Mobility and Redistributive Politics

There is widespread concern that greater mobility of individuals can undermine any attempt to redistribute income at the local level. In this paper we derive the equilibrium level of redistribution when both the rich and the poor are imperfectly mobile and when each jurisdiction chooses its redistributive policy by majority voting. This leads to a fundamental interaction whereby the policy choices of jurisdictions determine whom they attract and where whom they attract determines their policy choices. Our main findings are twofold. First, we show that greater mobility of the poor can increase the equilibrium amount of redistribution. Second, we find that some jurisdictions can be in equilibrium on the "wrong" side of their Laffer curve. The reason is that the poor are in a majority in these jurisdictions and they are opposed to a potentially Pareto-improving tax reduction because it would attract the rich and shift the majority. The analysis also reveals how the interplay between policy choices and membership leads to multiple equilibria.     

Budget Deficits and Exchange-Rate Crises

This paper investigates currency crises in an optimizing general equilibrium model with overlapping generations. It is shown that a rise in government budget deficits financed by future taxes generates a decumulation of external assets, leading up to a speculative attack and forcing the monetary authorities to abandon the peg.     

Women and Budget Deficits*

If women have different economic preferences than men, then female economic and political empowerment is likely to change economic policy, and in turn perhaps macroeconomic outcomes. In this paper, we narrow the focus to fiscal policy, and we investigate whether female enfranchisement affects government budget deficits. In a difference‐in‐differences regression for Swiss cantonal panel data, we find that the inclusion of women in the electorate has reduced deficits by a statistically significant amount.     

Income Distribution, Redistributive Politics, and Economic Growth

This article studies the political economy of inequality and growth by combining the political economy approach with an imperfect capital market assumption. In the present model, there emerges a class of individuals whose members do not invest privately beyond the state-financed schooling, due to their initial wealth constraint. We show that inequality affects private investment not only through the political effect, which relates inequality to private investment negatively, but also through what we call the threshold effect, which associates inequality to private investment positively. In general, private investment and inequality do not show a monotone negative relationship.     

How Budget Deficits Cause Trade Deficits: The Simple Analytics

A supply and demand framework is used to clarify the links between budget deficits, exchange rates, and the trade deficit.     

International Trade,Budget Deficits,and the Interest Rate

In a keynote address to the Joint Council on Economic Education, the author pointed out that a tight money policy, budget deficits, and greater after-tax profitability of investment in the United States have contributed to the strength of the dollar and to the flow of funds into this country. The consequence and implication of this are examined, both with respect to the past and the near future.     

Political Leaders' Socioeconomic Background and Public Budget Deficits: Evidence from OECD Countries

This paper empirically analyzes the relationship between political leaders' socioeconomic backgrounds and public budget deficits utilizing panel data on 21 OECD countries from 1980 to 2008. Building on sociological, as well as economic research, we argue that the socioeconomic status of political decision‐makers, i.e., presidents or prime ministers, is an important determinant of fiscal budget decisions. Our theory‐consistent findings show that the tenures of lower‐class leaders – i.e., leaders of low socioeconomic status – are associated with a deficit‐to‐GDP ratio which is 1.6 percentage points higher than that during tenures of upper‐class leaders.     

Budget Deficits and Inflation: The Roles of Central Bank Independence and Financial Market Development

This article investigates the relationship between budget deficits and inflation with the view that the nature of this relationship depends on the characteristics of monetary and financial institutions. The main hypothesis is that budget deficits are especially inflationary when both the central bank is not independent and the financial market is not developed enough to contain inflationary expectations. The empirical analysis using a panel data that comprises 54 developed and less developed countries, with one to two decades of observations for each, supports this hypothesis. The findings are also robust to subsets of the sample. (JEL E58 , H62 )     

Constitutional Constraints and Redistributive Activities

This paper shows that non-productive activities aimed at influencing the distribution of income might increase when constitutional constraints against redistribution are imposed or strengthened. By facilitating redistribution, on the other hand, influence activities could be limited, and the economic performance improved. We argue that these effects could be important in countries with poorly developed democratic institutions, and that research in constitutional economics needs to be more aware of perverse effects of this kind.     

Redistributive Taxation and Public Education

This paper examines the relative effectiveness of publicly provided ‘white collar’ professional (university) education versus ‘blue collar’ vocational training in achieving the government's redistributive goals. Although professional education directly benefits high‐skill high‐income workers and vocational training directly benefits low‐skill low‐income workers, we show that either provision of more professional education or less vocational training than in the first‐best allocation is optimal along the second‐best Paretian frontier since this facilitates incentive compatibility in labor supply decisions. Accordingly, the observation that public higher education expenditures in most countries favor universities is not necessarily inconsistent with an optimal redistributive program.     

政治学维度的中国公共预算研究现状与进一步发展之见解

与传统预算研究不同,公共预算主要从预算政治与预算技术两个角度展开,并主要由政治学者与公共管理学者主导.本文主要描述了新兴的我国公共预算研究的现状,并提出了下一步的发展思路.     

