A SIMULTANEOUS EQUATIONS MODEL OF FISCAL POLICY INTERACTIONS*

ABSTRACT Existing studies of fiscal policy interactions are based on single equation (SE) models of either taxation or expenditures, without specifying the underlying social welfare function, without taking account of budget constraints and without allowing for cost differences between jurisdictions. Taking all this into account, we derive an extended version of the linear expenditure system with policy interaction effects. We use this system to simultaneously estimate interactions in both taxation and different spending categories among Dutch municipalities. Our interaction parameters tend to be higher than those estimated using conventional SE models.     

THE EFFECTS OF TAXES,EXPENDITURES, AND PUBLIC INFRASTRUCTURE ON METROPOLITAN AREA EMPLOYMENT*

ABSTRACT. Data for 28 metropolitan areas over a 15-year period are used to determine the impacts of government spending, taxes, and public infrastructure on total employment and disaggregated employment. After carefully controlling for the government budget constraint we find that taxes are negatively related to total employment and education spending is positively related to total employment. Nevertheless, we find that it is difficult for metropolitan areas to influence the composition of their employment with government tax and expenditure policies. Moreover, at current levels of public infrastructure, marginal changes in infrastructure have no strong effect on employment.     

The Colonial Sinews of Imperial Power: The Political Economy of Jamaican Taxation, 1768–1838

This article uses a new data-set to calculate the ‘political economy’ or nature and purpose of taxation and spending in Jamaica between 1768 and 1839. It argues that these levels increased considerably, both in absolute terms and relative to the size of the population and economy of the island, and that the assembly raised taxes mainly to protect the white elite and the plantation economy against slave revolts and foreign invasion. Although the balance of spending shifted after Emancipation in 1834, the purpose did not, since military spending was simply redirected to subsidise policing and the cost of public order. Depending on how the national income or gross domestic product of the island is calculated, levels of taxation rose from 2 per cent in peacetime to about 4–6 per cent in wartime, peaking at 6–8 per cent in moments of crisis. White elites therefore made a significant contribution to the cost of their own defence, and to the wider projection of imperial power, and were willing to tolerate increasingly high levels of taxation because it was spent in ways that suited their interests. They thereby formed the colonial sinews of imperial power.     

State Expenditures and Policy Outcomes in Environmental Program Management

Comparative state environmental research seeks to explain the factors contributing to intergovernmental environmental management. In pursuing the answer to this query, researchers have relied on either fiscal (expenditures) or nonfiscal (ranking) measures of state environmental effort. Respecting the debate surrounding state policy outputs and fiscal versus nonfiscal measures, we evaluate comprehensive state environmental management comparing spending and ranking measures in our analysis. Though pronounced differences do exist between the two models, we find pollution and state size to be the primary factors affecting a state's environmental effort no matter which measure is used.     

The Politics of an Emergent Global Regime for Controlling Tax Competition

This article probes what I call the emergent global regime for controlling tax competition. Since at least the early 1990s, states have perceived that competition for investment, whether through direct subsidies or tax incentives, threatens to undermine the fiscal underpinnings of the modern state, particularly in terms of its provision of social welfare programs. As states have provided financial or fiscal subsidies to capital (especially mobile capital), they have had to compensate through some combination of imposing higher levels of taxation on other actors, running higher deficits, and cutting spending. Each has shown itself to have substantial problems, and the response of states has now come full circle: to reconsider the competition for investment that causes the fiscal problems in the first place.     

Improving Efficiency in Australian Local Government: Structural Reform as a Catalyst for Effective Reform

Municipal amalgamation has been the main policy instrument of local government structural reform programmes in Australia for well over a century. However, council consolidation programs have not achieved the intended cost savings or improved service provision promised by advocates of this means of structural reorganisation. This paper considers whether the failure of municipal amalgamation processes to produce significant economic benefits necessarily implies that structural reform programs that invoke consolidation have no place in Australian local government policy. It is argued that ‘top-down’ state government structural reform policy initiatives carrying the threat of amalgamation constitute an efficient mechanism for evoking optimal ‘bottom-up’ structural change models.     

