Electoral Oscillations in Argentina..

The mean voter theorem suggests that all parties should rationally converge to the electoral center. Typically this leads to an outcome which is unattractive to the rich. This paper develops a general stochastic model of elections in which the electoral response is a¤ected by the valence (or quality) of the candidates. Contributions made by policy-motivated activists can influence valence, leading to the failure of the mean voter theorem. The model is then applied to the presidential elections in 1989 and 1995 in Argentina, to suggest why Carlos Menem, who won in 1989 with a populist platform, was able to win in 1995 with quite different policies that favored the upper middle class.

What educational production functions really show : a positive theory of education spending

The accumulated results of empirical studies show that the public sector typically chooses spending on inputs such that the productivity of additional spending on books and instructional materials is 10 to 100 times larger than that of additional spending on teacher inputs (for example, higher wages, small class size). The authors argue that this pervasive and systemic deviation of actual spending from the technical optimum requires a political, not economic or technical, explanation. The evidence is consistent only with a class of positive models in which public spending choices are directly influenced by a desire for higher spending on teacher inputs, over and above their role in producing educational outputs. This desire could be due either to teacher power, or bureaucratic budget-maximizing behavior, or political patronage. The authors conclude by exploring the implications of these positive political models of educational spending behavior for various types of proposed educational reforms (localized control, parental participation, vouchers, and so on) which requires an examination of how the proposed reforms shift the relative powers of the stakeholders in the educational system: students and parents, educators, bureaucrats, and politicians.Economic Theory&Research,Curriculum&Instruction,Teaching and Learning,Environmental Economics&Policies,Fiscal&Monetary Policy,Curriculum&Instruction,Teaching and Learning,Economic Theory&Research,Environmental Economics&Policies,Gender and Education

Optimal nonlinear income taxation with costly tax avoidance

Taxation

Trade Taxes Are Expensive

This paper examines the welfare implications of trade reforms in the presence of a government budget constraint. There is consensus about gains from opening up to trade. The less investigated question is, whether a coordinated tax reform, where the tariff revenue cuts are compensated with increases in distortionary domestic taxes, will still be welfare improving or not. Are trade taxes an expensive tool to raise the necessary revenue for governments? This paper uses a CGE model to generate “Marginal Cost of Funds” (MCF) figures for 32 countries to answer this question. The results suggest that there are significant welfare gains from further trade liberalization, especially for developing countries.Trade Liberalization, Tax Reform, Welfare Gain, Marginal Cost of Funds (MCF), Computable General Equilibrium Model (CGE)

The Tariff Equivalent and Forgone Trade Effects of Prohibitive Technical Barriers to Trade

We derive a method to econometrically estimate the tariff equivalent and foregone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland's Kuhn-Tucker approach to corner solutions in consumer choice. The method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive nontariff trade barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the TBTs would induce net welfare gains around US$50 million annually for Australia.Corner solution; Kuhn-Tucker model; New Zealand apples; nontariff barrier; NTB; prohibitive; random utility; TBT; technical barrier to trade; SPS; phytosanitary

On the Budget-Constrained IRS: Equilibrium and Equilibrium and efficiency

This paper extends Graetz, Reinganum and Wildes (1986) seminal work on tax compliance to the real-world scenario where the IRS (Internal Revenue Service) faces a budget constraint imposed upon her by the Congress. The paper consists of two parts. The first part is positive we characterize the equilibria resulting from the interaction between taxpayers and the budget-constrained IRS. The second part is normative - we examine the effeciency implication of varying the size of the budget allocated to the IRS. It is shown that, to mitigate or eliminate the so-called congestion e¤ect, the IRS should be sufficiently budgeted and, in particular, we provide a case for the policy prescription that the size of the budget allocated to the IRS should be expanded as long as an additional dollar allocated could return more than an additional dollar of tax revenue.

