Jean Hindriks

Corruption, Extortion and Evasion

Corruption, evasion and the abuse of power — and the possibility thereof — are pervasive features of economic activity. A prominent instance is tax collection. This paper examines the implications of corruptibility and the potential abuse of authority for the effects and optimal design of (potentially non-linear) tax collection schemes. Amongst the findings are that: the distributional effects of evasion and corruption are unambiguously regressive under the kinds of schemes usual in practice; and collecting progressive taxes without inducing evasion or corruption may require that inspectors be paid commission on high income reports (but not on low), with the cost of this potentially creating what seems to be a previously-unnoticed trade-off between equity and efficiency.

Yardstick competition and political agency problems

This paper analyzes the role of yardstick competition for improving political decisions. We examine how performance comparisons across jurisdictions affect the agency problem resulting from uncertainty about politicians (adverse selection) and their policies (moral hazard). We study two forms of inefficiency: the provision of wasteful project and the failure to provide useful project .We find a general neutrality result: yardstick competition does not affect the likelihood of fully efficient equilibria for any correlation (with a discontinuity at perfect correlation). We also find that yardstick competition has no effect on the likelihood of inefficient equilibria in which politicians refrain from implementing valuable projects. However, performance comparisons makes it less likely to have an equilibrium where bad politicians in both jurisdictions use wasteful projects as inefficient transfer forms.

The political economy of targeting

One of the most widely used method of targeting is to reduce welfare benefits as income rises. Although the need for such targeting is clear enough, it also entails two important difficulties. Firstly, the prospect for the recipients of losing part of their benefits if they were to earn more can be a deterrent to work harder. Secondly, by reducing the number of recipients, targeting reduces the political support for taxation and redistribution. The purpose of this paper is to study the voting equilibrium of the degree of targeting and the level of taxation in an economy where labour supply is variable. The analysis reveals that targeting may be fatal for redistribution even though it rejects strictly less than the richest half of the population, and that it is not possible for a coalition of the extremes to form and reject the middle income group from the welfare system. Moreover, because targeting affects labour supply, we find that Pareto improvements are possible when targeting is either “too low” or “too high”. We also find that voting simultaneously over taxation and targeting is favourable to the poor in the sense that they can converge to their most-preferred policy by successively forming a majority coalition with the rich to increase targeting and with the middle to increase taxation.

The Politics of Redistributive Social Insurance

The disclosure is of a unitary, self-contained apparatus for flameless heating. The device comprises a tubular container divided into heat-generating and heat utilizing zones. The source of heat employed is the exothermia of a chemical reaction, particularly of chemical reactions initiated by the presence of water. The device of the invention is, because of its particular and novel construction, especially useful for those applications requiring high caloric yields for prolonged periods of time.

The Politics of Progressive Income Taxation with Incentive Effects

This paper studies majority voting over quadratic taxation and investigates under which conditions marginal progressivity emerges as a voting outcome. In our model with endogenous income, there is no majority (Condorcet) winning tax schedule. We then investigate less demanding political equilibrium concepts in order to see under which conditions the set of equilibria is composed only of progressive tax functions. We follow three strategies: (i) reduction of the policy space to the tax functions that are ideal for some voter; (ii) elimination of weakly dominated strategies and the use of mixed strategies in a standard Downsian two-party competition game; (iii) assumption that political parties interact repeatedly and care about the size of their majority. Although each approach captures a different aspect of political behavior, they point to the same (simulation-based) conclusion that progressivity is more likely to emerge for most distributions of abilities and that it is actually the only possible voting outcome if the distribution is sufficiently concentrated at the middle.

The consequences of labour mobility for redistribution: tax vs. transfer competition

Abstract In a context where both the poor and the rich are (imperfectly) mobile, this paper compares the Nash equilibrium levels of income redistribution from the rich to the poor when jurisdictions compete either in taxes, in transfers or both in taxes and transfers. Although taxes and transfers are linked through the budget-balanced requirement, the analysis reveals intriguing differences. Indeed, it turns out that transfer competition results in much less redistribution than tax competition, while tax-transfer competition involves an intermediate level of redistribution. In each approach, the mobility of the rich is detrimental to redistribution and an increase in the dependency ratio reduces taxes. Concerning the effect of the mobility of the poor, these approaches reach opposite conclusions. That is, the mobility of the poor is beneficial to redistribution under tax competition but reduces redistribution under transfer competition.

Mobility and Redistributive Politics

There is widespread concern that greater mobility of individuals can undermine any attempt to redistribute income at the local level. In this paper we derive the equilibrium level of redistribution when both the rich and the poor are imperfectly mobile and when each jurisdiction chooses its redistributive policy by majority voting. This leads to a fundamental interaction whereby the policy choices of jurisdictions determine whom they attract and where whom they attract determines their policy choices. Our main findings are twofold. First, we show that greater mobility of the poor can increase the equilibrium amount of redistribution. Second, we find that some jurisdictions can be in equilibrium on the “wrong” side of their Laffer curve. The reason is that the poor are in a majority in these jurisdictions and they are opposed to a potentially Pareto-improving tax reduction because it would attract the rich and shift the majority. The analysis also reveals how the interplay between policy choices and membership leads to multiple equilibria.

Free Riding on Altruism and Group Size

It is shown that altruism does not affect the equilibrium provision of public goods although altruism takes the form of unconditional commitment to contribute. The reason is that altruistic contributions completely crowd out selfish voluntary contributions. That is, egoists free ride on altruism. It is also shown that public goods are less likely to be provided in larger groups. The only qualification to our results is when the probability of altruism is so high that it is a dominant strategy for all egoistic players to free ride. In this case, actually, both altruism and the larger group facilitate public good provision.

Strategic inter-regional transfers

In this paper we derive the equilibrium level of redistribution from one mobile factor (say, the rich or capital) to another posibly mobile factor (say, the poor or labour) when regions choose both their inter-regional transfers and redistributive policies non-cooperatively. We find that inter-regional transfers are always desirable (to mitigate the fiscal competition), but cannot be sustained (as a Nash equilibrium) when chosen simultaneously with the redistributive policy. On the other hand if regions can precommit t0o inter-regional transfers before setting their redistributive policy, the strategic effect of interregional transfers makes them sustainable. However there are also equilibria with partial or no inter-regional transfers at all. The effects of regional asymmetries are analyzed. Interestingly enough, evidence suggests that predictions of our model accord very closely with the pattern of transfers in the EU across member states.

Strategic privatization and regulation policy in mixed markets

In this paper we consider mixed oligopoly markets for differentiated goods where private and public firms compete either in prices or quantities. We then study the welfare effect of privatization interpreted as partial strategic delegation of the public firm to a private manager with profit concern. It is shown that partial privatization improves welfare with quantity competition when goods are substitutes, and with price competition when goods are complements. However full privatization (complete delegation to private manager) can never be optimal. It is also shown that the public firm can make more profit than the private firm in equilibrium, and that this possibility is more likely under quantity competition. Turning to market regulation policy, we find: (i) that public and private firms should be taxed the same; and (ii) that price regulation is better than quantity regulation.