Level Of Public Goods Research Articles

Majority choice of tax systems in single- and multi-jurisdictional economies

We examine majority choice of tax instruments in an economy with heterogeneous households. In our framework majority voting equilibrium exists despite the multidimensional policy choice set. We examine single and multi-jurisdictional economies. We identify five competing incentives that influence choice of tax instruments. Equilibria generally entail a mixture of tax types. With multiple jurisdictions, strong reliance on head taxation in rich communities arises to deter poorer households from immigrating, in spite of local incentives to use alternative tax instruments to redistribute wealth. If relocation costs preclude inter-community mobility, the equilibrium tax system is fundamentally affected, with redistribution incentives then dominating choice of instruments and tax rates. Limiting or eliminating head taxation fundamentally alters stratification, public good provision levels, and tax systems.

What Drives Quality of Schools in Africa? Disentangling Social Capital and Ethnic Divisions

Because of limited governmental resources, communities in Africa often rely on collective action to provide basic public goods such as schools. What drives the ability of communities to produce better schools? Two important lines of research shaped our understanding of the ability of communities to engage in collective action. The first line proposes ethnic division as a key determinant, with more ethnically heterogeneous countries having lower economic performances and levels of public goods. Thus, we expect to find better schools where ethnic fractionalization is low. The second line of research focuses on social capital as a major determinant of the ability to engage in collective action. We expect that trust among community members, a widely-used measure of social capital, is an important and positive determinant of school quality. The present work aims to disentangle the relative effects of ethnic fractionalization and social capital on school quality. We use instrumental variable estimations to address reverse causality and other endogeneity issues. We instrument both social capital and ethnic fractionalization by using historical information on the settlement patterns of ethnic groups in Sub-Saharan Africa. Our empirical strategy is implemented by combining four datasets, including Afrobarometer, covering 16 sub-Saharan countries.We find an important and positive effect of trust on the practical aspects of schooling, such as maintaining buildings or providing textbooks. A one percent increase in the level of trust increases the quality of local public goods by 0.18 to 1.05 percent, depending on the measure of school quality under consideration. In sharp contrast, ethnic fractionalization is found to have a very limited effect, if any. Our results suggest that policies designed to enhance social capital are likely to have a positive effect on schools and local public goods in general.

Bureaucrats, voters, and public investment

This paper explores the provision of a durable public good in Romer and Rosenthal's agenda setter model. It identifies a type of equilibrium, called a Romer–Rosenthal equilibrium, in which in every period the bureaucrat proposes the maximum level of public investment the voter will support. The paper establishes that such an equilibrium exists for a variety of public good benefit functions. Equilibrium public good levels converge or almost converge to a steady state. These steady states can involve a unique public good level being provided each period or may exhibit a two period cycle. Steady state public good levels exceed the voter's optimal level. More surprisingly, steady state equilibrium reversion levels can exceed the voter's optimal steady state level, meaning that reversion levels cannot be used to bound the optimal level. Reflecting the inability of the agents to commit to their future proposing and voting behavior, equilibrium paths are Pareto inefficient.

A generalized impure public good and linear characteristics model of green consumption

This paper provides a general framework for understanding consumer behavior related to goods and services that may be considered environmentally friendly, ethically produced, fairly traded, or some combination thereof. We generalize the impure public good model and derive its comparative static properties. The model accounts for any number of impure public (green) goods and joint production of any number of both private and public characteristics. The generalization provides a bridge between the impure public good model and the well-known linear characteristics model, both of which are special cases of the model developed here. The results show how demand for green goods and characteristics such as environmental quality depends on wealth, exogenously given levels of public goods, and the technologies of joint production. The effects of changes in technology depend critically on whether jointly produced characteristics are complements or substitutes in consumption. Several of the results are rather counterintuitive and differ in meaningful ways from existing models of impure public goods and linear characteristics. The results also illuminate several reasons for greater caution about whether it is reasonable to assume that green goods and services are necessarily beneficial for the provision of public goods.

Land-use Controls, Fiscal Zoning, and the Local Provision of Education

Considerable prior analysis has gone into the study of zoning restrictions on locational choice and on fiscal burdens, but none addresses the level and distribution of public goods provided under fiscal zoning. Our analysis emphasizes the interplay between land-use restrictions and public good provision, focusing on schooling outcomes. We extend existing general equilibrium models of location and the provision of education so that fiscal zoning can be put into Tiebout choice. Some households create a fiscal burden, motivating the use of exclusionary land-use controls by local governments. We then analyze the market effects of different land-use controls (minimum lot size [MLS] zoning, local public finance with a head tax, and growth restrictions through fringe zoning) and demonstrate how household behavior directly affects the equilibrium outcomes and the provision of the local public good.

Partial fiscal decentralization and demand responsiveness of the local public sector: Theory and evidence from Norway

This paper provides an empirical test of a principal tenet of fiscal federalism: that spending discretion, when granted to localities, allows public-good levels to adjust to suit local demands. The test is based on a simple model of partial fiscal decentralization, under which earmarking of central transfers for particular uses is eliminated, allowing funds to be spent according to local tastes. The greater role of local demand determinants following partial decentralization is confirmed by the paper’s empirical results, which show the effects of the 1986 Norwegian reform.

