In a two-country Schumpeterian growth model, we study the incentives for basic research investments by governments in a globalized world. We find that a country's basic research investments increase with the country's level of human capital and decline with its own market size. This may explain...

The aim of this paper is to identify possibilities for guiding policy in the area of basic research. We provide an extended review of basic research and offer new insights on its linkages to key economic variables and economic growth. After defining what basic research is, we identify and...

In this paper we examine the impact of tax contracts, a novel instrument, on elections, policies, and welfare. We consider a political game in which three parties compete to form the government and voters may behave strategically. Parties have policy preferences about the level of public-good...

We study the interplay between basic and applied research intensities in a simple model of creative destruction with research complementarities. Basic research intensity is chosen by the government and applied research intensity by the private sector. We find that the closer the country is to...

We introduce tax contracts and examine how they affect government formation and welfare of voters in a democracy with proportional elections. A tax contract specifies a range of tax rates a party is committed to if in government. We develop a new model of party competition in which parties...

We examine optimal procedures for public project provision, financing, and redistribution in democracy. We consider a large and heterogeneous decision body and show that first-best outcomes are obtained by a procedure that involves two proposal-making rounds, the right of the minority to move...

We suggest a development-compatible refunding system designed to mitigate climate change. Industrial countries pay an initial fee into a global fund. Each country chooses its national carbon tax. Part of the global fund is refunded to developing and industrial countries, in proportion to the...

Politicians tend to push the amount of public debt beyond socially desirable levels in order to increase their reelection chances. We develop a model that provides a new explanation for this behavior: office holders undertake debt-financed public projects, but postpone the timing of part of the...

The absence of the deselection threat in incumbents' last term in office can be negative or positive for society. Some politicians may reduce their efforts, while others may pursue beneficial long-term policies that may be unpopular in the short term. We propose a novel pension system that...

We provide a rationale for imposing counter-cyclical capital ratios on banks. In our simple model, bankers cannot pledge the entire future revenues to investors, which limits borrowing in good and bad times. Complete markets do not sufficiently stabilize credit fluctuations, as banks allocate...