We study the returns to political office using data from Finnish parliamentary elections in 1970-2007 and municipal elections in 1996-2008. The discontinuity of electoral outcomes in individual candidate votes allows us to estimate the causal effect of being elected on subsequent income. Getting elected to parliament increases annual earnings initially by about €20,000, but most of this effect fades out over time. Getting elected to a municipal council has a positive effect of about €1,000 on subsequent annual earnings.
When consumers make mistakes, the government may wish to use paternalistic taxation as a corrective measure. We examine a country whose government attempts to use taxation to reduce the consumption of a harmful good, and analyse the extent to which cross-border shopping and tax competition undermine the feasibility of paternalistic taxation. We show that the paternalistic component of a tax on a harmful good is reduced due to the possibility of cross-border shopping, but it does not disappear altogether. In a model with tax competition between two countries, only one of which has a paternalistic objective, we show that there exists an asymmetric Nash equilibrium, where the paternalistic country has the higher tax rate on the harmful good. We further show that despite the divergence in policy objectives, a minimum tax rate requirement can be Pareto improving. Tax harmonisation on the other hand always reduces welfare in the low-tax country.
Tutkimuksen ensimmäinen osa koostuu kolmesta esseestä, joissa käsitellään haitallisten hyödykkeiden verotusta. Haitallisilla hyödykkeillä tarkoitetaan tutkimuksessa hyödykkeitä, joiden kulutuksella on negatiivisia vaikutuksia kuluttajan hyvinvointiin tulevaisuudessa - esimerkkejä ovat epäterveellinen ruoka, alkoholi ja tupakka. Jos kuluttajat eivät ota riittävästi huomioon tulevaisuudessa koituvia haittoja, he kuluttavat oman hyvinvointinsa kannalta liikaa tällaisia hyödykkeitä. Verotuksella voi tällöin olla kulutusvalintoja korjaava vaikutus. Tutkimuksessa tarkastellaan haitallisten hyödykkeiden verotusta teoreettisten mallien avulla kolmesta näkökulmasta. Ensin tarkastellaan, millaiset hyvinvointivaikutukset verotuksella on eri väestöryhmissä, kun otetaan huomioon sekä verotuksen tulonjako- että terveysvaikutukset. Tutkimuksen tulosten perusteella voidaan arvioida esimerkiksi ajankohtaista keskustelua elintarvikeveron alentamisesta. Toisen esseen näkökulma on poliittinen: Esseessä pohditaan, onko esimerkiksi riittävän korkeille alkoholi- ja tupakkaveroille mahdollista saada poliittista kannatusta. Kolmas essee tuo tarkasteluun kansainvälisen ulottuvuuden: Esseessä käsitellään sitä, miten kansainvälinen verokilpailu heikentää mahdollisuuksia alentaa esimerkiksi alkoholin kulutusta korkean verotuksen avulla. Tutkimuksen tulosten perusteella minimivero on kansainvälistä veroharmonisointia parempi keino vähentää verokilpailun haittoja. Ensimmäisessä esseessä tarkastellaan haitallisten hyödykkeiden verotuksen hyvinvointivaikutusten jakautumista. Tutkimuksen kohteena olevat hyödykkeet ovat tyypillisesti sellaisia, joihin pienituloiset henkilöt käyttävät suuremman osan tuloistaan kuin suurituloiset. Näiden hyödykkeiden korkean verotuksen onkin katsottu vahingoittavan erityisesti pienituloisia; elintarvikeverotus on tästä hyvä esimerkki. Kun huomioidaan myös verotuksen terveysvaikutukset, arvio verotuksen vaikutuksesta eri tuloryhmien hyvinvointiin saattaa kuitenkin muuttua. On todennäköistä, että pienituloisten kysyntä reagoi veromuutoksiin enemmän kuin suurituloisten. Mikäli näin on, haitallisten hyödykkeiden korkean verotuksen myönteiset terveysvaikutukset olisivat suurimpia juuri pienituloisille. Esimerkiksi elintarvikkeiden verokohtelua mietittäessä saattaakin olla järkevää porrastaa verotusta elintarvikkeiden terveysvaikutusten perusteella. Toisessa esseessä tarkastellaan tilannetta, jossa haitallisten hyödykkeiden kulutus aiheuttaa ongelmia vain osalle kuluttajista, kun taas osa kuluttajista ottaa täysimääräisesti huomioon kulutuksen haitat. Haitallisten hyödykkeiden korkeasta verotuksesta on hyötyä nimenomaan ongelmakäyttäjille, mikäli verotus auttaa heitä vähentämään kulutustaan; muiden kulutusvalintoja korkea verotus rajoittaa turhaan. Esseessä osoitetaan, että riittävän korkeiden verojen on vaikea saada poliittista kannatusta, koska muut äänestäjät eivät ota huomioon ongelmakuluttajille koituvia hyötyjä. Myös verotulojen keräämiseen liittyvät motiivit voivat johtaa liian alhaiseen verotukseen: Jotkin hyödykkeet ovat niin haitallisia, että olisi järkevää asettaa verojen taso niin korkeaksi, että kulutus olisi hyvin vähäistä. Tällöin kuitenkin myös verotulot olisivat hyvin pienet. Kolmannessa esseessä tarkastellaan verokilpailun vaikutusta haitallisten hyödykkeiden, kuten alkoholin verotukseen. Esimerkiksi Euroopan Unionissa kuluttajat voivat vapaasti ostaa kotimaassa korkeasti verotettua tuotetta ulkomailta. Tutkimuksen johtopäätösten mukaan verotuksen terveysvaikutuksia ei kuitenkaan tällöinkään pitäisi sivuuttaa: Kotimaan korkean verotuksen vaikutus ulkomailta tuodun alkoholin määrään on pienempi kuin vähennys kotimaasta ostetun alkoholin määrässä. Verotuksella voidaan siis vähentää kulutuksen haittoja verokilpailusta huolimatta. Verokilpailun aiheuttamia ongelmia voidaan korjata koordinoimalla verojen tasoa esimerkiksi Euroopan Unionin jäsenmaiden kesken. Tutkimuksen tulosten perusteella on kuitenkin parempi asettaa haitallisille hyödykkeille riittävän korkea minimivero, kuin pyrkiä pelkästään verojen harmonisointiin. Veroharmonisointi