What's the damage? Environmental regulation with policy‐motivated bureaucrats

In choosing environmental policy, governments rely on information provided by bureaucrats, who may have a political motivation of their own. We analyze the ensuing principal–agent relationship and derive the government's optimal contract. We find that a regulatory agent who is more environmentalist than the government is rewarded for truthfully stating that the environmental impact of the regulated economic activity is low (and vice versa). The bureaucrat has a stronger influence on policy if there is greater uncertainty about the environmental impact, or if the policy choice has a strong weight in his utility function. For some impact values, the bureaucrat is permitted to set his own preferred policy, which is a form of optimal delegation.     

Selection of public servants into politics

Countries differ substantially in how they deal with politicians that come from the public sector. Most constitutions include incompatibility and ineligibility rules due to concerns about conflicts of interest and the politicization of the public service. We study how these rules affect the attractiveness of parliamentary mandates for public servants and thus the selection into politics. We compile a novel dataset that captures the fraction of public servants in 76 national legislatures as well as the respective (in)compatibility regimes. On average, there are seven percentage points fewer public servants in parliaments where a strict regime is in force. Supplementary evidence based on IV estimations shows that the fraction of public servants in parliament is positively correlated with government consumption, but not correlated with government effectiveness.     

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.     

美国反垄断领域的福利转移市场——利益集团对反垄断法目标的异化

反垄断法是美国市场经济的基本法。长期以来,人们一直认为反垄断法的制定与实施都以公共利益为目标追求。而事实上,反垄断法自始至终都受到利益集团的利用与滥用,并因而严重地偏离了公益方向,由阻却市场力量的利器异化为谋取集团私利最大化的工具。     

利益集团影响下的政府管制决策行为分析

管制政策的形成是政策需求和政策供给两种力量相互作用的结果,当社会各利益集团处于某一初始资源配置点时,追求公众利益最大化的政府采取什么样的管制政策,取决于该初始禀赋下利益集团的公平效用及管制所造成的净损益效用。     

Use it or lose it

We examine the optimality of budget policies imposed by a funding authority on a bureaucrat who operates under a fixed budget. In particular, we study a “use‐it‐or‐lose‐it” (UILI) policy under which the bureaucrat has to return any unspent budget without being able to “roll over” any part to the next period. Instead of returning the unspent budget, the bureaucrat can go on a spending spree and engage in policy drift, which is inversely related to his motivation. The bureaucrat's motivation represents how well matched he is with the bureaucracy's mission. We show that a UILI policy is complementary to motivation as it has stronger ex ante positive incentive effects on more motivated bureaucrats. Such ex ante positive effects can overcome the ex post inefficiency of the policy and make a UILI policy optimal when the bureaucrat is well matched with the bureaucracy's mission or when its budget is large.     

PRODUCTIVE GOVERNMENT EXPENDITURE IN MONETARY BUSINESS CYCLE MODELS

This paper assesses the transmission of fiscal policy shocks in a New Keynesian framework where government expenditures contribute to aggregate production. It is shown that even if the impact of government expenditures on production is small, this assumption helps to reconcile the models' predictions about fiscal policy effects with recent empirical evidence. In particular, it is shown that government expenditures can lead to a rise in private consumption, real wages, and employment if the government share is not too large and public finance does not solely rely on distortionary taxation. When government expenditures are partially financed by public debt, unit labor costs fall in response to a fiscal expansion, such that inflation tends to decline. Households are willing to raise consumption if monetary policy is active, i.e. ensures that the real interest rate rises with inflation. Otherwise, private consumption can also be crowded out, as in the conventional case where government expenditures are not productive.     

The impact of government debt on the long-run natural real interest rate – a quantitative evaluation

Persistently low natural real interest rates are a problem for monetary policy and financial stability. I analyse to what extent a permanent increase in government debt that is financed by higher taxes could raise the long-run natural real interest rate. As a measurement tool, I use an incomplete markets model with capital and government bonds. Increasing the public debt/GDP ratio by one percentage point raises the real interest rate by between 0.4 and 1.5 basis points, depending on the degree of inequality generated by the model and the tax instrument used to balance the government’s budget constraint. I also show that the interest rate effect of a change in public debt/GDP predicted by the model is significantly smaller than its empirical counterpart for the US, due to the fact that the model understates the empirical fraction of households that are constrained in their consumption decision.     

Bureaucratic Advice and Political Governance

This paper studies the conflict of interest between politicians and better-informed bureaucrats when they have differing preferences over a public project. We start with a baseline model where a bureaucrat advises a single decision maker (politician) whether to adopt a project. The bureaucrat can be punished if his misrepresentation of the project is detected. We extend this to multiple projects and multiple bureaucrats, and compare the level of Type I and Type II errors generated with centralized and decentralized decision making. This typically depends on the form of the distribution function that determines the bureaucrats' expectation of being disciplined.     