Cold War,Public Opinion,and Foreign Policy Spending Decisions: Dynamic Representation by Congress and the President

Conventional wisdom before the Vietnam War held that public opinion exerted no influence on U.S. foreign policy decisions. Scholars working in Vietnam's aftermath found episodic influence of public opinion on foreign policy, but missing in our understanding were longitudinal examinations of public opinion's influence on foreign policy. A number of post-Vietnam scholars subsequently revealed a long-term relationship between public opinion and defense spending. This study extends that work by analyzing responsiveness to public opinion in different foreign policy arenas by different government institutions, and by accounting for a critical variable not relevant in most previous studies: the end of the cold war. We construct a model explaining the influences of public opinion and the cold war on spending proposals for defense and foreign economic aid by the presidency, the House of Representatives and the Senate. Both public opinion and the end of the cold war exert direct influence on defense spending proposals by the presidency, while the Senate and the House respond primarily to public opinion inputs and the partisan composition of the Senate. In the case of foreign economic aid, the cold war's end gives occasion for increasing spending proposals, contrary to the public's expectation that the end of the cold war minimized the need for the U.S. to provide foreign economic assistance.     

When Will New Programs be Mandatory? Determinants of the Decision Between the Mandatory and Discretionary Budget Designs

When creating a new program, an authorizing committee must choose a budget structure, either using mandatory funding or creating an authorization for appropriations to enable the appropriation committees to use discretionary funding. One hypothesis we examine is based on the strategic interplay by congressional committees seeking to control their policy domains. Based on expected purposes of a nascent program, an authorization committee must calculate, whether, if a program is designed as requiring appropriations for spending, will the appropriators provide the funds? Or if instead, a program is funded through mandatory spending, will those funds be blocked by appropriators? For example, when a new program is likely to offer credit claiming opportunities to Congress, such as through legislative earmarks, the authorization committees are less likely design a program to rely on mandatory funding. An alternative hypothesis is that where there is greater expected difficulty in predicting likely program needs—e.g., predicting the annual spending needs for unemployment insurance—a mandatory structure would be expected. We find that the hypothesis associated with the committees' pursuit of autonomy is supported, whereas the rational design hypothesis associated with reduced transaction costs is not supported.     

Multilevel Instruments for Infrastructure Investment: Evaluating State Revolving Funds for Water

In recent decades, the federal government has introduced complex, multilevel state‐operated revolving loan fund programs as an instrument for promoting state and local investment in national infrastructure priorities while limiting direct federal involvement in implementation. A federally funded state revolving fund (SRF) program combines features of a categorical matching grant to states and a subsidized loan program to localities, both of which should lower the effective price of infrastructure investment and therefore promote higher levels of infrastructure investment. However, little evidence exists to date on whether these programs stimulate new subnational spending or instead displace spending that would have occurred otherwise. We evaluate the stimulus effects of SRFs by examining the two largest such programs, the Clean Water and the Drinking Water SRF Programs. Analyzing 17 years of state‐level panel data, we find evidence that the flow of federal funds to states under the SRF programs stimulates new local investment in wastewater infrastructure, but not in drinking water infrastructure. In discussing several possible explanations for these divergent results, we argue for further research that emphasizes the intergovernmental features of this financing tool.     

