Rainald Borck

Voting, Inequality and Redistribution

This paper surveys models of voting on redistribution. Under reasonable assumptions, the baseline model produces an equilibrium with the extent of redistributive taxation chosen by the median income earner. If the median is poorer than average, redistribution is from rich to poor, and increasing inequality increases redistribution. However, under different assumptions about the economic environment, redistribution may not be simply rich to poor, and inequality need not increase redistribution. Several lines of argument are presented, in particular, political participation, public provision of private goods, public pensions, and tax avoidance or evasion. Copyright 2007 The Author Journal compilation

The political economy of intergovernmental grants

Abstract We study the effect of politics on the distribution of intergovernmental grants. We consider a model where local government officials lobby the central government who in turn distributes grants based on the local governments’ lobbying efforts. We argue that the marginal costs of lobbying increase with the geographical and ‘political’ distance from the central government capital. Hence, in equilibrium, grants should decrease with a jurisdiction’s distance from the capital. Moreover, grants to a jurisdiction which produces spillover benefits for other jurisdictions will meet less opposition. Therefore, higher spillover benefits will imply more grants to the jurisdiction producing the spillover in equilibrium. Using data from California counties, we find support for our model.

Local Public Finance

In this essay, we survey the literature on local public finance. The first part deals with the normative theory of local public finance, starting from the question when it is beneficial to decentralize public services. We then analyze the functioning of a system of competitive jurisdictions in the spirit of Tiebout. The final part of the essay deals with constitutional design. In particular, we ask when and how local governments have to be regulated in order to prevent destructive competition or contain monopoly power, and we describe which institutions might perform these tasks.

Legislative Professionalism and Government Spending: Do Citizen Legislators Really Spend Less?

In this article, the authors consider the effect of legislative professionalism on state government spending. Arguments are examined for why citizen legislatures should have systematically different spending patterns than professional ones. Using data from the U.S. states, the authors find that state government expenditure per capita is significantly lower the less professionalized the state legislature. They conclude that reducing legislative professionalism is one of the instruments citizens may use to contain the growth of government.

Voting on redistribution with tax evasion

This paper analyzes voting on a linear income tax whose proceeds are redistributed lump sum to the taxpayers. Individuals can evade taxes, which leads to penalties if evasion is detected. Since preferences satisfy neither single peakedness nor single crossing, a voting equilibrium may not exist. When an equilibrium does exist, there are several possible outcomes. There may be ‘conventional’ equilibria where the rich are expropriated by the poor and middle class. There may be equilibria without full expropriation where redistribution is limited by the threat of evasion. Finally, there may be equilibria where redistribution goes from the middle class to the rich and poor.

Fiscal Competition and the Composition of Public Spending: Theory and Evidence

In this paper, we consider fiscal competition between jurisdictions. Capital taxes are used to finance a public input and two public goods, one which benefits mobile skilled workers and one which benefits immobile unskilled workers. We derive the jurisdictions’ reaction functions for different spending categories. We then estimate these reaction functions using data from German communities. Thereby we explicitly allow for a spatially lagged dependent variable and a possible spatial error dependence by applying a generalized spatial two-stage least squares (GS2SLS) procedure. The results show that there is significant interaction between spending of neighbouring counties in Germany.

Tax Liability-Side Equivalence in Experimental Posted-Offer Markets

In theory, the incidence of a tax should be independent of the side of the market on which it is levied. This principle of liability-side equivalence underlies virtually all theories of tax incidence. Policy discussions, however, tend to place great emphasis on the legal division of tax payments. We use computerized experimental posted-offer markets to test liability-side equivalence. We find that market outcomes are essentially the same when the tax is levied on sellers as when it is levied on buyers. Thus, we cannot reject liability-side equivalence.

Tax Competition and the Choice of Tax Structure in a Majority Voting Model

This note studies the choice of tax structure in a majority voting model with tax competition. Regions may tax mobile capital or immobile labor. Individuals differ with respect to their relative endowments of labor and capital. Even though a lump sum tax is available, the equilibrium capital tax in a jurisdiction may be positive. In a symmetric equilibrium, this will be true if the median capital endowment is smaller than average.

An empirical analysis of voluntary payments for information goods on the Internet

This paper presents results from a field study on voluntary contributions for an information public good provided via the Internet (an electronic newsletter for authors). Whereas the standard private provision model predicts that individuals contribute less if other individuals contribute more, we find that readers are more likely to pay the more they expect others to give. This result is consistent with more refined private provision models or with fairness models. We also find individuals contribute more the older they are. Women are also more cooperative in this sense, while income has no significant effect.

Jurisdiction Size, Political Participation, and the Allocation of Resources

This paper analyzes the effect of population size on politicalparticipation and allocative efficiency. Increasing populationis generally found to reduce political participation. However,since participation is not evenly spread throughout thepopulation, this will have consequences for allocation.Namely, we argue that increasing population size shifts powerto the rich. We discuss the consequences for the optimal sizeof jurisdictions, the size of government, and the measurementof publicness.