Nicolas Marceau

Investment in education and the time inconsistency of redistributive tax policy

Time inconsistency of tax policy is shown to arise in a setting in which households differ in their ability to accumulate wealth and the government has redistributional objectives. The government can levy non-distorting taxes but is precluded from redistributing optimally by a self-selection constraint. The analysis is done for the case in which all wealth is human capital, and education is a private good. An argument can be made for public intervention in the provision of education.

Minimum Wage Legislation and Unemployment Insurance as Instruments for Redistribution

The use of minimum wages and unemployment insurance as instruments for redistributing income is analyzed. The government is assumed to be able to implement an optimal income tax in an economy consisting of two types of individuals who differ in ability. The effect of introducing a minimum wage that induces involuntary unemployment will be to improve social welfare under weak conditions. Circumstances under which combining unemployment insurance with the minimum wage will be welfare-improving are also considered. Copyright 1994 by The editors of the Scandinavian Journal of Economics.

Corporate Lobbying and Commitment Failure in Capital Taxation

This paper investigates the effects of lobbying by corporations when investments are irreversible and government cannot commit to tax policies. We show that industries which rely more heavily on sunk capital lobby more vigorously and are generally more successful in obtaining tax breaks. Thus lobbying can mitigate the capital levy problem. Nevertheless, these industries invest less in long-run equilibrium than more flexible ones. We then consider the effects of relaxing legal restrictions on corporate lobbying. When the deadweight costs of lobbying fall, taxes on sunk capital tend to fall, but political contributions may rise, as lobbyists compete more intensively for political favors. On balance, a ban of lobbying may therefore cause investment to rise or fall.

Joint Tax Evasion

Tax evasion analysis typically assumes that evasion involves individual taxpayers responding to some given policies. However, evading taxes could require the collaboration of at least two taxpayers. Detection depends on the costly avoidance activities of both transacting partners. An increase in sanctions leads to a direct increase in the expected cost of a transaction in the illegal sector, but it may also increase the incentive for the partners to cooperate in avoiding detection. The total cost of transacting in the illegal sector can fall, and tax evasion may increase. The policy implications of this phenomenon are considered.

Agency and the design of welfare systems

Abstract Transfers to the needy are administered by social workers whose job it is to tag welfare applicants to determine eligibility for disability benefits. The accuracy of tagging depends on the effort of the social workers, which is private information. To prevent shirking and induce optimal effort, costly monitoring is required. Using the framework of optimal non-linear taxation, we characterize the form of the optimal tax-transfer system when the government operates a costly welfare system financed by income taxation. Higher-income persons self-select into the income tax system. The needy apply for welfare. If tagged, they receive a disability benefit; if untagged, they receive general welfare benefits. We characterize circumstances under which welfare recipients should or should not be induced to work, the structure of the optimal tax-transfer system, and the optimal payment and monitoring of social workers.

Competition in Crime Deterrence

This paper studies competition between jurisdictions in the eradication of crime. In one story, criminals choose the jurisdiction in which they will commit their crimes while jurisdictions choose the amount of resources devoted to deterrence to protect local production. In another story, the criminals cannot change jurisdictions but they can not rob the owners of mobile capital. Jurisdictions choose the amount of resources devoted to the deterrence of local crime so as to secure property rights and to attract capital. In both stories, competition between jurisdictions leads to overdeterrence relative to the Pareto optimal level.

Endogenous insecurity and economic development

Abstract We explore the implications of endogenous credit market imperfections for the endogenous relationship between investment insecurity and the process of economic development. In the initial stages of development, the fraction of agents engaged in nonproductive diversionary activities (e.g. rent-seeking) grows as the opportunities to gain from diversionary activities expand. In later stages, however, diversion falls as capital market imperfections are overcome and productive activities become more secure and more profitable. We detail the forces that determine whether the insecurity generated by an economys early development will choke off the growth process. We also compare the cost-effectiveness of alternative policies designed to prevent diversion.

Unemployment Insurance and Market Structure

This paper examines the impact of unemployment insurance (UI) on employment and unemployment in an industry in which the prices can vary due to some market power or general equilibrium (GE) effects. Some non-conventional results are obtained. First, it is shown that in an industry in which firms have some market power [Cournot competition], average industrial employment may be a decreasing function of the experience-rating because the number of firms in the industry is itself a decreasing function of the experience-rating. This contradicts the conventional view according to which employment should be an increasing function of the experience-rating. Second, the case of an industry characterized by perfect competition and general equilibrium effects on prices is examined. It is shown that the GE effects mitigate the conventional results as well as the one obtained by Burdett and Wright (1989b) [which contradict the conventional view] because those results were obtained in a partial equilibrium framework [fixed prices]. The general conclusion is that for industries with different degrees of market power, the same UI scheme has different impacts on employment and unemployment

Amnesties and Co-operation

One of the costs of anticipated amnesties is current and future non-compliance with the law. Relatively to a no-amnesty situation, efficient enforcement policies may therefore differ when an amnesty is offered. To study this question, a model is built in which individuals impose a cost on society when they commit a crime. When a criminal participates in an amnesty, or (to a lesser extent) when he is caught, some fraction of the social cost is recovered, reflecting co-operation with the authorities. The analysis characterizes efficient anticipated amnesties. It is shown that the efficient level of enforcement may be smaller in the case of an anticipated amnesty than in a no-amnesty situation. The reason is that despite the increase in the initial number of criminals generated by the amnesty, many criminals eventually participate in it. If participants in the amnesty are very co-operative, then a large proportion of the social cost is recovered making the initial increase in the number of criminals less costly. The optimal level of the reduced sanction imposed on those who participate in the amnesty is also characterized.

Time inconsistency as a rationale for public unemployment insurance

A role for public unemployment insurance is developed based on the inability of the government to commit to a future rate of unemployment. This is illustrated using a model in which a minimum wage policy combined with unemployment insurance is welfare-improving. Unemployment insurance could be decentralized to the private sector if the government could commit to a minimum wage. However, if not, a government that acts in the interest of the workers will have an incentive to increase the minimum wage to exploit private insurers. In the absence of commitment, an equilibrium with private unemployment insurance will not exist.