle fluctuations.     

The dual nature of public goods and congestion: the role of fiscal policy revisited

Abstract The role of fiscal policy is examined when public goods provide both productive and utility services. In the presence of congestion, the consumption tax is shown to be distortionary. Optimal fiscal policy involves using consumption‐based instruments in conjunction with the income tax. An income tax‐financed increase in government spending dominates both lump‐sum and consumption tax‐financing. Replacing the lump‐sum tax with an income tax to finance a given level of spending dominates introducing an equivalent consumption tax. These results contrast sharply with the literature, where the consumption tax is generally viewed as the least distortionary source of public finance.     

Transfer payments from the central government to the local governments and the local governments' efforts on taxation: taking China as an example

The influence of the transfer payments from the central government to the local governments on the local governments' efforts on taxation must be taken into consideration by every country for the design of the transfer payments. Based on the theoretical analysis on the influence of the transfer payments from the central government to the local governments on the local governments'payments, this paper indicates that the local governments'efforts on taxation depends on the demand elasticity of the district for public goods. It increases with the increase of the elasticityλ.Judge the degree of the local government's efforts on taxation by measureλ. After an empirical analysis on the transfer payments from the central government to the local governments from 2000 to 2004, thins paper gets the conclusion that the local governments'efforts on taxation abates with the increase of supporting payments or with the increase of the ratio of transfer payments to local willing public payments. Under specific circumstances, the higher the ratio of transfer payments to the local fiscal expenditure is, the smaller the local governments' efforts on taxation is under the central payments, whereas the higher the local income is, the higher the efforts is under the eentral payments. Based on this. this paper gives the meanmg of its corresponding policies.     

Does fiscal redistribution discourage local public investment?

This paper studies the determinants of regional (oblast‐level) public investment in transitional Russia, focusing on the effects of federal fiscal redistribution. A model of local government expenditure in the presence of regional asymmetries shows that revenue redistribution from wealthy to poor regions discourages local public investment. Random‐ and fixed‐effects estimation of regional panel data for 1994–97 supports the existence of a disincentive effect from fiscal redistribution on regional public investment, which varies according to a region's federal status and wealth: non‐republics have a lower propensity to invest out of transfers than out of own income, as do regions with above‐median per capita income. Republics reduce public investment more than current spending in response to higher federal taxation. Russia's ‘asymmetrical federalism’ thus creates different fiscal incentives for different types of regions.     

MULTIPLIER EFFECTS OF PUBLIC SERVICES IN A TWO‐SECTOR MODEL OF MONOPOLISTIC COMPETITION

In a two‐sector model of monopolistic competition, this paper explores what impacts an expansion of government spending on public services has on national income. In the short run where entry and exit of firms are restricted, a rise in government spending on services like health care (which has only a role of substituting for market services) increases national income, but that on services like elderly care (which has not only this role but also another role of contributing to home production of services) decreases it. These results are reversed in the long run. Welfare effects of public services are also examined.     

From internal imbalances to global imbalances: a survey on the causes of China’s export-led growth

There is a broad consensus that China’s export- and investment-led growth model is unsustainable and therefore needs to become more balanced. In the public debate, Chinese exchange rate interventions are mostly made (solely) responsible for this. But it is unclear whether and how much the Renminbi is undervalued, and if an exchange rate appreciation helps to reduce China’s current account surplus significantly. This survey reviews the international literature on China’s export-oriented growth model. Internal structural imbalances in the Chinese economy, resulting in an extremely low consumption-to-GDP share by historical and international standards, play hereby a central role. Related to this are: 1) the drop in household and wage income as a share of GDP and low employment growth, and its impact on consumption demand; 2) the increase in income uncertainty and inequality, and its impact on household savings; and 3) the role of government spending, i.e., high and increasing public surpluses. The central policy challenge is therefore to increase household incomes, and to reduce income inequality and uncertainty.     

经济发展中政府的财政行动逻辑及其影响

近年来,中央和地方政府的财政行动主要是为了获得拉动经济快速增长的资本积累。具体表现为:地方政府高度倚重土地财政收入,并将其作为拉动经济增长的投资资金;同时,中央和地方均高度重视通过政府投资来拉动经济增长。然而,政府的财政行动却导致中国经济陷入未来增长的不确定和发展环境不公的困境。作为应对,政府应在财政公共化的框架下逐步完成省以下分税分级财政体制的构建、规范土地出让金用途,以及建立以公共服务为导向的干部政绩考核制度。     

Transfers and Bailouts: Institutions for Enforcing Local Fiscal Discipline

The growing importance of local and provincial governments as providers of public services and the importance of those services for the overall performance of the national economy has led to a careful re-examination of how public resources are allocated by decentralized governments. While the Tiebout model promises efficient local resource allocations, the conditions necessary for such outcomes—many local governments, fully informed and costlessly mobile households, no spillovers, residential head taxes—are rarely met in practice. Lacking a sufficient number of competitive local governments, however, other institutional safeguards must be found. Four such institutions are identified here. First, a stable central government managed by nationally elected political parties or presidents capable of making (second-best) efficient interpersonal redistributions of income while at the same time denying inefficient intergovernmental transfers and /or access to non-resident taxation. Second, a mature banking system and fully integrated national capital markets to minimize the economic consequences of a single government's failure to repay its local debts. Third, informed and sophisticated municipal bond and local land markets capable of evaluating local services and finances so as to shift back onto local residents the full economic consequences of inefficient local government fiscal choices. Fourth, a politically independent judiciary capable of enforcing constitutional rules for spending and tax assignment, local debt repayment, and balanced local budgets. Efficient central governments and efficient land and capital markets are seen here as necessary institutional pre-conditions for an efficient local public sector.     