poistaisi kuluttajien kannustimet ostaa haitallisia hyödykkeitä ulkomailta, mutta ei välttämättä poistaisi liian alhaisen verotuksen ja korkeiden terveyshaittojen tuomia ongelmia. Tutkimuksen toinen osa koostuu yhdestä itsenäisestä esseestä, jossa tarkastellaan teoreettisen mallin avulla sääntelyn vaikutuksia investointikannustimiin ja kilpailuun telekommunikaatiomarkkinoilla. Markkinoita sääntelevä viranomainen voi velvoittaa televerkkoyrityksen vuokraamaan verkkokapasiteettia muille operaattoreille, jotta telepalveluiden markkinoille syntyisi kilpailua vaikka televerkko pysyisikin monopolina. Tutkimuksen tulosten perusteella sääntely kuitenkin heikentää verkkoyrityksen kannustimia tehdä verkon laatua ja palvelujen kysyntää parantavia investointeja. Mikäli investoinnit hyödyttäisivät kilpailijoita enemmän kuin verkkoyritystä itseään, sääntely voi jopa johtaa kilpailijoiden aseman huononemiseen, vaikka sen alkuperäinen tarkoitus on edistää kilpailua. ; This thesis consists of two parts the first part comprises three essays that analyse different aspects of taxation of harmful goods in a situation where consumers have self-control problems. The second part, which consists of a single essay, examines the effect of access price regulation on investment and entry in telecommunications markets. The first part therefore explores a rationale for government intervention which has traditionally been controversial among economists, but has recently received more attention and also increasing acceptance within the profession: When we recognise that individuals can make errors in decision-making and may therefore fail to maximise their own welfare, there may be scope for government intervention that increases welfare. The intervention analysed in this thesis are taxes on harmful goods, or so called sin taxes. On the other hand, the second part of the thesis analyses a more traditional rationale for government involvement in the economy, namely distortions caused by market power. In the first part of the thesis, we extend the literature on the taxation of harmful goods in the presence of self-control problems in three main ways. In the first essay, we leave the question of optimal sin taxes aside, and analyse the factors that affect their incidence. We derive an incidence measure for taxes on harmful goods, as well as a condition for the case where sin taxes improve individual welfare. Secondly, we examine how taxes on harmful goods are determined in political equilibrium, and compare the equilibrium tax with the socially optimal level. The previous literature has focused on optimal sin taxes, and therefore our analysis of equilibrium taxes is an important extension to the literature. We also extend the previous literature by providing an explicit formula for the optimal sin tax in a second-best situation where consumers differ in their degree of self-control problems but a uniform tax is applied, and by comparing the optimal sin tax with the marginal distortion in consumption. Thirdly, we extend the analysis of sin taxes to an international context. More specifically, we examine a country whose government attempts to use taxation to reduce the consumption of a harmful good, and analyse the extent to which cross-border shopping and tax competition undermine the feasibility of this type of taxation. We also analyse whether policy coordination in the form of minimum tax rates or tax harmonisation can improve welfare. The practical implications of our findings can be summarised as follows. Firstly, considering tax incidence, we show that taxes on goods such as unhealthy food may be progressive. This is contrary to the common counter-argument against heavy VAT rates on necessities, which are usually regarded as regressive. The intuition for this result is that the self-control benefits of taxation depend importantly on the demand elasticity, and demand is typically more elastic for low income individuals. Therefore, when one considers for example lowering the VAT rate on food for redistributive reasons, it is important to note that in such exercises it is likely not to be optimal to treat all types of food equally. Secondly, we show that when consumers differ in their degree of self-control problems, equilibrium tax rates on harmful goods are likely to be too low from a social point of view. The intuition is that taxation has a large benefit for consumers with a severe self-control problem, and only a small negative impact on consumers with no self-control problems (whose consumption of highly harmful substances is low even in the absence of taxation - taxes therefore only impose a small distortion for these individuals). Individuals do not take this asymmetry into account in their voting decisions, and equilibrium sin taxes therefore cannot achieve the socially optimal outcome. There may thus be a case for quantity restrictions on some highly harmful substances. Thirdly, turning to the implications of international tax competition, we show that such competition should not lead governments to disregard paternalistic objectives of taxation completely: Taxation can still be used to lower harmful consumption. The intuition is that even if higher taxes at home lead consumers to buy harmful goods such as alcohol abroad, the increase in cross-border shopping is smaller than the corresponding reduction in domestic consumption. Regarding policy coordination, we show that countries should aim at implementing minimum tax rates on harmful goods, rather than at harmonising tax rates at some intermediate level