Suchergebnisse

In this paper, commuting is introduced to a federal economy where benevolent lower-level (state) governments levy an ad valorem tax on labour income. This results in inefficiently low levels of taxation, even when households as a whole do not migrate. Indeed, rather than attracting more workers by lowering taxes, states are out to boost labour supplied by own residents and impede work incentives of non-residents. When the tax base is co-occupied by the federal and state governments secondly, either under- or overtaxation occurs. We find that when taxation is levied ad valorem, undertaxation is more liable to occur than under unit taxation. For the same underlying reasons lastly, fiscal equalisation is expected to give less cause for overtaxation as commonly assumed.

Looking at the Belgian federation, where 10% of the working population commutes across the borders of three small regions, a case can be made for studying commuting flows in a federal constellation. In this paper, commuting is introduced to a federal setting where an ad valorem residence based tax on labour income is fully decentralised. This has lower-level (state) governments set inefficiently low taxes not to attract more workers, but to boost labour supply of own residents and hamper labour supplied by non-residents. When the labour tax base is co-occupied by the federal and state governments alternatively, either public under- or overprovision may occur. Our model identifies clear conditions for states to overprovide, i.e. for the overall fiscal externality to be negative. Moreover, such a negative externality may arise even when the vertical as well as horizontal externalities are positive in isolation, and one would rather expect underprovision. Lastly, when states differ in terms of preferences and technology, an inflow of commuters will make it more likely for states to set taxes inefficiently low. Second choice for topic: Special Session - S_J

This paper revisits the soft budget constraint problem arising in decentralised countries. Capturing the specific dynamics of political decision making in a federation, new light is shed on the incentives at work when lower-level (state) governments overborrow and are bailed out by the federal level. An intertemporal model developed by Goodspeed (2002) is supplemented by the citizen-candidate approach of Besley and Coate (1997), to further align federal decision making with reality. In our model, where a cooperative legislature of locally elected representatives decides on federal grants going to the states, voters are shown to elect candidates with a higher preference for debt accumulation than would be expected. This strategic voting behaviour not only leads to overly generous bailout policies. Also, and compared to a setting where federal decision making follows the median voter, states are proven to overborrow more inefficiently because of this federal generosity. A case can then be made for federal constituencies where politicians are elected from across the entire federation, which would neutralize these additional inefficiencies.

We show that regional heterogeneity of underlying fundamentals (e.g. economic history, geography, social capital) can lead to extreme voting in federations. When the outcome of federal policies – such as transfer schemes, market regulation or migration laws – depends on these fundamentals, the set of regions that wins or loses from a given policy is fixed. This gives voters a strategic incentive to distort the policy magnitude, by electing federal representatives that are extremely protective of regional interests. Interestingly, the benefits of selecting tough negotiators outweigh those of belonging to the ruling coalition. We test our predictions by looking at parties' performances at national and European Parliament elections from 1990 onwards, and find that strategic voting is indeed U-shaped: winning and losing member states vote more extremely than those in the middle. Our online survey provides further evidence.

We show that regional heterogeneity of underlying fundamentals (e.g. economic history, geography, natural resources, social capital) can lead to extreme voting in federations. When the outcome of federal policies { such as transfer schemes, market regulation, migration targets { depends on these fundamentals, the set of regions that benefits or loses from such a policy is fixed exogenously (for each given policy). This creates a strategic incentive for the median voter to elect extremely protective federal representatives, who will distort redistribution in favour of their constituency by influencing the choice of the policy magnitude. Interestingly, the benefits of selecting tough negotiators outweigh those of belonging to the ruling coalition. We test our predictions by looking at parties' performances at national and European Parliament elections from 1990 onwards, and find that strategic voting is indeed U-shaped: winning and losing member states vote more extremely than those in the middle. Our online survey provides further evidence.