The distributional impact of public services when needs differ

Despite a broad consensus on the need to take into account the value of public services in distributional analysis, there is little reliable evidence on how inclusion of such non-cash income actually affects poverty and inequality estimates. In particular, the equivalence scales applied to cash income are not necessarily appropriate when including non-cash income, because the receipt of public services is likely to be associated with particular needs. In this paper, we propose a theory-based framework designed to provide a coherent evaluation of the distributional impact of local public services. The valuation of public services, identification of target groups, allocation of expenditures to target groups, and adjustment for differences in needs are derived from a model of local government spending behaviour. Using Norwegian data from municipal accounts and administrative registers we find that the inclusion of non-cash income reduces income inequality by about 15% and poverty rates by almost one-third. However, adjusting for differences in needs for public services across population subgroups offsets about half the inequality reduction and some of the poverty decrease.     

Empirics of the median voter hypothesis in Japan

This paper empirically analyses for the first time the median voter hypothesis in Japan as a means of investigating whether or not Japanese prefectural finance reflects the preference of the median voter. The hypothesis is tested by estimating the demand functions of local public goods in each prefecture. As official data on the income of the median voter is unavailable in Japan, respective prefectural data is constructed using official data on income distribution and taxation. Reasonable intuitive interpretation of results indicates that the median voter hypothesis is supported in prefectural finances, and that voter preference affects the outcome of gubernatorial elections, i.e., a governor's reelection probability, by estimating a probit model. When considering the centralized prefectural government system in Japan, these results indicate that central government management of prefectural expenditures via inter-regional grants ultimately reflects jurisdictional median voter preference. First version received: December 1997/Final version received: February 1999     

Power struggle and pork barrel politics in authoritarian countries: Evidence from China

This paper examines how power struggle among cliques within ruling parties shape public policies. We develop a simple model of bargaining among ruling elites to study government staffing and use it to explain why the number of subnational government staff in China has increased rapidly despite repeated government streamlining programs initiated by the central authority. Using provincial‐level panel data in China from 1992 to 2011, we show that the subnational government headed by a politically weaker party secretary, in terms of the size of the opposition of elites in the provincial standing committee, tends to have a larger number of senior cadres and public employees. Notably, the party secretary's power from the centre mitigates the tendency to expand government staff. We also provide suggestive evidence that the local government finances government expansion by selling more land.     

Leadership in Public Good Provision: A Timing Game Perspective

We address in this paper the issue of leadership when two governments provide public goods to their constituencies with cross‐border externalities as both public goods are valued by consumers in both countries. We study a timing game between two different countries: before providing public goods, the two policymakers non‐cooperatively decide their preferred sequence of moves. We establish conditions under which a first‐ or second‐mover advantage emerges for each country, highlighting the role of spillovers and the complementarity or substitutability of public goods. As a result, we are able to prove that there is no leader when, for both countries, public goods are substitutable. When public goods are complements for both countries, each of them may emerge as the leader in the game. Hence a coordination issue arises. We use the notion of risk‐dominance to select the leading government. Finally, in the mixed case, the government for whom public goods are substitutable becomes the leader.     

China??s growth model and structural unbalance in the open economy

The Chinese economy has been significantly affected by the global financial crisis. Moreover, a rapid decline in growth rate can be mainly attributed to the expenditure structural unbalance, which takes root in its uneven national income distribution. Furthermore, the uneven national income distribution is the result of the extensive pattern of China’s economic growth in the open economy. The extensive pattern is characterized by labor-intensive export-led growth model. The need for high growth rate and fiscal revenue maximization forces local governments to compete against each other to get FDI by undervaluing production factors, resulting in the extensive pattern of growth. From an institutional point of view, uneven social power between government and public, central government and local governments, capital owners and labor force, and so on, can be viewed as the main reason for the extensive pattern of growth and uneven national income distribution. Low wage, which has been the main factor for the comparative advantage, now turns out to be barriers to boosting domestic demand. The technology lag in the manufacturing industry also has a significant negative impact on improving labor productivity and increasing per capita income. Hence, to deal with the recession, not only quantitative easing, but also structural adjustments are needed.     

Human development and decentralization: The importance of public health expenditure

In this article, we empirically analyze the impact of central and subnational government spending on human development in a sample of 57 developed and developing countries over the period 2000–18. Specifically, we focus on the effects of health and education public expenditure on the Human Development Index (HDI) and its dimensions (life expectancy, education, and income). Applying data panel analysis, our empirical evidence shows the importance of central and subnational government health expenditure positively impacting on HDI and each of its components, while in the case of the education expenditure, this positive effect is only confirmed on the educational dimension of HDI. Our study shows how governments can stimulate human development, improving the well-being of citizens, by allocating more resources to healthcare through the different administrative levels.     

The effect of fiscal performance on local government election results in Israel: 1989–1998

We discuss the circumstances under which voters in local elections will reward fiscal responsibility and suggest that such circumstances evolved in Israel in the mid-1990s. We present empirical evidence that, indeed, fiscal performance of mayors substantially affected their reelection probability in the 1998 campaign but not in the 1989 and 1993 campaigns. Changes in the political environment, enforcement of audit and financial reporting requirements, tougher imposition of hard budget constraints and the development of local media are proposed as explanations. The hypotheses that the fiscal variables reflect the income level at the locality, or the mayor’s success in extracting resources from the central government are tested and rejected.