A Simulation on the Public Good Provision Under Various Taxation Systems

This paper integrates two traditions in taxing theory by constructing a primitive general equilibrium (GE) model which incorporates a public good, and examine the desirability of taxing system to sustain its optimum level. Formally, we start with utilizing the Lindahl mechanism to compute a Pareto-optimal public good level under a specification of the parameters on production and utility function, with k the substitution parameter on the latter. The burden-sharing in this Lindahl mechanism is called the Lindahl tax. We compute the rates of various taxes in order to sustain the optimal public good level, and compare the Gini coefficients and the social welfares. It is shown for a specified case that when 0<k<1, there exists no general equilibrium for the poll tax case, while the income tax (and proportional commodity tax) is more desirable than the Lindahl tax from the viewpoint of Gini coefficient and also from the utilitarian social welfare viewpoint. Next, selecting parameters on production and utility functions and initial endowments randomly, we show that the property is robust, provided that 0<k<1. However, when k<0, the same simulation shows that the Lindahl tax is more desirable than the income tax (and proportional commodity tax) from the two viewpoints. Finally, it is shown that when 0<k<1, the Walrasian tatonnement process to compute the income tax is globally stable, while the one when k<0 is locally unstable. Thus, this paper concludes that the income tax (and the proportional commodity tax) tends to be superior to the Lindahl tax in order to provide public good.

The Effect of Rising Income Inequality on Taxation and Public Expenditures: Evidence from U.S. Municipalities and School Districts, 1970–2000

Abstract The income distribution in many developed countries widened dramatically from 1970 to 2000. Some scholars argue that income inequality contributes to a host of social ills by undermining voters' willingness to support public expenditures. In contrast, we find that growing income inequality is associated with an expansion in government revenues and expenditures on a wide range of services in U.S. municipalities and school districts. Results are robust to a number of model specifications, including instrumental variables that address the endogeneity of the local income distribution. Our results are inconsistent with models predicting that heterogeneous societies provide lower levels of public goods.

Voluntary Participation and Provision of Public Goods in Large Finite Economies

AbstractWe consider a public good provision game with voluntary participation. Agents participating in the game provide a public good and pay the fees according to a mechanism (allocation rule), while nonparticipants can free‐ride on the participants. We examine how the equilibrium public good provision level is affected by enlarging the population of an economy. We introduce a condition for an allocation rule, the asymptotic uniform continuity in replication (AUCR), which requires that small changes in the population must yield only small changes in the public good provision and which is satisfied by many mechanisms. We show that under AUCR, the equilibrium level of the public good converges to zero as the economy is replicated in the sense of Milleron.

State as Chimera: Aid, Parallel Institutions, and State Power

Foreign donors use a variety of mechanisms to effect public goods in aid recipients. The two most common mechanisms, traditional aid and conditionality, are implemented through the domestic institutions of the recipient state. Yet a third mechanism, the “parallel institution,” bypasses domestic institutions to provide public goods within well-defined sectors or territories. Parallel institutions are distinct from other forms of aid. The autonomy and core capabilities of parallel institutions allow them to produce higher levels of public goods, but simultaneously hinder the infrastructural power of the recipient state.

The Dynamic Free Rider Problem: A Laboratory Study

We report the results of an experiment that investigates free riding in the accumulation of durable public goods. We consider economies with reversibility, where contributions can be positive or negative; and economies with irreversibility, where contributions are nonnegative. Aggregate outcomes support the qualitative predictions of the Markov Perfect Equilibria (MPE) characterized in Battaglini, Nunnari, and Palfrey (2014): steady state levels of public good are lower with reversibility than irreversibility; accumulation is inefficiently slow; and the public good is under-provided in both regimes. On the other hand, public good levels are higher than MPE, and some evidence of history dependence is detected. (JEL C91, H41)

The provision of public goods by agriculture: Critical questions for effective and efficient policy making

Abstract Agriculture produces both marketable and public goods. However, the provision of public goods seems to fluctuate in time and location and is not always adjusted to what is needed by society. This divergence indicates possible market failures that policy interventions might be able to correct. Effective and efficient policy interventions require a detailed knowledge of the supply and demand of public goods together with the effects and costs of the various policy options. This paper aims to formulate the most important questions concerning supply and demand for public goods and provides directions for answering them. The paper concludes that answering these questions is an important ingredient for achieving more efficient and effective policies to provide the desired level of public goods. However, knowledge limitations, inherent uncertainties and political influence are all reasons why policies will never be able to perfectly match supply and demand of public goods. Still, by taking a pragmatic approach, more policy-relevant information can be generated that would enable a better informed discussion.

