Interregional tax competition and intraregional political competition: The optimal provision of public goods under representative democracy

This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods under representative democracy à la (Osborne and Slivinski, 1996) and (Besley and Coate, 1997). As an extension of Hoyt’s (1991) finding that intensified tax competition is always harmful and aggravates the extent to which public goods are undersupplied in a region, we show that intensified tax competition can be beneficial if political as well as tax competition is considered. In particular, we identify plausible conditions under which (i) there is an optimal intensity of tax competition such that the interaction between interregional tax competition and intraregional political competition will result in the optimal provision of public goods and (ii) intensified tax competition will be beneficial if and only if the degree of tax competition is less than this optimal intensity.     

The impact of referendums on the centralisation of public goods provision: a political economy approach

The paper compares decision-making on the centralisation of public goods provision in the presence of regional externalities under representative and direct democratic institutions. A model with two regions, two public goods and regional spillovers is developed in which uncertainty over the true preferences of candidates makes strategic delegation impossible. The political economy argument against centralisation of Besley and Coate (J Public Econ 87:2611–2637, 2003) does therefore not apply. Instead, it is shown that the existence of rent extraction by delegates alone suffices to make cooperative centralisation more likely through representative democracy under reasonable assumptions. In the case of non-cooperative centralisation, the more extensive possibilities for institutional design under representative democracy increase the likelihood of centralisation. Direct democracy may thus be interpreted as a federalism-preserving institution.     

Centralized and decentralized provision of public goods

We model the trade-off between centralized and decentralized decision making on the provision of local public goods. Decisions are influenced by spillover effects and differences in jurisdictional size. Centralized decisions are made in a legislature of locally elected representatives, and this creates a conflict of interest between citizens in different jurisdictions. The legislature can be self-interested or benevolent and this can result in either efficient, excessive, or misallocative provision of public goods. The form of centralized decision making has a significant influence on the incentives for centralizing decision making.     

The provision of public goods in a growing urban economy

The growth path of a mixed open urban economy is considered. In the private sector profit maximizing firms produce an all-purpose output with labor, capital and public infrastructure. Workers move between the urban area and the rest of the nation so as to increase their real income which is the sum of wages and income derived from the use of the urban infrastructure. The public sector determines infrastructure investments so as to maximize the current value of future per capita felicity. Infrastructure has public good characteristics and is used jointly by firms and workers. The urban growth path is derived and public sector policies are analyzed.     

Efficient provision of public goods with endogenous redistribution

We study a balanced mechanism that is capable of implementing in Nash equilibrium all the Pareto-efficient individually rational allocations for an economy with public goods. The Government chooses a set of weights directly related to the Lindahl prices corresponding to the Pareto-efficient allocation to be implemented. The mechanism then guarantees that initial endowments are re-allocated so that the chosen vector of Lindahl prices is indeed a Lindahl equilibrium, and implements the corresponding Lindahl allocation. Finally, besides being balanced, our mechanism is simple. Each agent has to declare a desired increase in the amount of public good, and a vector of redistributive transfers of initial endowments (across other agents).Received: 9 May 2003, Accepted: 22 October 2003, JEL Classification: C79, H21, H30, H41We wish to thank Jeremy Edwards, Andrew Postlewaite and Emanuela Sciubba for helpful comments. Of course, any remaining errors are our own.     

The effect of spillovers on the provision of local public goods

This paper analyzes the provision of local public goods with positive spillovers across jurisdictions. If spillovers are symmetric, the non-cooperative game played by jurisdictions admits a unique equilibrium, and an increase in spillovers reduces the total provision of public goods. Smaller jurisdictions always reduce their contribution, but larger jurisdictions can increase their contribution. When spillovers are asymmetric, equilibrium is unique if spillovers are low, while multiple equilibria exist for high spillover values. In the case of two jurisdictions, an increase in the flow of spillovers to one jurisdiction benefits agents from that jurisdiction but harms agents in the other jurisdiction. Beyond the case of two jurisdictions, the effect of changes in spillovers cannot be signed. An increase in the spillovers flowing to a jurisdiction can actually result in an increase in the supply of public goods by that jurisdiction and harm agents residing in it, while benefiting agents in the other jurisdictions. The results of the paper reveal the complexity of interactions that will plague the design of institutions for multijurisdictional local public good economies with spillovers.      

