Empirical evidence suggesting that a considerable amount of horizontal strategic interaction exists amongst governments is important in light of recent devolutionary trends of many important public programs. The empirical approach in these studies typically relies on estimating reaction...

Politicians may use disguised' redistributive policies in order to circumvent opposition to explicit tax-transfer schemes. First, we present a theoretical model that formalizes this hypothesis; then we provide evidence that in US cities, politicians use public employment as such a redistributive...

While the old systems competition took place with closed borders, globalisation has brought about a new type of systems competition that is driven by the mobility of factors of production. The new systems competition will likely imply the erosion of the European welfare state, induce a race to...

This paper studies how to design a fiscal constitution that, by capitalizing intergenerational spillovers into land values, is able to protect future generations from expropriation and to generate optimal investment in intergenerational public goods. In particular, we study how to accomplish...

It is often argued that tax competition may lead to a "race to the bottom". Such a race may hold indeed in the case of the pure case of factor mobility (such as capital mobility). However, in this paper we emphasize the unique feature of labor migration, that may nullify the "race to the bottom"...

An important element in considering school finance policies is that households are not passive. Instead they respond to policies with a combination of modified residential choice and political choice of tax levels. The highly stylized decision models of most existing analyses, however, lead to...

Limited liability and asymmetric information between an investment bank and its lenders provide an incentive for a bank to undercapitalise and finance overly risky business projects. To counter this market failure, national governments have imposed solvency constraints on banks. However, these...

We present a model where heterogeneous districts choose both whether to experiment and the policies to experiment with. Since districts learn from each other, the first-best requires that policy experiments converge so that innovations are useful also for neighbors. However, the equilibrium...

Contrary to a frequent contention, systems competition cannot work when governments respect the Subsidiarity Principle. The principle implies that governments step in where markets fail. Reintroducing markets through the back door of systems competition will again result in market failure. Three...