Segregation and Tiebout sorting: The link between place-based investments and neighborhood tipping

Segregation has been a recurring social concern throughout human history. While much progress has been made to our understanding of the mechanisms driving segregation, work to date has ignored the role played by location-specific amenities. Nonetheless, policy remedies for reducing group inequity often involve place-based investments in minority communities. In this paper, we introduce an exogenous location-specific public good into a model of group segregation. We characterize the equilibria of the model and derive the comparative statics of improvements to the local public goods. We show that the dynamics of neighborhood tipping depend on the levels of public goods. We also show that investments in low-public good communities can actually increase segregation.

Playing with Other People’s Money: Contributions to Public Goods by Trustees

Decisions about the level and allocation of public goods in the real world are frequently made by representatives or trustees, rather than by the contributors themselves. We design and conduct an experiment to test the difference between contributions made by trustees vis-a-vis contributions made with one's own endowment. We explore the patterns of decisions made by subjects in the two games, distinguishing between altruistic and reciprocal actions, and unpacking the potential heterogeneity of other-regarding preferences that motivate the contributions we observe. We find that subjects tend to contribute more when acting as trustees than when they are playing with their own money. Further, and consistent with “warm glow” theories of altruism, trustees more frequently conditionally contribute more than the rest of the group and unconditionally contribute more than they expect from others.

Public housing units vs. housing vouchers: Accessibility, local public goods, and welfare

We develop a general equilibrium model of residential choice and study the effects of two housing aid policies, public housing units and housing vouchers. Land is differentiated by both residential accessibility and local public goods, and the provision levels of local public goods are determined by property tax revenues and neighborhood compositions. Households differ in their incomes and preferences for local public goods. Housing aid policies are financed by general income taxes. We discuss how the location of public housing units is a fundamental policy variable, in addition to the numbers and sizes of units, and argue that vouchers not only cause less distortion for social welfare compared to public housing, but may also improve overall welfare.

Public Housing Units vs. Housing Vouchers: Accessibility, Local Public Goods, and Welfare

We develop a general equilibrium model of residential choice and study the effects of two housing aid policies, public housing units and housing vouchers. Land is differentiated by both residential accessibility and local public goods, and the provision levels of local public goods are determined by property tax revenues and neighborhood compositions. Households differ in their incomes and preferences for local public goods. Housing aid policies are financed by general income taxes. We discuss how the location of public housing units is a fundamental policy variable, in addition to the numbers and sizes of units, and argue that vouchers not only cause less distortion for social welfare compared to public housing, but may also improve overall welfare.

Federalism, education-related public good and growth when agents are heterogeneous

In this paper we use an endogenous-growth model with human capital and heterogeneous agents to analyse the relationship between fiscal federalism and economic growth. The results show that federalism, which allows education-related public good levels to be tailored to the local distribution of human capital, increases human capital accumulation. This in turn leads to higher rates of growth. The benefits of federalism are stronger, the larger the intra-jurisdiction variance of agents’ human capital.

On the (sequential) majority choice of public good size and location

This article studies majority voting over the size and location of a public good when voters differ both in income and in their preferences for the public good location. Public good provision is financed either by a lump sum tax or by a proportional income tax. We analyze both the simultaneous and the sequential determinations of the public good’s size and location. We show that, while the choice of the type of public good follows the traditional median logic, the majoritarian determination of the taxation rate need not coincide with the preferences of a median income citizen. With lump sum financing, income heterogeneity plays no role and the sequential equilibrium consists of the median location together with the public good level most-preferred by the individual located at the median distance from the median. This policy bundle also constitutes an equilibrium with simultaneous voting in the special case of a uniform bivariate distribution of individuals’ income and location. With proportional taxation, there is no policy equilibrium with simultaneous voting. We offer a complete characterization of the equations describing the sequential equilibrium in the general case and we show why and how our results depart from those most-preferred by the median income individual located at the median distance from the median. We also compare these majority voting allocations with the socially optimal one.

Optimal Provision of Public Goods: A Synthesis*

AbstractThe standard approach to the optimal provision of public goods highlights the importance of distortionary taxation and distributional concerns. A new approach neutralizes distributional concerns by adjusting the income tax schedule. We demonstrate that both approaches are derived from the same basic formula. We also take the new approach further by deriving an intuitive formula for the optimal level of public goods, without imposing strong assumptions on preferences. This formula shows that distortionary taxation has a role to play, as in the standard approach. However, the main determinants of optimal provision are different, and the modified Samuelson rule is likely to lead to underprovision.

Partial Fiscal Decentralization and Public-Sector Heterogeneity: Theory and Evidence from Norway

This paper provides an empirical test of a principal tenet of fiscal federalism: that spending discretion, when granted to localities, leads to public-sector heterogeneity, with public-good levels adjusting to suit local demands. The test is based on a simple model of partial fiscal decentralization, under which earmarking of central transfers for particular uses is eliminated, allowing funds to be spent according to local tastes. The model predicts that partial decentralization generates dispersion in the levels of public services as spending adjusts to local preferences. But the model also yields the more-general prediction that the characteristics of local jurisdictions should play a bigger role in determining the levels of public goods after a decentralization reform than before. Both predictions are confirmed by the paper’s empirical results, which show the effects of the 1986 Norwegian reform.