I present a tractable dynamic model of political economy where disagreements about the composition of public spending result in implementation of short-sighted policies. The relative price of investment to consumption is excessively large in equilibrium due to over-taxation. Investment rates are too low which slows down growth along the transition. In the long run, this results in output, consu...

It is often argued that multinationals are reluctant to transfer technology due to the fear of spillovers. We show that this need not be the case if host country policies like taxation are taken into account. Furthermore, we examine the incentives the multinational and the host country have to engage in an international joint venture. We show why a multinational may agree to enter a joint ventu...

Inheritances create a second distinguishing characteristic of individuals, in addition to earning abilities. We incorporate this fact into an optimum income taxation model with bequests motivated by joy of giving, and show that a tax on inherited wealth is equivalent to a tax on expenditures, i. e. to a uniform tax on consumption plus bequests. These taxes have a positive effect on intertempora...

Should Egalitarians Expropriate Philanthropists? Wealthy individuals often voluntarily provide public goods that the poor also consume. Such philanthropy is perceived as legitimizing one’s wealth. Governments routinely exempt the rich from taxation on grounds of their charitable expenditure. We examine the normative logic of this exemption. We show that, rather than reducing it, philanthropy ma...

In this paper the concept of tax co-ordination within the European Union (EU) is discussed, in view of the coming enlargement of the EU. The tax externalities that possibly arise in a single market are analysed, as well as the ways these externalities can be prevented or internalised. These theoretical reflections are placed alongside the actual system of tax co-ordination within the EU. Focusi...

This paper investigates the effect of private pensions on the retirement wealth distribution. We incorporate stochastic private pension coverage into a calibrated life-cycle model with stochastic earnings. Private pensions lead to higher net worth inequality at retirement, which is closer to the inequality observed in the PSID than a model without private pensions. However, the offset effect of...

Implicit in many discussions of labour market policy is the assumption that, in the absence of interventions, the operation of the labour market is well-approximated by the perfectly competitive model. The merits or demerits of particular policies is then seen as a trade-off between efficiency and equality. This paper analyses the impact of a variety of policies – the minimum wage, trade unions...

Trade subject to predation generates externalities within and between markets. Efficient tax, infrastructure and enforcement policies internalize the net externality — more trade ⇒ fewer predators but drawn to trade at rising cost. The balance is positive (negative) as enforcement is weak (strong). Dual economies pair weak Periphery and strong Core enforcement markets. Efficient taxation and in...

We introduce public spending, financed through income taxation, in the Ramsey model with heterogeneous agents. Public spending as a source of welfare generates more complex dynamics. In contrast to previous contributions focusing on similar models but with wasteful public spending, limit cycles through Hopf bifurcation and expectation-driven fluctuations appear if the degree of capital-labor su...

This paper explores the welfare consequences of foreign investment taxation in a small open economy, based on the notion that the true productivity of imported capital may be unknown to policy-makers. It is shown that while asymmetric information between capital importers and the host government precludes the use of a productivity specific policy measure, an across-the-board policy suffers from...