between the original tax rates. This is because the problems associated with tax competition (both from the point of view of reducing harm from consumption and raising revenue) are caused by tax rates being too low, not by tax rate differentials per se. In the second part of the thesis, we analyse the effect of access price regulation on investment incentives and competition in telecommunications markets. We consider a model with a vertically integrated monopolist network provider who faces rival operators in the retail market. We examine the network operator s incentives for infrastructure investment. We find that investments are below the social optimum even when there is no regulation, and access price regulation further reduces investment incentives. We show that the underinvestment problem may have negative effects on the viability of competition. Access price regulation does not necessarily reduce the likelihood of foreclosure, and in the presence of regulation, rivals are most likely to be foreclosed when they would bring highest benefits to consumers.
We analyse the determination of taxes on harmful goods when consumers have self-control problems. We show that under mild conditions, the socially optimal tax rate exceeds the average distortion caused by self-control problems. Further, we show that in most cases the tax rate chosen in political equilibrium is below the socially optimal level.
We examine the link between the welfare state and citizens' subjective wellbeing by using evidence from public health care services. By combining local‐level data on public health care and individual‐level data on life satisfaction, we show that relatively high expenditures in health care have a positive effect on individuals' life satisfaction in our data. We find some evidence for an 'ends‐against‐the‐middle' equilibrium in provision of public health care, where middle‐income individuals prefer higher public expenditure than low‐income or high‐income individuals. Further, our results indicate that the welfare benefit of public provision depends on individual political orientation.
A growing theoretical literature on the effect of politicians' salaries on the average level of skills of political candidates yields ambiguous predictions. In this paper, we estimate the effect of pay for politicians on the level of education of parliamentary candidates. We take advantage of an exceptional reform where the salaries of Finnish MPs were increased by 35 % in the year 2000, intended to make the pay for parliamentarians more competitive. A difference-in-differences analysis, using candidates in municipal elections as a control group, suggests that the higher salary increased the fraction of candidates with higher education among female candidates, while we find no significant effect for male candidates.
We analyse the determination of taxes on harmful goods when consumers have self-control problems. We show that under reasonable assumptions, the socially optimal corrective tax exceeds the average distortion caused by self-control problems. Further, we analyse how individuals with self-control problems would vote on taxes on the consumption of harmful goods, and show that the equilibrium tax is typically below the socially optimal level. When the redistributive effects of sin taxes are taken into account, the difference between the social optimum and equilibrium is small at low levels of harm, but becomes more pronounced when consumption is more harmful.
In this paper, we estimate the effect of pay for politicians on who wants to be a politician. We take advantage of a considerable 35 percent salary increase of Finnish MPs in the year 2000, intended to make the pay for parliamentarians more competitive. A difference-indifferences analysis, using candidates in municipal elections as a control group, suggests that the higher salary had the intended effect among women, whether measured by education or occupational qualifications. We also examine cross-party differences.
We examine the link between the welfare state and citizens'life satisfaction by using evidence from public health care services. By combining local level data on public health care, and individual level data on life satisfaction, we show that relatively high expenditures in health care have a positive exect on individuals' life satisfaction in our data. We …nd some evidence for an \"ends-against-the-middle\" equilibrium (Epple and Romano, 1996) in the provision of public health care, where middle-income individuals prefer higher public expenditure than low-income or high-income individuals. Further, our results indicate that valuation for health care depends on individual political orientation
We examine the effect of publicly provided health care on welfare by combining local level data on public health care, and individual level data on life satisfaction. It is shown that relatively high expenditures in health care have a positive effect on individuals' life satisfaction in our data. We further illustrate how life satisfaction data can be used to directly test theoretical hypotheses about how the welfare effect of public provision should vary among different groups in the population. We find some evidence for an ends-against-the-middle equilibrium (Epple and Romano, 1996) in the provision of public health care, where middle-income individuals prefer higher public expenditure at the margin than low-income or high-income individuals. Further, our results indicate that valuation for health care depends on individual political orientation.
