Public Choice

The projected growth in the U.S. in the number of persons with AIDS has created concern about sources of financing the costs of health care services for persons with AIDS. Private health insurers have modified or considered modifying underwriting practices in response to the AIDS epidemic, but several state governments have developed significant regulatory constraints on AIDS-related underwriting practices. We model the state government's decision to impose AIDS-related regulatory constraints (HIV testing restrictions, restrictions on the use of information about sexual orientation, and mandated AIDS coverage). We find that HIV-testing restrictions tend to be more likely in states with relatively high AIDS prevalence rates and insurance industries that are relatively weak politically. States with prevailing attitudes favorable to persons with AIDS (i.e., relatively liberal states) are more likely than other states to impose HIV-testing restrictions. Measures of prevailing attitudes (ideology) appear to be the primary determinants of regulations prohibiting questions about sexual orientation, but economic interests are the primary determinants of mandated AIDS coverage.

The paper studies empirically the fiscal policy instruments by which governments try to influence election outcomes in 24 developing countries for the 1973-92 period. The study finds that the main vehicle for expansionary fiscal policies around elections is increasing public expenditure rather than lowering taxes, and public investment cycles seem particularly prominent. Institutional mechanisms which constrain discretionary expenditure policies and which strengthen fiscal control are therefore worthwhile considering to prevent opportunistic policy making around elections. Copyright 2000 by Kluwer Academic Publishers

The bailouts of 2008–10 are the most recent in a long series of insurance-like policies designed to limit the losses of those harmed by a crisis of some kind—but enacted after a crisis is under way. This paper analyzes the economics and politics of “crisis insurance” programs. The analysis helps explain why ex-post insurance is popular, why it tends to be undersupplied by private markets, and why governments may be better able to provide it. The analysis also points out that there are limits to what losses can be covered. The routine adoption of new programs to limit losses from crises tends to require greater expenditures through time because of moral hazard problems and the nature of crises. Eventually, this trend may produce “uninsurable” crises. The analysis of this paper suggests that such problems can be moderated, although not eliminated, through appropriate standing polices for ex-post funding of crisis insurance.

This paper investigates the trade policy of the EC, based on Art. 115, Treaty of Rome. It is shown that politicians and bureaucrats take advantage of the significant discretion the procedure allows. Political and bureaucratic self-interest are the underlying motives for national trade barriers against nonmember countries based on Art. 115. The empirical results support this hypothesis. Copyright 1991 by Kluwer Academic Publishers

Although collectivist ideas have everywhere fallen into disrepute, this essay argues that socialism nevertheless will survive and be extended in the new century. That gloomy prospect looms, not because socialism is more efficient or more just, but because ceding control over their actions to others allows individuals to escape, evade and even deny personal responsibilities. People are afraid to be free; the state stands in loco parentis. The breaching of plausibly acceptable fiscal limits in the first half of the new century will determine how the basic conflict between welfare dependency and liberal principles will be resolved. Copyright Springer Science + Business Media, Inc. 2005

This paper explores the structure of governance in California school districts. Two alternative models are considered--the decisive voter (benevolent dictator) model and a model that allows for rent-seeking behavior on the part of district decisionmakers. A formal test between these two models is proposed and implemented. The decisive voter model is found wanting as an explanation of school district decision making both before and after the passage of Proposition 13. There is, however, some evidence that the constraints imposed on some districts by Proposition 13 have forced decisionmakers to act in a manner more consistent with the preferences of their constituents. Copyright 1996 by Kluwer Academic Publishers

I. THE SHIFT TOWARDS A MORE INTEGRATED SYSTEM OF FISCAL FEDERALISM The common system of fiscal federalism in the United States separates fiscal base; and responsibilities; since the Seventies there has been a move towards a more integrated system. Introducing revenue sharing was one step in that direction; reducing the fiscal power of local communities by referenda like Proposition 13 in California and Proposition 2-1/2 in Massachusetts is another. These propositions lead to higher influence of state govemments, whereas the local governments cannot help but collect the property tax at the highest possible tax rate. This implies that local governments can no longer use the property tax rate as a discretionary fiscal policy instrument. Therefore, discretionary local fiscal policy will be mainly restricted to user charges on the revenue side and on the other hand to public expenditures. However, the state bailout programs as well as the choice of particular types c,f state grants will reduce the discretionary scope of local expenditur.es as well. This challenge of institutional restructuring should lead to a response in the theory of fiscal federalism : A. The "classical" model of United States local fiscal federalism, the Tiebout model (Tiebout 1956, Oates 1972, Bewley 1981), explains migrations between local communities by differences in their local property tax rates and public expenditures, respectively. If the local property tax rates are unified as a consequence of Proposition 13 and a subsequent fiscal policy that compels all local governments to choose the highest possible property tax rate, most tax policy incentives for migration inside California disappear. If, moreover, as part of a general tendency of the bailout programs, the local public expenditures are relatively unified as well, the Tiebout model would lose much of its explanatory power for migrations inside the state and would only be valid for migrations between states. The general tendency for unification of local expenditures is well exemplified in California, the Serrano decision being an outstanding example. This change in United

