This paper constructs a dynamic model of government borrowing and default. The government faces a fiscal constraint in that it cannot raise tax rates. By defaulting on the debt, the government can increase domestic consumption. Two types of default arise in this environment: fiscal defaults and aggregate defaults. Fiscal defaults occur because the government cannot service the debt due to its i...

We provide a multiperiod model of political competition in which voters imperfectly observe the electoral promises made to other voters. Imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary. Government spending is larger than in a world of perfect observability. Transfers are partly financed throu...

We provide a multiperiod model of political competition in which voters imperfectly observe the electoral promises made to other voters. Imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary. Government spending is larger than in a world of perfect observability. Transfers are partly financed throu...

JEL Classification Code(s): J 31, J 71) "Perceptions of Discrimination, Effort to Obtain Psychological Balance, and Relative Wages: Can We Infer a Happiness Gradient?" There is a substantial literature that finds a linkage between happiness and relative economic well being as measured by earnings or wages. There is also a well documented racial gap in wages. One explanation for this is disparat...

This article examines the taxation of property in residential market as a potential revenue-raising tool public finance. Economists generally consider taxing to be less distortionary than other tax bases. It ranks well terms trade-offs across long-term growth and inequality considerations. Although countries have different societal preferences, recourse is not widespread. Using panel data metho...

How does the size of the transfer system evolve in the short and in the long run? We model income redistribution as determined by voting among individuals of different types and income realizations. Taxation is distortionary because it discourages effort to accumulate human capital. Voters are fully rational, realizing that transfers have implications also for future economic decisions and taxa...

This paper develops a theory of optimal taxation with behavioral agents. We use a general behavioral framework that encompasses a wide range of behavioral biases such as misperceptions, internalities and mental accounting. We revisit the three pillars of optimal taxation: Ramsey (linear commodity taxation to raise revenues and redistribute), Pigou (linear commodity taxation to correct externali...

[Abstract] Is tax evasion beneficial or harmful to growth? We approach this question by extending Persson and Tabellini’s (1994) growth model to a plausible world where individuals differ not only in terms of their skill in earning income but also in terms of their skill in concealing income from the tax authority. The Persson-Tabellini model identifies a fundamental tradeoff for redistribution...

This paper investigates the effect of local property tax for businesses on firm performance by using a panel Italian manufacturing firms. To identify this effect, we implement pairwise spatial-differenced estimator and exploit exogenous variation in rates caused political alignment central governments. We find that business taxation has sizeable negative impact equipment, more volatile part tan...