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Dufwenberg, Martin; Nordblom, Katarina
doi: 10.1111/jpet.12547pmid: N/A
How do moral concerns affect fraud and detection, for example, tax compliance and the need for audits? We propose answers by exploring a psychological 2 × 1 × 2 × 1 inspection game which incorporates belief‐dependent guilt, unawareness, and third‐party audience effects. Novel conclusions are drawn regarding whose behavior is affected by moral concerns (it's the inspector's more than the inspectee's) as well as the policy issue whether to allow the use of a principle of public access whereby tax returns are made public information.
doi: 10.1111/jpet.12537pmid: N/A
Most voting models in the literature neglect abstention, but is such a simplification justified? I investigate this question in a model with outside pressure on voters. For sequential voting (e.g., roll call votes), with and without an abstention option, there is a unique subgame perfect equilibrium, which implies that true majorities always succeed. Abstention can be an equilibrium strategy for some voters, in particular under complex decision rules (e.g., weighted voting, double majorities). Simultaneous voting often has a unique pure strategy equilibrium but also a plethora of mixed and pure/mixed strategy equilibria. Therefore, only with equilibrium selection, can we evaluate the consequences of neglecting abstention. For equal weight voting, equilibria selected by the procedure of Harsanyi and Selten change completely with an abstention option, even if abstention itself is not or rarely used. With small enough outside pressure, however, the selected equilibrium honors true majorities in both cases.
doi: 10.1111/jpet.12528pmid: N/A
We explore the suitability of the minimum wage as a policy instrument for reducing emerging income inequality created by new technologies. For this, we implement a binding minimum wage in a task‐based framework, in which tasks are conducted by machines, low‐skill, and high‐skill workers. In this framework, an increasing minimum wage reduces the inequality between the low‐skill wage and the other factor prices, whereas the share of income of low‐skill workers in the national income is nonincreasing. Then, we analyze the impact of an automating economy along the extensive and intensive margins. In a setting with a minimum wage, it can be shown that automation at the extensive margin and the creation of new, labor‐intensive tasks do not increase the aggregate output in general, as the displacement of low‐skill workers counteracts the positive effects of cost‐savings. Finally, we highlight a potential trade‐off between less inequality of the factor prices and greater inequality of the income distribution when a minimum wage is introduced into an automating economy.
Leroux, Marie‐Louise; Pestieau, Pierre
doi: 10.1111/jpet.12539pmid: N/A
This paper studies the properties of the optimal taxes on bequests when individuals differ in wage and in their risks of mortality and old‐age dependance. Survival is positively correlated to income but dependency is negatively correlated with it. The government cannot distinguish between bequests motives, that is whether bequests resulted from precautionary reasons or from pure joy of giving reasons. Instead, it observes the timing of bequests and the health status at death. Under the utilitarian social welfare criterion, we show that bequests taxation results from a combination of equity, insurance, and public revenue motives. If redistribution concerns dominate insurance concerns, it is desirable to tax the most bequests of those individuals living long in good health and to tax the least bequests of those dying early. This is a direct consequence of the socio‐demographic structure we assumed where richer agents live longer and in better health than poorer agents. To the opposite, if insurance concerns dominate redistributive concerns, early bequests should be the most taxed and, bequests under dependency the least taxed. Under the Rawlsian criterion, we find that early bequests should be the least taxed and bequests left by the healthy long‐lived individuals should be the most taxed.
Jung, Hanjoon M.; Liang, Meng‐Yu; Yang, C.C.
doi: 10.1111/jpet.12532pmid: N/A
Tax enforcement not only detects tax evasion (the direct effect) but also enforces voluntary compliance (the indirect effect). This paper explores implications of the indirect effect for the optimal size of the budget allocated to the Internal Revenue Service (IRS). The conventional wisdom prescribes that the size of the budget allocated to the IRS should always fall short of the level where an additional dollar allocated would return just an additional dollar of revenue. In a model where taxpayers are subject to a small amount of incomplete information, we show that after taking into consideration the indirect effect of tax enforcement, it is possible that the optimal prescription is opposite to the conventional wisdom.
Salanié, François; Zaporozhets, Vera
doi: 10.1111/jpet.12538pmid: N/A
We analyze the problem of allocating irrigation water among heterogeneous farmers when water supply is stochastic. If farmers are risk‐neutral, a spot market for water is efficient; while the oft‐used uniform rationing system is inefficient, both ex ante and ex post. Indeed, we show that it leads farmers to overexpose to risk, thus making shortages more severe and more frequent in case of drought. We propose instead a regulation by priority classes extending Wilson, and we derive an efficiency result. We characterize the set of farmers that would win or lose from such a reform. We also argue that a system of priority classes may be preferred to a spot market system, because scarcity is easier to manage ex ante than ex post, and because this system facilitates the supply of insurance to risk‐averse agents.
Parameswaran, Giri; Rendleman, Hunter
doi: 10.1111/jpet.12529pmid: N/A
We study the political economy of redistribution over a broad class of decision rules. We suggest a simple and elegant procedure to select a robust equilibrium from the multiplicity in the core. Equilibrium policy depends on the full income profile, and, importantly, the preferences of two decisive voters. We show that the effect of increasing inequality depends on the decision rule and the shape of the income distribution; redistribution will increase if both decisive voters are “relatively poor,” and decrease if at least one is sufficiently “rich.” Additionally, redistribution decreases as the polity adopts increasingly stringent super‐majority rules.
St‐Pierre, Marc; Elrod, Aaron A.
doi: 10.1111/jpet.12541pmid: N/A
We study the effect of environmental regulation (taxation) on emissions when the only available abatement method consists of product‐mix changes. Firms choose to produce one or both varieties of a product—a pollution‐intensive (dirty) and a non‐pollution‐intensive (green)—and compete in a differentiated Cournot duopoly. We characterize the equilibrium market structure as a function of the tax rate and show that increases in the tax can promote product‐mix changes that lead to a jump in emissions for some tax range, an effect we call the perverse effect of taxation. Our work emphasizes the key role horizontal product differentiation in this process and shows that the perverse effect does not require the presence of vertical product differentiation. Further, the perverse effect of taxation is especially strong in the presence of incomplete regulation, that is, when only one of the markets is subject to taxation.
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