论我国生态税制的构建

生态税收是政府通过对破坏生态环境的行为(生产行为和消费行为)征收相应数量的税收,用于环境保护的投资或对保护环境的行为的税收支出,以保持生态平衡的一种税收体系。中国日趋严峻的生态环境、生态税制的缺位、可持续发展战略的实现以及提高公民环保意识迫切要求构建我国的生态税收体系。因此,制定完备的《生态税法》;改革旧税种,创立新税种完善税收体系;奖惩并重、税收征收与支出并举,就成为构建我国生态税制的基本思路。     

Unions,Parties, and the Politics of State Government Legacy Cost

Many American state governments have made extensive promises to pay for employees’ health care and other benefits in retirement. Currently estimated at over $1 trillion in unfunded liabilities, these other postemployment benefits (OPEB) are creating a major fiscal problem for state governments. In this article, we examine the politics of OPEB. We seek to explain the variation in the generosity of OPEB across U.S. states. We argue that party competition theories do not adequately explain the outcomes we observe. Instead, we draw on the emerging Schattschneiderian approach to the politics of public policy to show that public union strength conditions a party's incentives to represent unions’ interests. In states where public sector unions are strong, unions can find their way into either party's coalition. We find that Republicans are more responsive to public union interests than either their ideological brand or prior research would suggest. It is only in states where public employees are weak that Republicans can act unilaterally and enact their preference for less government spending. To test our theories, we carry out an empirical analysis using a newly assembled data set of per capita OPEB liabilities across 49 states.     

The Tortoise or the Hare? Incrementalism,Punctuations, and Their Consequences

In this article, we contrast the long‐term consequences of incrementalism and punctuated equilibrium. We test what the impact of each of these types of policy change is on long‐term budgetary outcomes for the American states. Policy scholars have applied both theoretical approaches to the study of budgetary spending as an extension of policymaking. Given the two contrasting paradigms of policy change, we develop the following line of inquiry: Does punctuated equilibrium create a different budget in the long term than incrementalism? We address this question through an analysis of American state budgets because the U.S. states provide a rich variation in both budgetary outcomes and political institutions. We use budget data from all American states across all government functions for the period between 1984 and 2009. We find that, first, state budgets and budget functions vary in their degree of punctuation and, second, the degree of punctuation in a state's budget function corresponds to smaller long‐term growth. Additionally, the kind of spending matters: allocational budget categories are more likely to exhibit punctuations.     

Earthquakes,grants, and public expenditure: How municipalities respond to natural disasters

We analyze the response of municipalities to the occurrence of natural disasters in terms of spending behavior, use of upper-tier transfers and recovery, using balance sheet data of about 8,000 Italian municipalities for the period 2000–2015, and the universe of earthquakes events. We find evidence of increasing expenditure for about 12 years after the shocks, with asymmetric responses between earthquake-related and unconditional grants, and heterogeneous flypaper effects across the country. While in northern municipalities expenditure tends to regress to pre-earthquake levels, southern municipalities stick to higher expenditure levels when grants drop. This evidence is coupled with a faster recovery of private income and housing prices in northern municipalities.     

The Cost of Illness,Disability, and Premature Mortality to Russia's Economy

An American specialist on Russia's health and demographic situation calculates the economic burden of morbidity, disability, and premature death on the country's economy in 2003, applying a cost-of-illness model commonly used in Western settings. The paper disaggregates direct costs (spending specifically on health care) and indirect costs (productivity lost due to illness and death, measured in terms of lost wages), and distinguishes between current-year versus out-year losses and the costs incurred due to different categories of illness. The paper first analyzes the situation for Russia as a whole before briefly exploring regional variations in elements of cost of illness. Journal of Economic Literature, Classification Numbers: I12, I18, J28, O15. 10 figures, 6 tables, 46 references.     

Producer Services, Economic Geography, and Services Tradability

We investigate how the incorporation of producer services linkages affects the outcome of an economic geography model. We specify the production of manufactures such that a variety of producer services is needed to transform tradable unfinished goods into final consumption goods. We find that service linkages promote the concentration of economic activity in a single region, but whether full concentration is achieved depends on the costs and mode of services trade. Applying the model to a multiregion world shows that incorporating producer services may also give rise to regions that specialize in different economic activities.     

