Explaining Tax Reform

Economic analysts generally have a more dispassionate attitude toward the subject. They are interested primarily in studying the effects of taxation on individual behavior and market prices, and in describing the distributional effects of tax policies. When the discussion turns to changes in the tax system, however, positive analysis may be replaced by advocacy of particular alternatives. This is illustrated by the frequent use of the word "reform" in the literature, a term usually employed to refer to changes designed to make the system better, where "better" is judged in relation to some ideal standard.Working Paper Number 04-48

The Demands for Environmental Regulation and for Trade in the Presence of Private Mitigation

We study the nature of individual demands for environmental regulation and for trade openness in the general equilibrium of a small open economy where the environment is an input to production. Differences in the ability of individuals to afford private mitigation of the adverse consequences of pollution is a central feature of the analysis. Private mitigation leads to an endogenous, unequal distribution of the health-related consequences of pollution across income groups in a manner consistent with epidemiologic studies, in contrast to much of the literature which assumes equal health effects for all. We show that when private mitigation is possible at a cost, trade polarizes the interests of rich and poor with respect to the stringency of regulation. Moreover, even though trade has the potential to benefit everyone, the poor may oppose trade openness because of a concern that laxer environmental regulation will then be imposed in the interest of the rich. We explain why heterogeneity in the intensity of preferences, and not just in their direction, is likely to play a role in the determination of collective choices with respect to the regulation of the environment and of trade. We conclude by drawing out the implications of the analysis for the study of the political economy of the environment-trade-welfare nexus.regulation, environment, pollution, private mitigation, trade, welfare, health, collective choice

The Demands for Environmental Regulation and for Trade in the Presence of Private Mitigation

We study the nature of individual demands for environmental regulation and for trade openness in the general equilibrium of a small open economy where the environment is an input to production. Differences in the ability of individuals to afford private mitigation of the adverse consequences of pollution is a central feature of the analysis. Private mitigation leads to an endogenous, unequal distribution of the health-related consequences of pollution across income groups in a manner consistent with epidemiologic studies, in contrast to much of the literature which assumes equal health effects for all. We show that when private mitigation is possible at a cost, trade polarizes the interests of rich and poor with respect to the stringency of regulation. Moreover, even though trade has the potential to benefit everyone, the poor may oppose trade openness because of a concern that laxer environmental regulation will then be imposed in the interest of the rich. We explain why and how heterogeneity in the intensity of preferences, and not just in their direction, is likely to play a role in the determination of collective choices with respect to the regulation of the environment and of trade. We conclude by drawing out the general implications of the analysis for the study of the political economy of the environmenttrade- welfare nexus.regulation, environment, pollution, private mitigation, trade, welfare, collective choice

Fiscal Incidence When Both Individual Welfare and Family Structure Matter: The Case of Subsidization of Home -care for the Elderly

Demographic ageing in Western countries has increased the pressure on children of elderly parents to provide care privately as an alternative to more costly institutionalization, and this pressure is likely to intensify. While some papers have recently investigated the optimal structure of family policy in this context, there is little work so far on the distributional impact of programs whose purpose is to subsidize the care of seniors who remain at home. We investigate analytically and with simulation the measureme nt of the fiscal incidence of programs that subsidize home care for the elderly, when both individual welfare and family structure matter. The definition of welfare incidence, the comparison of welfare-based incidence with budgetary incidence for non-cooperative and cooperative families, and the calculation of the shifting of program benefits between family members, some of whom may be altruistic, are key issues in the analysis. The integration of individual welfare, family structure and benefit shifting provides a new perspective on the study of the distributional consequences of home-care programs.home care subsidy, fiscal incidence, family structure, altruism, shifting

Policy-induced Internal Migration: An Empirical Investigation of the Canadian Case

We investigate the influence of public policy on interprovincial migration in Canada using new aggregated migration data for 1974-1996, the longest period studied so far. We consider the consequences of regional variation in a variety of policies, and also investigate the effects of certain extraordinary events in Quebec and in the Atlantic provinces. The results indicate that while the changing bias in the unemployment insurance system may have induced some people to move to the relatively high unemployment Atlantic region, the resulting flows are likely too small to have altered regional unemployment rates. In contrast, political events in Quebec in the 1970's and the closing of the cod fishery in 1992 appear to be associated with large changes in migration patterns.migration, regional disparity, public policy, unemployment insurance, conditional logit, taxation data

What do we Know about the Relationship between Regionalized Aspects of the Unemployment Insurance System and Internal Migration in Canada?

