The People’s Perspective on Libertarian-Paternalistic Policies

AYALA ARAD, ARIEL RUBINSTEIN

THE JOURNAL OF LAW AND ECONOMICS, Volume 61, Number 2

Abstract: We examine the views toward libertarian-paternalistic (soft) governmental interventions in a series of online experiments conducted in three countries. We use both standard and new methods to elicit attitudes toward soft interventions in various hypothetical scenarios. The majority of the participants accept these types of interventions by the government. However, a substantial proportion opposes them and would prefer that the government simply provide information to help the public make the right choice rather than use a more effective choice architecture intervention. Some even refuse to make the choice that the government promotes, although they would have done so in the absence of the intervention. The opposition to soft interventions appears to be driven by concerns about manipulation and the fear of a slippery slope to nonconsensual interventions. Opposition to soft interventions is reduced when they are implemented by employers rather than the government.

Racial Bias in Bail Decisions

DAVID ARNOLD, WILL DOBBIE, CRYSTAL S. YANG

THE QUARTERLY JOURNAL OF ECONOMICS

Abstract: This article develops a new test for identifying racial bias in the context of bail decisions—a high-stakes setting with large disparities between white and black defendants. We motivate our analysis using Becker’s model of racial bias, which predicts that rates of pretrial misconduct will be identical for marginal white and marginal black defendants if bail judges are racially unbiased. In contrast, marginal white defendants will have higher rates of misconduct than marginal black defendants if bail judges are racially biased, whether that bias is driven by racial animus, inaccurate racial stereotypes, or any other form of bias. To test the model, we use the release tendencies of quasi-randomly assigned bail judges to identify the relevant race-specific misconduct rates. Estimates from Miami and Philadelphia show that bail judges are racially biased against black defendants, with substantially more racial bias among both inexperienced and part-time judges. We find suggestive evidence that this racial bias is driven by bail judges relying on inaccurate stereotypes that exaggerate the relative danger of releasing black defendants.

Tullock and the welfare costs of corruption: there is a “political Coase Theorem”

MICHAEL C. MUNGER

PUBLIC CHOICE

Abstract: Gordon Tullock developed an approach to understanding dynamic processes of political change and policy outcomes. The key insight is the notion that political insiders have a comparative advantage—because they face lower transaction costs—in manipulating rules. The result is that political actors can collect revenues from threatening to restrict, or offering to loosen, access to valuable permissions, permits, or services. To the extent that the ability to pay for such favorable treatment is a consequence of private activities that produce greater social value, there is a “political Coase theorem”: corruption makes bad systems more efficient. But the dynamic consequences are extremely negative, because of the inability to institute reforms resulting from application of Tullock’s “transitional gains trap.”

Can fiscal rules constrain the size of government? An analysis of the “crown jewel” of tax and expenditure limitations

PAUL ELIASON, BYRON LUTZ

JOURNAL OF PUBLIC ECONOMICS, Volume 166

Abstract: Fiscal rules attempt to alter budget outcomes by constraining policy makers. They have been one of the primary responses to the recent string of fiscal crises around the globe. We ask if these rules succeed in altering fiscal outcomes by examining what is arguably the most stringent set of fiscal rules in the U.S.—Colorado’s Taxpayer Bill of Rights (TABOR). As TABOR attempts to constrain both taxes and expenditures, we develop a novel approach of estimating treatment effects for multiple outcomes simultaneously using the synthetic control methodology of Abadie et al. (2010). Although there will always be a degree of uncertainty over external validity when a policy is enacted in only a single state, our results provide no evidence that TABOR affected the level of taxes or spending in Colorado and are precise enough to rule out large negative effects. Thus, no support is found for the contention that fiscal rules alter budget outcomes. Instead, TABOR appears to have been partly evaded by policy makers and voters despite its stringency and partly nothing more than a ratification of the state’s preference over the size of its public sector.

Reassessing the productivity gains from trade liberalization

JAEBIN AHN, ERA DABLA-NORRIS, ROMAIN DUVAL, BINGJIE HU, LAMIN NJIE

REVIEW OF INTERNATIONAL ECONOMICS

Abstract: This paper reassesses the impact of trade liberalization on productivity. We build a new, unique database of effective tariff rates at the country‐industry level for a broad range of countries over the past two decades. We then explore both the direct effect of liberalization in the sector considered, as well as its indirect impact in downstream industries via input linkages. Our findings point to a dominant role of the indirect input market channel in fostering productivity gains. A 1 percentage point decline in input tariffs is estimated to increase total factor productivity by about 2 percent in the sector considered. For advanced economies, the implied potential productivity gains from fully eliminating remaining tariffs are estimated at around 1 percent, on average, which do not factor in the presumably larger gains from removing existing non‐tariff barriers. Finally, we find suggestive evidence of complementarities between trade and FDI liberalization in boosting productivity. This calls for a broad liberalization agenda that cuts across different areas.

Government extraction and firm size: Local officials’ responses to fiscal distress in China

YU LIU

JOURNAL OF COMPARATIVE ECONOMICS

Abstract: This paper studies how government extraction behaviors respond to local fiscal distress in China. We exploit the 2002 Chinese Income Tax Reform which exogenously cut local government revenues from income taxes roughly by half. We find that, when facing fiscal distress, local officials resort to informal taxes, such as fees and levies, instead of formal taxes to supplement revenue. On average, the increase in informal taxes recovered 75 percent of the local government revenue loss due to the reform. The increases are more pronounced along the intensive margin and are primarily driven by more extractions from large firms. We also find that the reform led to reductions in investment and growth rates of small firms and consistently more small firms in the total size distribution.

A Schumpeterian Model of Top Income Inequality

CHARLES I. JONES, JIHEE KIM

JOURNAL OF POLITICAL ECONOMY

Abstract: Top income inequality rose sharply in the United States over the last 40 years but increased only slightly in France and Japan. Why? We explore a model in which heterogeneous entrepreneurs, broadly interpreted, exert effort to generate exponential growth in their incomes, which tends to raise inequality. Creative destruction by outside innovators restrains this expansion and induces top incomes to obey a Pareto distribution. Economic forces that affect these two mechanisms—including information technology, taxes, and policies related to innovation blocking—may explain the varied patterns of top income inequality that we see in the data.