Suchergebnisse

This research note evaluates the claim that referenda can serve as useful commitment devices in international negotiations. More specifically, we relied on individual-level survey data to test the claim that governments can successfully "tie their hands" to policy choices by calling referenda on political issues. Our empirical analysis relied on original survey data collected in April 2019 in Belize. In so doing, we took advantage of an unusual political event. On 8 May (shortly after our survey), Belizean citizens participated in a countrywide plebiscite. During this vote, they decided to send their country's territorial dispute with Guatemala for adjudication to the International Court of Justice. From a research perspective, this event allowed us to assess the effect of disregarded referendum results in a highly salient political environment. Our experimental analysis suggested that individuals do reprimand their governments for failing to implement a majority vote (a) even if this choice precipitates a person's favored substantive outcome, and (b) irrespective of an individual's preferred party.

How does the presence of financial markets shape the government's ability to implement social redistribution? Individuals do not typically constrain consumption to equal their net-of-tax income every period. Instead, access to financial markets allows them to allocate their resources over time. On the other hand, the markets that individual agents trade in are usually incomplete, in the sense that adjustments to contracts are costly. A mortgage, for example, helps to smooth housing consumption. Yet, buying a house constitutes a significant individual commitment. It cannot be changed costlessly at every point in time. In particular a downward adjustment often comes with significant losses. Optimal redistributive policy ought to take agents' involvement in such financial markets into account. I study a two-period endowment economy with heterogeneous income types and private information, where a government without commitment cannot provide any social redistribution. I show how agents' involvement in a financial market can improve the government's ability to commit at least to a partially separating allocation in the second period, enabling it to provide some redistribution across agents. In this world, agents borrow against their promised income and enter long-term individual consumption commitments. However, changing these contracts creates a deadweight loss. This changes the government's ex-post incentives to renege on the promised tax schedule and fully redistribute, because some agents would have to default on their loans. I show that whenever this default cost is positive, the government is able to commit to a schedule that only pools some agents of similar type together. In other words, it serves as a commitment device in the sense that it enables the government to commit not to exploit a limited amount of information. Thus, the presence of financial markets may in fact facilitate redistribution.

I study a two-period model of nonlinear, information constrained income taxation. It is shown that time-consistent taxation of annual income welfare-dominates time-consistent taxation of lifetime income if preferences are such that stationary allocations are efficient. If uncertainty is taken into account and if state-contingent fiscal policy is not feasible, time-consistent taxation of annual income can also welfare-dominate taxation of lifetime income under commitment. These findings may help in explaining why governments usually tax annual rather than lifetime earnings.