The purpose of this paper is to critically review the past four decades of empirical research on the relationship between internal migration and regional variation in the generosity of Canada’s unemployment insurance system. It has long been argued that because the Canadian insurance system is more generous towards people who live in relatively disadvantaged regions, it retards the out-migration that is part of the market process, thereby slowing economic development and contributing to the persistence of regional inequality in earned incomes. The survey shows, however, that there is no evidence in the empirical literature that regional variation in the generosity of the insurance system has altered internal migration patterns in Canada in a substantial manner.regional variation in unemployment insurance generosity, internal migration, interprovincial migration, earned income, comprehensive income differentials, index of insurance generosity, labour market attachment, conditional logit model

Searching for Keynes: An Essay on the Political Economy of Fiscal Policy, with Application to Canada, 1870-2000 - revised version

Keynes' General Theory (1936) is arguably one of the most important books of the twentieth century. His ideas for stabilizing the aggregate economy have profoundly influenced economic theory as well as popular opinion about what governments can and should do with respect to the business cycle. On the other hand, whether Keynesian theory has substantially altered the course of public policy remains an open question. In this paper we identify the elements required for any investigation of the impact of Keynes' ideas on policy choices and then conduct our own 'search for Keynes', applying an intertemporal spatial voting framework to study the fiscal history of the Government of Canada from 1870 to 2000. The long time series allows the construction of a counterfactual – one of several essential elements - showing what governments would have planned to do ‘after Keynes’, if Keynes' ideas had not in fact been present. Our results suggest that textbook Keynesianism is identifiable in the Canadian data.Keynesianism, spatial voting, permanent versus transitory policy, political equilibrium, liquidity constraints

Social Welfare and Coercion in Public Finance

This paper develops an expanded framework for social planning in which the existence of coercion is explicitly acknowledged. Key issues concern the precise definition of coercion for individuals and in the aggregate, its difference from redistribution, and its incorporation into normative analysis. We explore modifications to traditional rules for optimal fiscal policy in the presence of coercion constraints and determine the degree of coercion implied by traditional social planning. The paper maps the trade-off between social welfare and aggregate coercion and explores its implications for normative policy and the comparative evaluation of institutions, including competitive democracy.coercion, redistribution, social planning, optimal fiscal policy, marginal cost of funds, public goods, collective choice

Democracy, Inequality and the Environment when Citizens can Mitigate Privately or Act Collectively

We study the political economy of the environment in autocratic, weak and strong democracies when individuals can either mitigate the health consequences of domestic pollution privately or reduce pollution collectively through public policy. The setting is that of a small open economy in which incomes depend importantly on trade in dirty goods, where income inequality and the degree to which ordinary citizens exert voice in each dimension of the policy process distinguishes elites and ordinary citizens. The recognition that the health consequences of pollution can be dealt with privately at a cost adds an important dimension to the analysis of the political economy of environmental regulation, especially for an open economy. When private mitigation is feasible, inequality of incomes leads to an unequal distribution of the health burden of pollution (in accordance with the epidemiologic evidence), thus polarizing the interests of citizens in democracies and of ordinary citizens and elites in non-democratic regimes. Inequality in the willingness to bear the cost of private mitigation in turn interacts with the pollution costs and income benefits of trade in dirty goods to further polarize interests concerning both environmental stringency and the regulation of trade openness. In this context, we show how the eco-friendliness ranking of different political regimes varies with the cost of private mitigation and with the extent of income inequality, tending to converge when mitigation costs are high, and even producing a ranking reversal between democracies and autocracies, and between weak and strong democracies, when costs lie in an intermediate range.pollution, environmental regulation, private mitigation, income inequality, democracy, trade, welfare, collective choice, political economy