Results 1  10
of
108
On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model
, 1999
"... We study a dynamic version of Meltzer and Richard’s medianvoter model of the size of government. Taxes are proportional to total income, and they are redistributed as equal lumpsum transfers. Voting takes place periodically over time, and each consumer votes for the tax rate that maximizes his equ ..."
Abstract

Cited by 64 (4 self)
 Add to MetaCart
We study a dynamic version of Meltzer and Richard’s medianvoter model of the size of government. Taxes are proportional to total income, and they are redistributed as equal lumpsum transfers. Voting takes place periodically over time, and each consumer votes for the tax rate that maximizes his equilibrium utility. We calibrate the model to match U.S. data. Key elements in the calibration are the income and wealth distribution and the parameters governing the laborleisure and consumptionsavings choices. The total size of transfers predicted by our politicaleconomy model is quite close to the size of transfers in the data.
Endogenous policy choice: The case of pollution and growth," Review of Economics Dynamics
, 2001
"... What determines the relationship between pollution and growth? Are the forces that explain the behavior over time of these quantities potentially useful to understand more generally the relationship between policies and growth? In this paper, we make a first attempt to analyze the equilibrium behavi ..."
Abstract

Cited by 51 (0 self)
 Add to MetaCart
What determines the relationship between pollution and growth? Are the forces that explain the behavior over time of these quantities potentially useful to understand more generally the relationship between policies and growth? In this paper, we make a first attempt to analyze the equilibrium behavior of two quantities—the level of pollution and the level of income—in a setting in which societies choose, via voting, how much to regulate pollution. Our major finding is that, consistent with the evidence, the relationship between pollution and growth need not be monotone and that the precise equilibrium nature of the relationship between the two variables depends on whether individuals vote over effluent charges or directly restrict the choice of technology. Moreover, our analysis of the pollution problem suggests that, more generally, endogenous policy choices should be taken seriously as potential sources of heterogeneity when studying cross country differences in economic performance.
Computation of Equilibria in Heterogeneous Agent Models
, 1997
"... This paper essentially puts together procedures that are used in the computation of equilibria in models with a very large number of heterogeneous agents. It is not a complete description of all procedures used in the literature. It describes procedures that deal with infinitely lived agent versions ..."
Abstract

Cited by 44 (1 self)
 Add to MetaCart
This paper essentially puts together procedures that are used in the computation of equilibria in models with a very large number of heterogeneous agents. It is not a complete description of all procedures used in the literature. It describes procedures that deal with infinitely lived agent versions of the growth model with and without aggregate uncertainty, overlapping generations models, and dynamic political economy models. This paper includes most of the material on computing equilibria in models with heterogeneous agents from lectures given at the European University Institute, the University of California at Los Angeles, and the University of Pennsylvania. The comments of many colleagues and students have been very useful, in particular, those of Tim Kehoe, Per Krusell and Ed Prescott. The author thanks the National Science Foundation for grant SBR9309514. Correspondance to Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 191046297, USA....
Are Consumption Taxes Really Better Than Income Taxes
 Journal of Monetary Economics
, 1996
"... We use politicalequilibrium theory and the neoclassical growth model to compare the quantitative properties of different tax systems. We first explore whether societies which can only use consumption taxes fare better than societies which can only use income taxes. We find that if government outlay ..."
Abstract

Cited by 38 (6 self)
 Add to MetaCart
We use politicalequilibrium theory and the neoclassical growth model to compare the quantitative properties of different tax systems. We first explore whether societies which can only use consumption taxes fare better than societies which can only use income taxes. We find that if government outlays are used mainly for redistribution through transfers, then the answer is no, contradicting conventional wisdom in public finance. The reason for this is that when taxes are endogenous, and voted on by a selfish constituency, the distortionary effects of taxation are taken into account in choosing the level of taxation. Hence, political equilibria have the property that taxes which are relatively distortionary will be relatively low. These results are overturned if the government outlays are used only for the providing of public goods, implying that less distortionary taxes give better outcomes. We also investigate the properties of a tax systems in which both consumption and income taxes are used and voted on simultaneously. Since the ability to use more tax instruments allows redistribution with less distortions, the total amount of transfers tends to be higher here than in onetax systems. Typically, tax systems tend to be selfperpetuating in the sense that changes of the tax system result in a reduction in the welfare of the median voter.
Democratic Choice of an Education System: Implications for Growth and Income Distribution
 in Helen Fein, Editor, Genocide Watch, Yale
, 1997
"... by ..."
2009) “Politicoeconomic consequences of rising wage inequality
 Journal of Monetary Economics
"... This paper uses a dynamic political economy model to evaluate whether the observed rise in wage inequality and decrease in median to mean wages can explain some portion of the increase in transfers to low earnings quintiles and increase in effective tax rates for high earnings quintiles in the U.S. ..."
Abstract