POLLUTION MOBILITY,PRODUCTIVITY DISPARITY,AND THE SPATIAL DISTRIBUTION OF POLLUTING AND NONPOLLUTING FIRMS

This paper first develops a model to characterize the equilibrium distribution of polluting and nonpolluting firms and then turns to the larger question of whether the equilibrium distribution is socially optimal. We find that the equilibrium distribution of polluting firms differs from the social optimum when they generate a large amount of stationary pollution and have much higher or lower productivity than clean firms. In these cases, conventional pollution control approaches generally do not bring about an optimal distribution. Consideration of transport costs along with productivity and pollution changes some of the classic results of the new economic geography literature.     

THE FUTURE TRAJECTORY OF U.S. CO2 EMISSIONS: THE ROLE OF STATE VS. AGGREGATE INFORMATION*

ABSTRACT This paper provides comparisons of a variety of time‐series methods for short‐run forecasts of the main greenhouse gas, carbon dioxide, for the United States, using a recently released state‐level data set from 1960–2001. We test the out‐of‐sample performance of univariate and multivariate forecasting models by aggregating state‐level forecasts versus forecasting the aggregate directly. We find evidence that forecasting the disaggregate series and accounting for spatial effects drastically improves forecasting performance under root mean squared forecast error loss. Based on the in‐sample observations we attempt to explain the emergence of voluntary efforts by states to reduce greenhouse gas emissions. We find evidence that states with decreasing per capita emissions and a “greener” median voter are more likely to push toward voluntary cutbacks in emissions.     

In pursuit of independence: the political economy of Catalonia's secessionist movement

This article examines the fiscal dimensions of recent support for Catalan secession. Since the region is a cultural community distinct from the rest of Spain, much research has spotlighted national identity features in the calculus of Catalan political aspirations. This study supplements this work by contextualising support for Catalan independence in terms of the state's fiscal arrangements with the use of public opinion survey data. Even after controlling for self‐reported cultural identity and other relevant factors, it argues that support for independence is a function of grievances rooted in the desire for Catalonia to assume responsibility for taxation and spending policy. Meanwhile, it validates some observations about Catalonia's separatist movement, while bringing others into question, and offers support for the theoretical framework linking political economy to secessionism. The results suggest that Spain might be able to stave off Catalonia's separatist bid through some form of political and taxation policy reconfiguration, with the caveats that cultural identity factors and the existence of other separatist movements across the country complicate this strategy.     

The role of charity in public relief, 1708–1871: Copenhagen as case

This article explores when and why charity vanished from public relief in Copenhagen and thereby differentiates itself from the traditional research field on welfare that focuses on studying the growth of taxation and social spending in the 19th century. This article reveals that charity was not solely a transfer of financial resources, but that charitable donations also entailed a cultural symbolism, which implied that charity was meant to support the local worthy poor. When the function of public relief underwent a transformation, especially at the beginning of the 19th century, the cultural symbolism of charity became incompatible with public relief. After the 1830s, the inhabitants of Copenhagen ceased to donate to public relief and instead donated charity to private philanthropy, which usually targeted the worthy poor for its help.     

Topping Off and Bottoming Out: Setting Budget Priorities Through Executive Power

This article examines the role of the institutional power of executives in public budgeting; specifically, how executives change spending on particular budget items. Leveraging extant theories of the policy process concerning preference expression, attention, and institutions, we argue that executives deepen large cuts and boost large increases in budgetary change. The strictures of the budgetary process force trade-offs for executives in preference expression such that increases to preferred categories typically require decreases in other categories. Literatures in public policy and political representation suggest that all executives would like to express fiscal preferences, thereby contributing to categorical budget oscillations; however, not all executives are created equal. We employ quantile regression to examine whether the institutional strength of governors determine cuts, stasis, and expansion in spending across all budget functions in the American states between 1985 and 2009. Our model includes a host of political and economic variables found in the literature of fiscal policymaking, such as partisanship and divided government. The desire to change policy may be widely shared across executives, but we find that the ability to “top off” categorical increases and bottom out categorical decreases is a function of an executive's capacity to call attention to preferred categories via agenda-setting power and to secure those changes via veto power. The findings show strong governors are well positioned to influence public policy through the budgetary process.