Any analysis of California's Revenue Limitation movement must consider not merely Proposition 13 but also its various legislative responses. In this spirit, I will briefly review Proposition 13 passed in June 1978 and key legislative responses that followed. Next, I will analyze direct effects of these constitutional and statutory steps, particularly on public education in California; finally secondary effects resulting from private and public responses to the new environment which, in turn, affect public education will be assessed. On June 6, 1978 the electorate of California, by a large majority, passed a constitutional amendment - Proposition 13. It rolled back property tax assessments to their 1975 levels and restricted increases in assessments to 2% per year for as long as the property is retained by the same owner. Property taxes are prohibited from exceeding 1% of the property's full value; increases in state taxes are permitted only if approved by a 2 majority of both houses of the state legislature; and local taxes must be approved by a 2 majority of jurisdiction's voters. What led to this collective action by California voters is not entirely clear. Various causes have been held responsible among them the following unreasonably high and rapidly increasing property taxes, a large and continuously rising surplus of state funds, alleged flabby and inefficient local government, resentment against redistribution of monies to low income groups in general and minorities in particular, and the belief that the price at which government was providing services was too high. Which of these or any other factors prompted California voters to approve as extreme a revenue limitation measure as Proposition 13 so far has not been determined.

The present article tests predictions of rational political business cycle models using a large and previously unexplored data set of Portuguese municipalities. This data allows for a clean test of these predictions due to the high level of detail on expenditure items, an exogenous fixed election schedule, and homogeneity of Portuguese local governments with respect to policy instruments and institutions. Estimation results clearly reveal the opportunistic behaviour of local governments. In pre-electoral periods, they increase total expenditures and change their composition favouring items that are highly visible to the electorate. This behaviour is consistent with an effort to signal competence and increase chances of re-election.

In a median-voter framework with pensions and immigration we show that too few unskilled immigrants are allowed into the country because the unskilled native median voter is concerned with negative effects on his wage. He does not consider the positive effects to other groups in society. When return migration is allowed for, the median voter is more willing to accept immigration because he can shift some of the burden to future generations.

Employment protection and unemployment benefits are considered the most prominent insurance devices for workers to protect themselves against the risk of unemployment. It occurs that societies either choose a high level of employment protection relative to unemployment benefits or vice versa. This paper explains where countries locate on this trade-off. It is argued that higher coverage of voters out-of-the labor force with intra household transfers yields a politico-economic equilibrium with relatively high employment protection and relatively low unemployment benefits. Cross country data and survey data on voters’ preferences are presented that corroborate the outcomes of the model.

Political budget cycles (PBCs) arise when the electorate is imperfectly informed about the incumbent’s competence and the incumbent has discretion over the budget. Focusing on the second condition, we study how separation of powers affects PBCs in the composition of government spending. We find that the details of the budget process, namely, the bargaining rules, the status quo’s location, and the degree of compliance with the budget law, are critical for the existence and the amplitudes of PBCs. In particular, when the status quo is determined by the previous budget and there is high compliance with the budget law, separation of powers acts as a commitment device which solves the credibility problems that drive PBCs.

We explore the idea that the influence of interest groups in elections may have positive economic effects. Since the investment decisions of firms determine economic growth and employment, voters have a common interest in making their governments commit to policies that encourage private investments. However, governments may renege on promises for economic stability and choose excessively leftist policies. Campaign contributions by firms tend to restrain the scope for such opportunism and provide a commitment device. This is achieved if firms, after the policy is chosen, contribute to the governing party or to its rivals.