(Non)equivalence in a federalism: Dual tax shares, flypaper effects and Leviathan

Among the best-known theorems of fiscal federalism is the presumed allocative and distributive equivalence between a lump-sum grant to a collectivity and a set of lump sum grants to the members of a collectivity. Interestingly, the simple elegance of the theorem is at odds with observed behavior. Grants to governments produce greater public spending than does tax reduction. Explanations of this "flypaper effect" range from misspecified econometric modeling to presumed behavior based on fiscal illusion. In this paper we show that theoretical equivalence exists in a model that recognizes only one tax share, the citizen voter's local tax share. When the model is expanded to include voters' federal tax shares as well as local taxes, non-equivalence and the flypaper effect become the rule, not the exception.     

The public demand for smoking bans

Smoking bans are gaining widespread support in the United States and other countries. While supporters argue that bans are necessary to resolve market failures associated with negative externalities, the Coase Theorem predicts that, under various conditions, private markets internalize negative externalities. We examine the smoking issue within the framework of the Coase Theorem and hypothesize that smoking bans misallocate air space resources shared by smokers and nonsmokers. Because smoking bans shift ownership of scarce resources, they are also hypothesized to transfer income from one party (smokers) to another party (nonsmokers). Supporting evidence for these hypotheses is provided by an examination of a comprehensive smoking ban imposed in San Luis Obispo, CA.     

The political economy of central bank intervention

This paper analyzes an exchange rate policy game between a central bank and rational speculators under symmetric information. The central bank tries to counteract shocks to the exchange rate by means of sterilized intervention working through the expectations channel. Private speculators resist being fooled. They anticipate the interventions. An “intervention bias” results with an inefficiently high equilibrium volume of intervention which does not reduce the impact of shocks to the exchange rate. The model implies that the more independent the central bank the smaller and the more consistent the intervention efforts. An empirical illustration lends some support to the model.     

International Constraints and Domestic Choices: Economic Convergence and Exchange Rate Policy in France and Italy

As tensions in the European Monetary System demonstrate, international capital flows can have a decisive influence on countries' economic policies. The external constraint of high international capital mobility led the countries of Western Europe in the 1980s to attempt to stabilize their exchange rates and converge toward low levels of inflation. Yet this process was not uniform: French governments pursued a rigorous anti-inflationary policy of high interest rates and a strengthening currency, while Italian governments had difficulty controlling inflation and maintaining the lira in the European Monetary System. This difference is best explained by comparing political institutions and policymaking processes in the two countries. Particular attention is given to political leaders' access to economic policy tools and their capacity to design and implement long-term goals.     

Party attachments and political fragmentation in Europe

Abstract. Values and ideologies seem to be changing rapidly in many countries of Western Europe. These developments imply a shift among the adherents of political parties. On the one hand, we expect to see a process of deideologization weakening the traditional ties between parties and their adherents. On the other hand, increasing pluralization is suggested by the ongoing process of individualization. In this study we analyze the orientations of the adherents of the main political parties in 12 Western European countries in the last two decades. We expect to find clear traces of ongoing deideologization as well as pluralization, but this expectation proves to be inaccurate. Neither deideologization nor pluralization can be accepted as a common feature of party adherents in advanced industrial societies. On the contrary. Each of these processes seems to follow a different path of development in distinct countries and in distinct party families. A general 'decline-of-the-party' or an 'end-of-ideology' is not to be found among the adherents of the main parties in Western Europe in the last decades. The processes appear to be more complicated, with divergent developments in different countries.     

Workplace education for hourly workers

Concerns about U.S. competitiveness have increasingly focused the attention of policymakers on the workforce and mechanisms that could be used to enhance both the quality and quantity of human capital in the workplace. This article focuses on basic skills education of hourly workers, precisely the type of human capital which is likely to be most underprovided by the private market. Five questions are addressed: First, what is the nature of workplace education programs? Second, why do some firms provide workplace education programs while others do not? Third, what, if any, characteristics distinguish those firms that provide workplace education programs from seemingly comparable firms that do not? Fourth, what, if any, evidence can be found identifying the effects of these programs on the firms that sponsor them? Fifth, what policies appear most likely to stimulate additional workplace education?     

Explaining differences in productive efficiency: An application to Belgian municipalities

The purpose of this paper is to measure and explain variations in productive efficiency of municipal governments in Belgium. Technical efficiency is evaluated using a non-parametric method based on the Free Disposal Hull (FDH) reference technology. We first calculate input, output, and graph Farrell efficiency measures for a cross-section of all 589 Belgian municipalities. In a second stage of the analysis we explain the calculated differences in efficiency in terms of variables related to the structural characteristics of municipalities and to the institutional environment.