Public Finance
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Fractionalization Effect and Government Financing
International Journal of Applied Economics 2: 37-49, 2005
Abstract. The weak government argument claims that fractionalized governments (coalition or minority governments) have more difficulty increasing their tax revenues or decreasing their spending than majority governments. This implies that weaker governments are associated with higher government deficits. In this paper, we test the implication of a fractionalization effect within the optimum financing model that suggests governments raise both their tax and seigniorage revenues to finance additional spending. We test the hypothesis for a sample of ten OECD countries for the period 1975-1997 and extend the period for the non-EU nations in the sample to cover 1975-2003. The empirical evidence presented here supports a positive relationship between the degree of fractionalization and seigniorage revenue. Our results also suggest that creation of seigniorage revenue is lower under right-wing governments and an independent central bank.
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Financing Unified and Divided Partisan Governments
Applied Economics Letters 5: 789-791, 1998
Abstract. By modifying Berument's divided government-optimum financing model to include partisan interests, it is found that when the Democratic party controls both the Congress and Presidency, real monetary base grows at a higher rate than when the Republican party controls both branches. In addition, it is found that monetary base grows at the slowest rate when neither party controls both branches, supporting a gridlock version of divided government.
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Railroads and Property Taxes
Explorations in Economic History 34: 77-99, 1997
Abstract. Nineteenth century state and local governments continued to invest in railroads and other internal improvement projects long after it was clear that these projects were financially very risky. This paper provides a motivation for public involvement in internal improvements by estimating the effect of railroad construction on property values from 1850 to 1910. Using Census data on true and assessed valuations, we find that the increase in property values associated with railroad construction, would, at typical levels of taxation, pay for a substantial share, if not all, of the construction costs solely on the basis of property tax revenues. The effect of construction on property values declined with mileage up to several thousand miles, which may explain why state governments typically were involved in construction of the initial systems. The effect, however, was nonlinear and increased at higher mileages, consistent withe the persistent participation of county and municipal governments.