Grade Inflation, Social Background, and Labour Market Matching

A model is presented where workers of differing abilities and from different social backgrounds are assigned to jobs based on grades received at school. It is examined how this matching is affected if good grades are granted to some low ability students. Such grade inflation is shown to reduce the aggregate wage of the lower class workers because employers use social origin as a signal for productivity if grades are less than fully informative. Moreover, the high-ability students from the higher class may benefit from grade inflation since this shields them from the competition on the part of able students from the lower classes. --education,grading,standards,assignment,social mobility,grading,standards,assignment,social mobility

POLICY INNOVATION IN FEDERAL SYSTEMS

Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized---due to the existence of a horizontal information externality---by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal office. Under such competition political actors use the innovative policies in order to signal ability to the electorate. In the equilibrium analyzed policy innovation occurs more frequently than in a unitary system. It is thus shown that, once electoral motives are accounted for, the conventional wisdom is validated.Fiscal federalism; policy innovation; policy experimentation.

Political Uncertainty and Policy Innovation

Conventional wisdom has it that outside sources of information enhance the capability of political institutions to separate selfish from benevolent incumbents. This paper investigates, in the presence of innovative public policies whose outcomes are uncertain, the role of outside information and shows that it is more involved than typically thought. While it is true that enhanced information helps in separating politicians, it also creates an externality that reduces the incentives to experiment with innovative public policies.Policy uncertainty; Political uncertainty; Fiscal federalism;Policy innovation; Experimentation.

A Simulation Method to Measure the Tax Burden on Highly Skilled Manpower

A model is presented for simulating the tax burden on highly skilled manpower. The effective average tax rate, defined as the relative wedge between total remuneration and disposable income, is computed. Income and payroll taxes and social security contributions not yielding an equivalent benefit are taken into account. The compensation package consists of cash payments and old-age provision. To integrate retirement benefits and their tax treatment, an inter-temporal approach is used. The results indicate that Germany and France have higher tax burdens than the UK and the USA, that Germany grants the strongest tax relief for families, and that occupational pension plans are favourable in all countries. --personal income tax,highly skilled employees,effective tax burden,pensions

On the Incentives to Experiment in Federations

Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized—due to the existence of a horizontal information externality—by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal o?ce and emphasizes that such competition plays an important role in shaping the incentives for experimentation. For, in this case, political actors use the innovative policies to signal ability to the electorate. This e?ect may o?set the e?ect that arises from the incentive to free ride, and so a federal system may generate more innovation than a unitary one.Fiscal federalism; policy innovation; policy experimentation.

Public Safety, Altruism and Redistribution

A model where a portion of the population participates in illegal activities is developed. The propensity to participate in crimes depends on the probability and the opportunity cost of being arrested. The government can influence these variables by law enforcement expenditure and by social transfer. We analyze the cost minimizing policy mix and the incentive of wealthy agents to finance redistribution. We compare this approach with standard modelling where redistribution follows from altruistic preferences. Un modèle est développé dans lequel une partie de la population poursuit des activités illégales. Les incitations à la criminalité dépendent de la probabilité et des coûts d'opportunité d'être puni. Le gouvernement peut influencer ces variables par un systeme de coercition et par sa politique sociale. Nous étudions d'une part les choix politiques qui minimisent les coûts et d'autre part, les incitations de la population "riche" à financer une politique de redistribution. Nous comparons cette approche avec d'autres modèles dont les politiques de redistribution résultent des préférences altruistes.Criminality, Redistribution, Public safety

Fiscal Equalization and Yardstick Competition

A multi-jurisdictional system is thought to improve, through yardstick competition, accountability. At the same time equalization programs, a common feature of multijurisdictional systems, are thought to be a prerequisite for both efficiency of the internal market and the equity objective of the equal treatment of equals. This paper shows that such programs, by reducing the information context of comparisons across jurisdictions, introduce perverse fiscal incentives and thus reduce accountability. The consequence of this is that equilibrium rent-taking increases with the intensity of equalization transfers.Equalization transfer programs; fiscal capacity; rent-seeking; fiscal federalism

Fiscal Equalization and Yardstick Competition

A multi-jurisdictional system is thought to improve, through yardstick competition, accountability. At the same time equalization programs, a common feature of multi-jurisdictional systems, are thought to be a prerequisite for both efficiency of the internal market and the equity objective of the equal treatment of equals. This paper shows that such programs, by reducing the information context of comparisons across jurisdictions, introduce perverse fiscal incentives and thus reduce accountability. The consequence of this is that equilibrium rent-taking increases with the intensity of equalization transfers.equalization transfer programs, fiscal capacity, rent-seeking, fiscal federalism

Grade inflation, social background, and labour market matching

A model is presented where workers of differing abilities and from different social backgrounds are assigned to jobs based on grades received at school. It is examined how this matching is affected if good grades are granted to some low ability students. Such grade inflation is shown to reduce the aggregate wage of the lower class workers because employers use social origin as a signal for productivity if grades are less than fully informative. Moreover, the high-ability students from the higher class may benefit from grade inflation since this shields them from the competition on the part of able students from the lower classes