Papers to Download

Efficient Earmarking under Decentralized Fiscal Commitments (Forthcoming, International Tax and Public Finance)

posted Sep 2, 2015, 3:08 AM by Adriana M

Abstract: Earmarked federal grants are ubiquitous and significant. Traditional fiscal
federalism is unable to explain these grants’ widespread utilization. Recent arguments
focusing on the potential benefits of centralized earmarking in reducing incentives for the
creation of soft budgets at sub-central government levels merit formalization. I show that
universal earmarking improves the efficiency of a federation in which regional
governments are able to commit to provision of all regional public goods. However,
efficient earmarking need not be universal: it should only involve private consumption and
fiscal budgets for public goods subject to decentralized fiscal commitments.

Transnational Coordination Failures in Intertemporal Counterterrorism Games

posted Nov 21, 2013, 6:40 PM by Adriana M   [ updated Nov 21, 2013, 6:42 PM ]

ABSTRACT: This paper fills an important gap in the literature. It is the first systematic effort ofaddressing counterterrorism policy coordination failures due to transnationalintertemporal externalities. As these externalities involve both spatial and timedimensions, non-cooperative policy coordination failures are better captured in aframework that allows us to consider two types of non-cooperative dynamic games, onein which national authorities are myopic and another in which they are farsighted. Weshow that the steady state outcomes for both types of non-cooperative games arecharacterized by larger counterterrorism expenditures than their counterparts in the socialoptimum. The farsighted equilibrium always yields greater levels of counterterrorismexpenditures, terrorist activities and violence than those produced by the myopicequilibrium. Thus, the distortion produced by the farsighted equilibrium is greater thanthe distortion produced by the myopic equilibrium 

Transboundary Pollution, Tax Competition and Redistribution in Federal Systems

posted Nov 21, 2013, 6:39 PM by Adriana M

ABSTRACT:We examine the shape of federal policy making in three different policy scenarios, inwhich regional governments determine regional environmental policies to controlcorrelated transboundary pollutants and the center implements interregionalincome transfers. We examine policy making under horizontal and hierarchicalfederal structures. In a horizontal structure, federal and regional governments makesimultaneous policy choices. In hierarchical structures, federal and regionalgovernments make sequential policy choices. Sequential choices may featurecentralized or decentralized leadership. Our results indicate that hierarchicalfederal structures characterized by decentralized leadership may be sociallysuperior to horizontal and hierarchical federal structures characterized bycentralized leadership. 

Tax Competition and Federal Equalization Schemes with Decentralized Leadership

posted Nov 21, 2013, 6:37 PM by Adriana M

Abstract: In a federation featuring decentralized leadership, regional governments compete by setting capital taxes in anticipation of the central government's fiscal-equalization and income-redistribution policies. As a benchmark, it is first demonstrated that the constrained socially optimal allocation satisfies the Pareto efficient conditions; therefore, it may be first best. It is also shown that the subgame perfect equilibrium for the decentralized leadership game is socially optimal. The anticipation of equalization of marginal utilities of public consumption and equalization of marginal utilities of private consumption provides regional governments with correct incentives in the setting of capital taxes. 

Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility

posted Nov 21, 2013, 6:36 PM by Adriana M

We examine the non-cooperative provision of a pure public good by regional governmentsin a federation similar to the European Union, where regional governments areStackelberg leaders and the central government is a Stackelberg follower — a federationwith decentralized leadership. The center makes interregional income transfers after itobserves the contributions to the pure public good. Imperfectly mobile workers react toregional and central governments’ policies by establishing residence in their most preferredregion. Despite the degree of labor mobility, we show that the pure public good andinterregional transfers are generally allocated efficiently in a federation with decentralizedleadership. 

Prestige Clubs

posted Nov 21, 2013, 6:35 PM by Adriana M   [ updated Nov 21, 2013, 6:48 PM ]

ABSTRACT Numerous non-profit organizations that contribute to collective goods also provide prestige to their members. Some of these institutions function as prestige clubs, with prestige levels and member contributions working as club goods and membership fees, respectively. We investigate the endogenous formation of prestige clubs. We show that the competitive equilibrium features prestige clubs and that competing club managers engage in a futile race for institutional aggrandizement. The competition, however, yields coordination benefits produced by internalization of positive and negative externalities within clubs. The competitive equilibrium is inefficient because clubs neglect external benefits and costs associated with their members’ contributions 

Stable International Environmental Agreements for Correlated Pollutants

posted Nov 21, 2013, 6:34 PM by Adriana M

ABSTRACT We examine the stability of international environmental policy schemes when sovereign nations set policies to control both greenhouse gas emissions and traditional air pollutants. An international environmental policy scheme is defined to be stable if no country can obtain higher payoffs under other international environmental policy schemes. We show that when regional transnational air pollution damages are large relative to climate change damages, there are many efficient and stable international environmental policy schemes in which all nations belong to coalitions, the coalitions are completely interconnected and the income transfers promoted within all coalitions follow the Nash bargaining formula. 

Strategic Effects of Future Environmental Policy Commitments: Climate Change, Solar Radiation Management and Correlated Air Pollutants

posted Nov 21, 2013, 6:32 PM by Adriana M   [ updated Nov 21, 2013, 6:33 PM ]

Abstract: We study the effects of environmental policy commitments in a world in which solar radiation management (SRM) can be utilized to reduce climate change damages. Carbon and sulfur dioxide emissions (correlated pollutants) can be reduced through tradable permits. We show that the global temperature rises with each unit increase in global carbon emissions when the nations simultaneously commit to carbon policies. Alternatively, if they simultaneously commit to SRM policies, the global temperature falls with each unit increase in the global SRM level. We also demonstrate that a nation always prefers to be a leader in either SRM or carbon policy. 

Crime and Punishment and Corruption: Who needs“Untouchables?”

posted Nov 21, 2013, 6:31 PM by Adriana M   [ updated Nov 21, 2013, 6:50 PM ]

Becker’s result that fines should be maximized is also applicable to some social environments where law enforcers are corrupt. If the regulated activity is legal, the principal may efficiently deter crime without an anti-corruption unit. An opportunistic anti-corruption unit, even when corrupt, becomes useful for the principal when the activity is illegal, since the principal’s goal of maximizing fines motivates the unit to collect bribes from the enforcer, which subsequently induces the enforcer to be nearly completely honest, minimizing corruption. Therefore, we show that there is not necessarily an infinite regress originating with the puzzle of who polices the police. 

Coalition-Proof Overlapping International Green R&D Agreements

posted Nov 21, 2013, 6:31 PM by Adriana M   [ updated Nov 21, 2013, 6:51 PM ]

Abstract: We examine the formation of hub-and-spoke and multilateral green technology international agreements. Green R&D provision produces two types of positive externalities, a global public good (i.e., reduction of carbon dioxide emissions) and spillovers in technology agreements. We utilize the coalition-proof concept to refine the set of Nash equilibria and identify stable coalitional structures. Multilateral and hub-and-spoke coalitional structures can be stable in the absence of income transfers, depending on the agreements’ attrition costs. Fully participated multilateral coalitional structure is not stable in the presence of income transfers; however, isolated bilateral and hub-and-spoke agreements are stable for sufficiently low attrition costs. 

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