The Impact of Budget Deficits on Real Interest Rates: An International Empirical Investigation

In this study, an attempt is made to asses the empirical relationship between the short-term real rate of interest and government budget deficit for five industrialized countries during the period of 1965Q1–1985Q4. Contrary to the conclusions reported earlier by some, the results do not support a statistically significant relationship between budget deficit spending and the real interest rate. Alternative estimations of the basic model with money supply and government spending as other determinants of the real interest rate did not alter the fundamental conclusion reached. [310]     

Redistributive policy,inequality and growth

Does redistribution increase inequality? Is inequality harmful for growth? Both questions have recently been addressed in a number of single-tax models. In this paper, I examine the relationship between policy, growth and inequality when income and inherited wealth can be taxed at different rates. In the model, parents accumulate human capital and a return-bearing, storable good in order to increase the quality of their children. Inequality arises because the learning ability of children is stochastic. Redistributive labor income taxation has a negative impact on short- and long-run growth while taxation of inherited stocks increases growth. Effects of both taxes on income inequality are ambiguous. A switch from income to inheritance taxation may increase average utility of all generations involved. I calculate a structure-induced equilibrium of the political process by means of a stochastic simulation of the model. In the short run initial wealth-inequality can stimulate growth, while initial inequality of the endowment with human capital is harmful for growth.     

Optimal Tax-Transfer Systems and Redistributive Policy

In this paper we develop "optimal yardsticks" to gauge the effectiveness of given tax and benefit policies in reducing inequality. We show that the conjunction of the optimal tax and optimal benefits policies constitutes the optimal tax-and-benefit policy, given the tax and benefit budget sizes. A decomposition formula enables trends in the inequality impact of taxes and benefits to be explained in terms of changing policy effectivess (targeting) and budget size effects. The analysis incorporates a distributional judgement parameter, for sensitivity analysis, and concludes with an examination of the Finnish case for the period 1971–1990.
JEL Classification : D 63     

User Charges as Redistributive Devices

In this model, a mix of public and private provision of private goods arises naturally in the economy. We characterize the social optimum in the presence of a linear tax/public expenditure system and show how a user charge can be welfare- or Pareto-improving, when the users are the poor. The charge discourages the rich from opting into the public program and allows the policymaker to restructure the tax/expenditure system in a way that is beneficial for the poor. If the ensuing welfare gain is large enough to outweigh the loss for the remaining users, a charge is desirable.     

Budget Deficits Expected Inflation and Short-Term Real Interest Rates: Evidence for the U.S.

This paper examines a number of issues concerning the determination of short-term real interest rates. We include actual inflation and several measures of expected inflation in order to determine whether empirical results are sensitive to the choice of the inflation variable. The results strongly suggest that the estimated coefficients are unaffected by the choice of the interest rate variable and, implicitly, the inflation variable. Deficits are not found to have a positive effect on all measures of the dependent variable, while increases in the real money supply and the inflation variables depress real interest rates. [311]     

Redistributive taxation as social insurance

The modern literature on nonlinear optimal taxation treats differences in income as being due to unobserved differences in ability. A striking result of this assumption is that high income agents should face a zero marginal tax rate. In this paper I assume that differences in observed income are due to exogenous differences in luck. Hence the optimal redistributive tax involves trading off the benefits due to ‘social insurance’ with the costs due to reduced incentives. I derive the optimal forms for linear and nonlinear taxes, and compute some algebraic and numeric examples. Typically high income individuals will face quite high marginal tax rates.     

Redistributive politics with distortionary taxation

This paper proposes a first step towards a positive theory of tax instruments. We present a model of redistributive politics that extends those of Myerson [R. Myerson, Incentives to cultivate minorities under alternative electoral systems, Amer. Polit. Sci. Rev. 87 (1993) 856-869] and Lizzeri and Persico [A. Lizzeri, N. Persico, The provision of public goods under alternative electoral incentives, Amer. Econ. Rev. 91 (2001) 225-239]. Two politicians compete in terms of targeted redistributive promises financed through distortionary taxes. We solve for the case of both targetable and non-targetable taxes. We prove that there is an imperfect efficiency-targetability trade off on the tax side. Politicians prefer targetable taxes over non-targetable ones, especially when the latter are less efficient. Yet, targetable taxation is always used even when it is very inefficient compared to non-targetable taxes.     

Expected Future Budget Deficits,the Real Exchange Rate and Current Account Dynamics in a Finite Horizon Model

This paper uses an optimizing open economy general-equilibrium model to investigate the macroeconomic effects of current and expected future budget deficits. It is shown that current and expected future budget deficits are positively correlated with the current account deficit, the capital stock and the real exchange rate, but negatively correlated with the domestic real interest rate and consumption, along the stable path approaching the steady state. The paper also demonstrates that the world real interest rate is positively correlated with consumption, foreign assets and the domestic real interest rate, but negatively correlated with the capital stock and the real exchange rate. Received April 11, 2001; revised version received October 25, 2001     

Redistributive Taxation under Ethical Behaviour*

We consider the implications of ethical behaviour on the effect of a redistributive tax‐transfer system. In choosing their labour supplies, individuals take into account whether their tax liabilities correspond to what they view as ethically acceptable. If tax liabilities are viewed as ethically acceptable, a taxpayer behaves ethically, does not distort her behaviour, and chooses to work as if she were not taxed. On the other hand, if ethical behaviour results in tax liabilities that exceed those that are ethically acceptable, she behaves egoistically (partially or fully), distorts her behaviour, and chooses her labour supply taking into account the income tax. We establish taxpayers' equilibrium behaviour and obtain that labour supply is less elastic when taxpayers may behave ethically than when they act egoistically. We characterise and compare the egoistic voting equilibrium linear tax schedules under potentially ethical and egoistic behaviour. We also compare our results to those obtained under altruism, an alternative benchmark.