Competing in taxes and investment under fiscal equalization

The paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital. Regions' choices determine allocation of capital across the regions and their revenues under a tax sharing scheme. This framework allows for the examination of different approaches to fiscal equalization schemes [Boadway, R., Flatters, F., 1982. Efficiency and equalization payments in a federal system of government: a synthesis and extension of recent results, Canadian Journal of Economics 15, 613-633; Weingast, B.R., 2006. Second Generation Fiscal Federalism: Implication for Decentralized Democratic Governance and Economic Development, Working Paper, Hoover Institution, Stanford University]. We show that tax competition distorts (downwards) public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes. However, the equalization schemes remain beneficial not only for the federation and, under a low degree of regional asymmetry, also for each region.     

On the joint production of research and training

Universities and research institutions have the responsibility to produce science and to provide training to new generations of researchers. In this paper, we propose a model to analyze the determinants of a senior scientist’s decisions about allocating time between these tasks. The results of this decision depend upon the characteristics of the research project, the senior scientist’s concern for training and the expected innate ability of the junior scientist involved. We analyze the role that a regulator can play in defining both the value of scientific projects and the future population of independent scientists.     

Heinrich von Stackelberg on joint production

In the 1970s, considerable interest arose into the study of multi-output firms and industries. However, this literature did not seem to be aware of the contribution that von Stackelberg made to the issue almost half a century earlier. This paper outlines von Stackelberg's contribution to the theory of costs under joint production. It critically assesses the place of his contribution in the modern history of the theory of joint production and it suggests an answer to the question of why von Stackelberg's theory of joint production fell into oblivion and even contributed to the abandonment of the issue for decades.     

Accountability and fiscal equalization

A common feature of multi-jurisdictional systems is equalization programs. The implementation of such programs, that is based on some measurement of sub-national fiscal capacity and effort, is particularly complex. Within a political economy model, this paper analyzes the impact of such systems on accountability, identifying a positive and a negative effect. The positive effect arises because with equalized fiscal resources, a consequence of equalization, citizens attach more importance to any remaining variation in public good supplies and so punish rent-taking more severely. This induces politicians to restrain themselves and so accountability improves. The negative effect arises because the complexity of such programs reduces the informational content of observed public good supplies. This introduces a perverse fiscal incentive that reduces accountability. Thus, the overall impact of equalization programs on accountability depends on the balance of these effects.     

Substitution and expansion effects in production theory: The case of joint production

This paper is concerned with a systematic examination of what happens when a firm that has been in equilibrium at certain prices of inputs and prices of outputs experiences a change in these prices. The mutual effects between inputs and between outputs and the cross effects between inputs and outputs are explored by means of various kinds of decomposition equations in production theory. A definition of the “normal” technology is given to show that inputs are not gross substitutes, nor are outputs, and that the input-output relations are not regressive.     

Pure joint production and international trade: a note

This paper applies the principles of the neo-Ricardian (or Sraffian)theory of international trade to certain joint production systems.It is shown that, in contrast with single-product systems, (i)there is not always a pattern of international specialisation,which would entail the increase of the real wage rate in botheconomies, and (ii) the ‘law of comparative advantage’has no general validity. Furthermore, not only the existenceof such a pattern of specialisation but also the validity ofthis law depend on the values of the variables of distributionof income. The analysis is wholly based on two of the numericalexamples formulated by Bidard in 1997, and further generalisedin an elementary way only when this is considered necessary.     

Optimal taxation with joint production of agriculture and rural amenities

We show that, when there is joint production of an agricultural good and rural amenities, the first-best allocation of resources can be implemented with a tax on the agricultural good and some subsidies on the production factors (land and labor). The use of a subsidy on the agricultural good can only be explained by the desire of the policymaker to redistribute income from the consumers to the farmers.     

Modelling cost complementarities in terms of joint production

Cost complementarities arise from synergies in the production of heterogeneous goods. It is shown that synergies can be accounted for in terms of shared public inputs (roughly) if and only if synergies decrease as the scope of production increases. This case of “substitutive” synergies is argued to be typical. The key technical tool is a novel interpretation of conjugate Moebius inversion in terms of higher-order differences.     

Raising taxes through equalization

Abstract.  A simple theory suggests that a common form of federal horizontal equalization grants should cause subnational governments to levy higher tax rates, distorting local tax bases and so increasing federal transfers. To test this, I examine Canadian provincial tax policies in the 1972–2002 period. Consistent with the theory, provinces respond to expansions of equalization transfers by increasing their own tax rates. I estimate that on average tax rates in grant-receiving provinces were substantially and significantly higher as a consequence of the transfer formula. JEL classification: H21     

Optimal production of innovations under uncertainty

The paper reports results on a risk-neutral firm's research incentives. When unrelated to the firm's own stake in the program, the risks encourage or discourage risky research spending, depending on the properties of the research technology available. A non-decreasing time path of information builds the idea of an asymmetric probability distribution of the state of knowledge into the model. It follows that the required return on risky investments may actually fall short of the safe return. Since it is the upside risk that dominates, increased controllable risks will increase incentives for risky innovative activity. It is proved, but only in a more restricted framework (with differentiable processes), that the expectational effects involved will strengthen the positive relationship between controllable risks and the expected return.I am greatly indebted to three anonymous referees for helpful suggestions and to the Yrjö Jahnsson Foundation for financial support.     

Similarity of endowments and the factor price equalization condition

Summary. We give a geometric interpretation of the lens condition, proposed by Deardorff as a shortcut for checking the factor price equalization (FPE) condition. We identify the conditions under which the lens condition implies the FPE condition. If the FPE zone is not a neighborhood of the diagonal allocations, however, the lens condition is irrelevant despite the implication since the FPE condition (hence the lens condition) is unlikely to be satisfied in that case. We give precise conditions under which the lens condition is equivalent to the FPE condition and simultaneously, the FPE zone is a neighborhood of the diagonal allocations. Received: January 2, 2002; revised version: July 1, 2002 RID="*" ID="*" The author would like to thank an anonymous referee, Bruce Dieffenbach and Michael Jerison for helpful comments.     

The possible shapes of the production possibility curve under Cobb-Douglas production function

It is well-known that if returns to scale differ in different output ranges of the same commodity, the production possibility curve may change its shape from concave to convex to the origin. But what is less obvious may be that if they do not differ in different output ranges, the PPC may not be either concave, or convex but may well be both concave and convex. Under Cobb Douglas production functions the PPC changes its curvature at most twice. We draw some examples where the PPC changes its curvature once and twice.