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Political dynamics, public goods and private spillovers

Kam, Timothy; Kao, Tina; Lu, Yingying

Description

Positive and negative spillovers from private activities onto aggregate economic outcomes are empirically significant. How might politics interact with private investment incentives and their externalities? Our theory connects politics to policies which distort private spillovers. This has implications for empirical identification. In our model, for large negative externality there is a unique equilibrium with perpetually high tax rates and majority poor voters. This is a consequence of...[Show more]

dc.contributor.authorKam, Timothy
dc.contributor.authorKao, Tina
dc.contributor.authorLu, Yingying
dc.date.accessioned2022-10-04T03:30:30Z
dc.identifier.issn0167-2681
dc.identifier.urihttp://hdl.handle.net/1885/274270
dc.description.abstractPositive and negative spillovers from private activities onto aggregate economic outcomes are empirically significant. How might politics interact with private investment incentives and their externalities? Our theory connects politics to policies which distort private spillovers. This has implications for empirical identification. In our model, for large negative externality there is a unique equilibrium with perpetually high tax rates and majority poor voters. This is a consequence of political manipulation that anticipates private spillovers on forward-looking investment decisions. When positive spillovers are sufficiently large, individuals can coordinate on policies that encourage private investment. This sustains an equilibrium with perpetually low tax rates and majority rich voters. The resulting multiple equilibria can be used to interpret existing conundrums in empirical findings. We can also rationalize an observed cross-country empirical regularity in terms of public funding for knowledge goods and income inequality.
dc.format.mimetypeapplication/pdf
dc.language.isoen_AU
dc.publisherElsevier
dc.rights© 2020 Elsevier B.V.
dc.sourceJournal of Economic Behavior and Organization
dc.subjectEnvironmental/Knowledge public good
dc.subjectPrivate spillovers
dc.subjectMarkovian voting
dc.subjectEquilibrium regimes
dc.subjectRedistribution
dc.titlePolitical dynamics, public goods and private spillovers
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume177
dc.date.issued2020
local.identifier.absfor380304 - Microeconomic theory
local.identifier.absfor380105 - Environment and resource economics
local.identifier.absfor380114 - Public economics - publicly provided goods
local.identifier.ariespublicationa383154xPUB15031
local.publisher.urlhttps://www.elsevier.com/en-au
local.type.statusPublished Version
local.contributor.affiliationKam, Timothy, College of Business and Economics, ANU
local.contributor.affiliationKao, Tina, College of Business and Economics, ANU
local.contributor.affiliationLu, Yingying, Commonwealth Scientific and Industrial Research Organisation
local.description.embargo2099-12-31
local.bibliographicCitation.issueSeptember 2020
local.bibliographicCitation.startpage237
local.bibliographicCitation.lastpage254
local.identifier.doi10.1016/j.jebo.2020.06.007
dc.date.updated2021-11-28T07:21:03Z
local.identifier.scopusID2-s2.0-85087298341
CollectionsANU Research Publications

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