Stackelberg leadership and transfers in private provision of public goods

We consider transfers in a Stackelberg game of private provision of a public good. It turns out that the agent who is the follower in the process of making voluntary contributions to a public good may have an incentive to make monetary transfers to the Stackelberg leader even in a situation where neither has a comparative advantage in making contributions to the public good. The Stackelberg leader is willing to accept such transfers if the actual contribution game is fully non-cooperative because the transfer generates a Pareto superior outcome. If the contributions in the Stackelberg equilibrium is the threat point of a possible cooperative Nash bargaining game, the Stackelberg leader will refuse to accept the transfer if she can. Received: 30 June 1995 / Accepted: 18 February 1997     

Spatial majority voting equilibria and the provision of public goods

This paper develops general equilibrium conditions for urban areas where a pure public good is provided at a level decided upon by majority voting. Models with a property tax and a head tax and external land ownership are analyzed, and equilibrium solutions are compared using a specific form for the utility function. Optimal cities are characterized and compared to those emerging from the majority voting equilibria. Models where aggregate land rent is divided equally among the urban residents are also developed.     

Spatial provision of local public goods with spillover effects

Most of the works dealing with local public goods are aspatial in their treatment since they consider only the case of a pure local public good; such works do not address the problem of where the good is to be supplied. In this paper, an initial attempt to treat the distribution of an impure local public good as a choice function is made within the framework of optimum urban land use. The distance-decay nature of spillover effects inherent in an impure local public good is explicitly considered by adopting a negative exponential function. To highlight the spatial aspect of an impure local public good, a two-supply-site problem with a log-linear utility function is formulated to determine the optimal supply sites. It is shown that if the weight of the utility function on the public service is greater than or equal to that on land, then the local public good is exclusively supplied at the center. Otherwise, separate supply sites can be optimal.     

Taxation in an economy with private provision of public goods

This paper analyses the effects of taxation and subsidies in an economy with private provision of a public good. It is shown that in a situation where all individuals contribute, taxation affects the equilibrium allocation if and only if at least one individual's voluntary contribution to the public good has an impact on the aggregate tax payments of the others. We then consider linear nonneutral tax-subsidy schemes and analyse efficiency and uniqueness of the resulting Nash equilibria. We show that an efficient Nash equilibrium, where all individuals contribute, will in general not be unique, and establish a non-uniformity property which a tax-subsidy scheme must fulfil in order to induce a unique interior equilibrium that is efficient. Throughout the paper it is assumed that individuals fully understand and take into account the government's budget constraint. Received: 3 November 1997 / Accepted: 23 March 1999     

Sources of inefficiency in representative democracy: Evidence on public investments across nations

Besley and Coate (1997 and 1998) exposit a formal model of dynamic fiscal policy that highlights the problem associated with the temporal mismatch between the incidence of benefits and costs. Their analysis focuses in part on the conditions that may result in inefficient public investment decisions in a representative democracy. This paper employs cross-national data to investigate implications of the Besley-Coate model. The findings indicate that several political institutions significantly affect public investments, including term lengths, staggered term expiration dates, and the separation of power between the executive and legislative branches. The findings also suggest that fiscal arrangements for redistributive payments may increase public investments. Received: March 2000 / Accepted: May 2000     

Redistribution and regional development under tax competition

This paper considers how capital tax competition affects transfer and development policies in the presence of regional income disparity. In each country, development policies determine the number of rich (poor) regions that (do not) engage in production activities, while transfer policies redistribute income between rich and poor regions. The mix of transfer and development policies is inefficient under tax competition: conditional on the equilibrium tax rate, too much revenue is spent on development policies and too little on transfer policies. This analysis of the expenditure mix implies that development policies are used as a means of regional redistribution even if transfer policies are efficient instruments for this purpose. Moreover, it is shown that the overall level of public expenditure may be too high because of the possibility of over-development.     

