No abstract

We exploit differences in the stringency of balanced budget rules across US states to estimate the effect of fiscal policy cyclicality on state GDP growth. While most states have passed laws restricting deficits, the nature and strictness of these laws vary greatly. States with more stringent balanced budget restrictions run more procyclical fiscal policy. We use the diversity in these laws as an instrument for the cyclicality of state government spending. We find modest evidence that more counter-cyclical public expenditure increases a state's average growth rate per capita. Further, our point estimates suggest that a state could increase its annual growth rate by 0.4% by relaxing the "ex-post" balanced budget restriction. This estimated effect is statistically significant at the 10% level in our basic specification, but loses its significance when we control for the initial debt to GDP ratio.

We examine how candidate uncertainty affects the policy platforms chosen in a unidimensional, two-candidate Downsian spatial model. The candidates, we assume, do not know the true distribution of voters. Following the robust control literature, candidates respond to this uncertainty by applying a max–min operator to their optimization problem. This approach, consistent with findings within the behavioral economics literature, protects the candidate by ensuring that her expected utility never falls too far, regardless of the true voter distribution. We show that this framework produces a continuum of equilibria upon which the candidates can converge and that the size of this continuum is weakly increasing in each candidate’s uncertainty. We argue that our model can explain movements in political platforms over time. That is, the mere presence of candidate uncertainty, in addition to shifts in attitudes or demographics, can cause political candidates to change their policy positions across elections.

Standard models of horizontal capital tax competition predict that, in a Nash equilibrium, states set tax rates inefficiently due to externalities—capital inflow to one state corresponds to capital outflow for another state. Researchers often suggest that the federal government impose Pigouvian taxes to correct for these effects and achieve efficiency. We propose an alternative incentive‐based regulation: tradeable capital tax permits. Under this system, the federal government would require a state to hold a permit if it wanted to reduce its capital income tax rate from some predefined benchmark. These permits would be tradeable across states. We show that, if the federal government sets the correct number of total permits, then social efficiency is achieved. We discuss the advantages of this system relative to the canonical suggestion of Pigouvian taxes.

Auction houses employ in-house art experts to assess the value of objects that will potentially be o¤ered for sale. Items that will be placed on the auction block are …rst published in catalogs with the experts'estimates of the objects'valuations. For each item to be auctioned, the catalog provides an upper-and lower-bound estimate of the object's market value. This paper examines whether the roundness of those estimates is related to the likelihood that the item was sold and its eventual hammer price. We …nd that rounder lower estimates reduce the likelihood that the item is sold and, if it is sold, the hammer price is lower. The roundness of the upper estimate seems to have no impact on the auction outcome.