Kimberley A. Scharf

The Political Economy of Policy Centralization: Direct Versus Representative Democracy

This paper examines policy centralization outcomes in a two-jurisdiction, political economy model of public good provision choices with heterogeneous policy preferences and interjurisdictional policy spillovers, under alternative democratic choice procedures, namely, direct democracy and representative democracy. We show that policy centralization is more likely to occur if the choice to centralize is made by elected policymakers rather than by referendum. The reason for this result is that delegation of the harmonization choice to elected policymakers can effectively act as a policy commitment device by a pro-centralization jurisdiction and induce a reluctant partner to cooperate. In these situations, policy centralization will result in policies converging towards the choice preferred by the reluctant partner, rather than in a dilution of policy preferences.

Tiebout with Politics: Capital Tax Competition and Constitutional Choices

This paper examines how capital tax competition affects jurisdiction formation. We describe a non-cooperative locational model of public goods provision choices, where the levels of taxation and the local public good varieties provided within jurisdictions are selected by majority voting, and where equilibrium jurisdictions consist of consumers with similar tastes. We show that interjurisdictional tax competition results in an enlargement of jurisdictional boundaries, and, even in the absence of intrajurisdictional transfers, can raise welfare for all members of a jurisdiction.

Scale Economies in Cross-Border Shopping and Commodity Taxation

A simple inventory theoretic model of cross-border shopping with transaction and storage costs is developed. Consumers incur fixed transaction and transportation costs to access the foreign market in which a perfect substitute of the domestic good is available. We show that the size of the optimal tax is inversely related to the size of domestic transactions. This result provides a simple example of a more general principle, that is, when there are increasing returns to scale in tax avoidance with respect to the quantities involved, then smaller transactions should be taxed more heavily than larger transactions.

Why are tax expenditures for giving embodied in fiscal constitutions

Abstract This paper asks whether there can be unanimous support for a fiscal constitution that includes tax expenditures for giving among the set of available fiscal instruments. We describe a political economy model of fiscal choices where individuals with different incomes vote over levels of proportional income taxation and over tax incentives for giving, and investigate how the availability of such incentives affects political equilibrium outcomes and welfare for different income groups. We find that unanimous support for the use of tax incentives for giving can indeed arise, and is more likely the more unequal is the distribution of income.

Viable Tax Constitutions

Taxation is only sustainable if the general public complies with it. This observation is uncontroversial with tax practitioners but has been ignored by the public finance tradition, which has interpreted tax constitutions as binding contracts by which the power to tax is irretrievably conferred by individuals to government, which can then levy any tax it chooses. However, in the absence of an outside party enforcing contracts between members of a group, no arrangement within groups can be considered to be a binding contract, and therefore the power to tax must be sanctioned by individuals on an ongoing basis. In this paper we offer, for the first time, a theoretical analysis of this fundamental compliance problem associated with taxation, obtaining predictions that in some cases point to a re-interpretation of the theoretical constructions of the public finance tradition while in others call them into question.