印度利益集团对其贸易政策的影响

本文利用贸易政策形成的需求供给分析框架及利益集团影响贸易政策形成的机制，分析了印度利益集团对印度贸易政策确立与演变的影响。虽然印度各种利益集团的相互博弈在一定程度上影响了印度贸易政策的形成与发展，但利益集团发挥的作用是有限的，印度政党对利益集团的利用是充分的。印度历届政府经常利用利益集团之间的斗争，推进贸易自由化进程。     

EXPANSIONARY VERSUS CONTRACTIONARY GOVERNMENT SPENDING

This article theoretically examines the impact of different forms of government spending on national income in a financially open economy with a significant net international investment position the central bank of which sets domestic interest rates to target inflation. It shows that whether government spending is expansionary or contractionary ultimately depends on the productivity of that expenditure, a result that has major implications for the efficacy of fiscal policy deployed for either stimulus or austerity reasons. The key prediction of the model is that public consumption and unproductive public investment are procyclical, whereas only productive public investment is countercyclical. (JEL F41)     

Endogenous Government Expenditure: A Test of Wagner's Hypothesis For Hong Kong

In the last two decades a revival of interest in wagner's thesis of an endogenous public sector has led to a series of empirical tests of its validity. In its barest essentials, this paper attempts to find efficient estimates of income elasticities of demand for real total government expenditure as well as for its disaggregated functional groups as a means of verifying Wagner's expectation for the Hong Kong economy. Our empirical estimates indicate that Hong Kong's public finance setting is a synchronization of a worldwide tendency for public sector expansion according to the Wagnerian expectation. These findings lead us to raise a number of policy questions concerning the financial sustainability of Hong Kong's budget system over time. [320]     

CAUSES AND CONSEQUENCES OF FARM POLICY

Two types of public choice models have been applied to model the political economy of farm programs: the self-willed government (SWG) model and the clearinghouse government (CHG) model. In terms of theory, the two models are very similar but most analysts prefer the CHG model. In terms of empirical work, the CHG model has done a little more—but not much more—to further our understanding of the causes of farm programs. Reviewing the theoretical and applied literature indicates that one should extend and refine the models so as to allow explicitly for a larger number of interest groups (especially agribusiness and foreign interests), to allow multiple policy instruments to be applied jointly, and to explain the choice(s) of policy instruments jointly with the rate of protection.     

Productivity and Policy in Higher Education

Understanding and improving the performance of public higher education institutions is a matter of growing interest to university and government leaders. To this end, this article surveys dimensions of recent approaches to productivity measurement in higher education, illustrating trends, limitations and developments, and exemplifies these with reference to Australian universities. The article closes by discussing policy considerations that would help augment the design of policy, making comment on the implications for performance‐incentivised funding of higher education.     

The political economy of capital market integration and tax competition

This paper investigates the effect of capital market integration (CMI) on capital taxes in a political economy framework in which policy is influenced by lobbying of interest groups. CMI increases the efficiency cost of the capital tax, which introduces incentives to reduce the tax rate, but also reduces lobbying by owners of capitalists, which introduces countering incentives to increase the tax rate. CMI can therefore result in a higher capital tax rate. When the market share of each country is small, CMI may increase government supply of public goods and enhance efficiency, which implies that, in the presence of policy endogeneity through lobbying, decentralized policymaking can be more efficient than centralized policymaking.     

Project Aid or Budget Aid? The Interests of Governments and Financial Institutions

The paper compares different aid policy instruments and their effect on the target group. Starting from a situation where interest groups compete for the resources of the government, international financial institutions aim to change the policy outcome. They can either directly support one group or condition their financial help to the government on its policy. Apart from a normative analysis which policy is more adequate to help one group, the paper asks what happens if the aid agency is driven by bureaucratic self‐interest.     

Central bank instruments, fiscal policy regimes, and the requirements for equilibrium determinacy

This paper examines the role of the monetary instrument choice for local equilibrium determinacy under sticky prices and different fiscal policy regimes. Corresponding to Benhabib et al.'s results for interest rate feedback rules [Benhabib, J., Schmitt-Grohé, S., Uribe, M., 2001. Monetary policy and multiple equilibria. American Economic Review 91, 167–185], the money growth rate should not rise by more than one for one with inflation when the primary surplus is raised with public debt. Under an exogenous primary surplus, money supply should be accommodating—such that real balances grow with inflation—to ensure local equilibrium determinacy. When the central bank links the supply of money to government bonds by controlling the bond-to-money ratio, an inflation stabilizing policy can be implemented for both fiscal policy regimes. Local determinacy is then ensured when the bond-to-money ratio is not extremely sensitive to inflation, or when interest payments on public debt are entirely tax financed, i.e., the budget is balanced.     

Optimal taxation and discount rate for public investment in a growth setting

This paper studies the optimal policy of a government which maximizes intertemporal social welfare using such instruments as taxes on interest income and wages, and debt in conjunction with public investment. In doing so, it has to face a decentralized economy where in each generation individuals and firms are free to maximize their own objectives subject to their own private constraints. The welfare function is a sum of discounted generational utilities and its maximization is handled by using dynamic programming. From the first order conditions so derived, it appears that an optimal policy of taxation and public capital accumulation is that which sets the tax rates according to Ramsey's optimal taxation structure and which equates the rate of return on public investment to the rate of social time preference.     

Can government's choice of a high inflation policy be rational?

Out of the two inflation tax equilibria—i.e., the two inflation rates which bring the same revenue to the government—the higher one is not infrequently chosen. It is shown that such a choice may not be irrational for a government whose policy includes a financial repression and exchange rate controls and which is trying to maximize public sector expenditures. However, such policy is not sustainable in the long run, whatever its short-term advantages may be. Hence, policy makers should always weight advantages of higher public sector expenditures today against hardships of inevitable stabilization programs in the future.     

Tax Competition, Capital Mobility, and Public Good Provision Within a Trading Block

The authors examine a two–country general–equilibrium model of a two–country trading block where governments through tax policies attract mobile capital and provide an imported public consumption good. Within this framework the authors examine, among other things, how preferences over the public good and the size (population) of a country affect the Nash or cooperative equilibrium values of income tax rates in the two countries. The analysis identifies sufficient conditions under which (i) the Nash/cooperative equilibrium income tax rates are strategic substitutes or complements, and (ii) the Nash equilibrium income tax rates may be greater than the cooperative rates.