Cited by 25 (2 self)
 Add to MetaCart
(Show Context)
This paper uses a dynamic political economy model to evaluate whether the observed rise in wage inequality and decrease in median to mean wages can explain some portion of the increase in transfers to low earnings quintiles and increase in effective tax rates for high earnings quintiles in the U.S. over the past two decades. Specifically, we assume that households have uninsurable idiosyncratic labor efficiency shocks and consider policy choices by a median voter which are required to be consistent with a sequential equilibrium. We deal with the problem that policy outcomes affect the evolution of the wealth distribution by approximating the distribution by a small set of moments. We calibrate the model to match properties of the U.S. earnings distribution and effective tax rates in 1983 and then evaluate the response of the social insurance policies to the observed rise in wage inequality over the next decade and a half. We contrast these numbers with those from a sequential utilitarian mechanism, as well as mechanisms with commitment. 1
TimeConsistent Public Policy
, 2007
"... In this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure. We characterize and solve for Markovperfect equilibria of the dynamic game between successive governments. The characterization consists of an intert ..."
Abstract

Cited by 22 (0 self)
 Add to MetaCart
In this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure. We characterize and solve for Markovperfect equilibria of the dynamic game between successive governments. The characterization consists of an intertemporal firstorder condition (a “generalized Euler equation”) for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations. For a calibrated economy, we find that when the only tax base available to the government is capital income—an inelastic source of funds at any point in time—the government still refrains from taxing at confiscatory rates. We also find that when the only tax base is labor income the Markov equilibrium features less public expenditure and lower tax rates than the Ramsey equilibrium.
TimeConsistent Optimal Fiscal Policy
, 2003
"... This article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period’s capital income tax rate. We find that the results contrast markedly with those under full commitment. First, capital income tax rates are very h ..."
Abstract

Cited by 19 (4 self)
 Add to MetaCart
This article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period’s capital income tax rate. We find that the results contrast markedly with those under full commitment. First, capital income tax rates are very high (65 % on average versus close to zero on average under full commitment). Second, labor income taxes are rather low on average (about 12 % versus a value of around 31 % under full commitment). Finally, labor income taxes are quite volatile, whereas under full commitment their standard deviation is essentially zero.
Markov equilibrium in models of dynamic endogenous political institutions
, 2006
"... This paper examines existence of Markov equilibria in a class of infinite horizon games in which political institutions are endogenously determined each period. In these dynamic political games (or DPGs) the rules for political aggregation at date t + 1 are decided by the rules at date t, and the re ..."
Abstract

Cited by 17 (1 self)
 Add to MetaCart
This paper examines existence of Markov equilibria in a class of infinite horizon games in which political institutions are endogenously determined each period. In these dynamic political games (or DPGs) the rules for political aggregation at date t + 1 are decided by the rules at date t, and the resulting institutional choices do not affect payoffs or technology directly. We show that any dynamic political game can be transformed into a stochastic game in which the political institutions are reinterpreted as “public players ” in the game. These players ’ preferences are possibly dynamically inconsistent due to the fact that naturally occurring changes in the economic state, such as evolution of the wealth distribution, alter the way a political institution aggregates preferences of the citizenry over time. The paper characterizes this transformation, and establishes existence of Markov equilibria in which the Markov strategies are smooth functions of the state. Applicability of the result is demonstrated in an example with endogenous voting rules.