Vulnerability, Trust and Microcredit: The Case of China?s Rural Poor

This paper investigates the economic conditions of rural households in China. Historical survey data indicate that over 80 per cent of rural households earn less than 4,500 yuan in net disposable income each year, that for the vast majority of rural households disposable income is insufficient to meet food consumption needs, and that in terms of economic growth rural households are receiving an ever decreasing percentage of China?s growing economy with rural household incomes being only 31 per cent of urban household income in 2004. To reduce vulnerability and food insecurity, this paper investigates the role of microcredit in China. It is argued that in China the conventional wisdom is to provide credit using traditional means, but we provide a model that shows how a microcredit market based on trust can co-exist with a commercial collateral-based market. This model is developed in detail and certain propositions are supported using dominant strategies in a trust-honour game based on the prisoner?s dilemma. The theoretical model is then applied to the case of microlending in China. It explains why, in the absence of trust, rural credit corporations do not make loans to the very poor. Furthermore, the model explains how Central party policies on rural credit can actually crowd out micro finance institution (MFI) and NGO microlending in China, and also explains why moneylenders dominate in many of the poorer regions of the country. From a policy point of view, the theoretical model indicates that trust-based lending, coupled with certain incentives, can go far in supporting growth opportunities in rural China. It is argued that Chinese policy should be flexible enough to permit trust-based microlending to the poor, regardless of how counterintuitive this must appear to the conventional wisdom. Indeed, in the absence of flexible credit strategies, China?s rural poor will remain in a persistent food-insecure poverty gap.equilibrium, game theory, rural, credit, China

Advances in Cost-Effectiveness Analysis of Health Interventions

The growing application of cost-effectiveness (CE) analysis and controversies about its methods has led to a need to explore its welfare economic foundations. Examination of its welfare theoretic foundations can provide a rationale for selecting specific standards for the application of CE analysis while deepening our understanding of the implications of alternative methodological approaches. In this paper, I explore conditions under which decision making based on CE analysis, carried out a specific way, leads to a distribution of resources that has desirable social welfare properties. The first section describes the basics of CE analysis and how it can be applied to aid decisions about the allocation of health resources. The paper then turns to the potential welfare economic foundations of CE analysis, and addresses specific issues in carrying out CE analysis, such as which costs to include, whose perspective matters in the analysis, and how health outcomes are measured. It demonstrates how a welfare economic foundation can help resolve ambiguities and uncertainties about the application of CE analysis. The paper also discusses the limitations of such an approach, which indeed reflect limitations of CE analysis as an analytic framework. Finally, it addresses unresolved issues such as the difficulties in using the results of CE analysis to make health policy at the societal or group level.

A Utilitarian Welfare Analysis of Trade Liberalization

This paper provides a welfare analysis of trade liberalization based upon the moral principles of utilitarianism. The history of the moral philosophy of utilitarianism is described including its introduction into what became known as Cambridge welfare economics. The differences between this school of thought and what would later develop as modern welfare analysis are discussed. Essentially, the Cambridge economists were not particularly disturbed by the assumptions of cardinal utility and interpersonal comparisons and argued that these assumptions added more than they took away. Next the mathematical form of a utilitarian utility and social welfare function are described and the values of the parameters are assigned based upon the writings of moral philosophers. Next the distributional consequences of trade liberalization are developed and the social welfare implications are derived. Basically it is concluded that trade policy changes produce large distributional changes relative to efficiency gains, and the gains go to individuals with significantly higher income than the lossers (in the developed economies). With a realistic concave utility function underlying the social welfare function, the benefits of trade liberalization are quite small if not negative. The policy implication is that trade liberalization without sizable redistribution is unlikely to actually (as opposed to potentially) increase social welfare. It is argued that this approach to trade policy analysis is much more useful in formulating trade policy than the current use of modern welfare- trade policy analysis commonly used and taught in most universities.Trade Policy, Utilitarian, Utilitarianism, Compensation principle, Welfare, interpersonal utility comparisons, utility function, income distribution, social welfare function