Voice,exit and local capture in public provision of private goods

We developed a simple model on publicly provided private goods, such as health or education that highlights a vicious cycle faced by many developing countries. When public services are not of high quality due to mismanagement or corruption, the wealthy may switch to private alternatives. Their exit weakens the influence of citizen voice over politicians, since that leaves the poor as the only constituent with a stake in good governance. As the civic control over local governments weakens, government’s concern for social welfare declines even further, leading to more corruption and more corrosion in the quality of public services. Our model shows that establishing institutions (such as local taxation) that spread the costs and benefits of governance across the whole society is crucial for the success of local governments. Empirical results from the Philippines support this hypothesis.     

城市公共物品供给与税制

通过对公共物品性质的经济学分析,论证了城市公共物品的供给主体选择问题,分析了我国现行的税收立法体制的弊端,提出了解决这一问题的对策,即税收立法权向城市一级政府下放,实现事权与财权的统一.     

Dynamic voluntary provision of public goods with uncertainty: a stochastic differential game model

Fershtman and Nitzan (Eur. Econ. Rev. 35:1057–1067, 1991) presented a continuous dynamic public good game and solved the model for feedback Nash equilibria. Wirl (Eur. J. Polit. Econ. 12:555–560, 1996) extended the model and considered nonlinear strategies. Both models do not include uncertainty and hence neglect an important factor in the theory of public goods. We extend the framework of Nitzan and Fershtman and include a diffusion term. We consider two cases. In the first case, the volatility of the diffusion term is dependent on the current level of the public good. This set-up will in principle lead to the same type of feedback strategies computed under certainty. In the second case, the volatility is dependent on the current rate of public good provision by the agents. The results are qualitatively different. We provide a detailed discussion as well as numerical examples. In particular, we show that in both cases uncertainty signifies the free rider effect.     

Fundamental impossibility theorems on voluntary participation in the provision of non-excludable public goods

Groves and Ledyard (Econometrica 45:783–809, 1977) constructed a mechanism attaining Pareto efficient allocations in the presence of public goods. After this path-breaking paper, many mechanisms have been proposed to attain desirable allocations with public goods. Thus, economists have thought that the free-rider problem is solved, in theory. Our view to this problem is not so optimistic. Rather, we propose fundamental impossibility theorems with public goods. In the previous mechanism design, it was implicitly assumed that every agent must participate in the mechanism that the designer provides. This approach neglects one of the basic features of public goods: non-excludability. We explicitly incorporate non-excludability and then show that it is impossible to construct a mechanism in which every agent has an incentive to participate.     

对奢侈品征收消费税的意义

消费税对居民收入有调节作用.随着我国经济的增长,贫富差距的拉大,对奢侈品征收消费税越来越显示出其必要性.目前我国正在酝酿的消费税改革,对奢侈品准备征收消费税.本文探讨了我国当前消费税的现状.并分析了对奢侈品征税的作用和意义.     

Investment in public infrastructure with spillovers and tax competition between contiguous regions

Two contiguous regions compete to attract a population of heterogeneous firms. They choose infrastructure levels in a first stage and compete in taxes in a second stage. We study the properties of Subgame Perfect Nash equilibria in this stage game depending on the extent to which the benefits of infrastructure spill over from one region to the other. First, we show that the presence of inter-regional spillovers allows jurisdictions to control for the intensity of tax competition and therefore affects the optimal levels of infrastructure selected at equilibrium. Second, by comparing the non-cooperative and cooperative outcomes, we show that the extent to which regions overinvest in infrastructures negatively depends on the intensity of the spillovers.     

对奢侈品征收消费税的意义

消费税对居民收入有调节作用。随着我国经济的增长,贫富差距的拉大,对奢侈品征收消费税越来越显示出其必要性。目前我国正在酝酿的消费税改革,对奢侈品准备征收消费税。本文探讨了我国当前消费税的现状。并分析了对奢侈品征税的作用和意义。