Henrik Kleven (joint with Claus Thustrup Kreiner and Emmanuel Saez): ''The Optimal Taxation of Couples,'' forthcoming Econometrica

A paper by Henrik Kleven (joint with Claus Thustrup Kreiner and Emmanuel Saez) The Optimal Income Taxation of Couples is forthcoming in Econometrica.

This paper explores the optimal income taxation of couples, where each couple is modeled as a unitary agent supplying labor along two dimensions: the labor supply of a primary earner and the labor supply of a secondary earner. The authors show that, if second-earner labor force participation is a signal of the couple being better off (as when second-earner entry reflects high labor market opportunities), optimal tax schemes display positive tax rates on secondary earnings along with negative jointness whereby the tax rate on one person decreases with the earnings of the spouse. Conversely, if second-earner participation is a signal of the couple being worse off (as when second-earner entry reflects low home production ability), they obtain a negative tax rate on the secondary earner along with positive jointness: the second-earner subsidy is being phased out with primary earnings. These results imply that, in either case, the tax distortion on the secondary earner is declining in primary earnings, which is therefore a general property of an optimum. The authors also prove that the second-earner tax distortion tends to zero asymptotically as primary earnings become large.

Timothy Besley (joint with Torsten Persson): 'The Origins of State Capacity: Property Rights, Taxation and Politics', forthcoming in AER

A paper by Timothy Besley (joint with Torsten Persson) The Origins of State Capacity: Property Rights, Taxation and Politics is forthcoming in the American Economic Review.

Economists generally assume that the state has sufficient institutional capacity to support markets and levy taxes, assumptions which cannot be taken for granted in many states, neither historically nor in today's developing world. In this paper the authors develop a framework where "policy choices" in market regulation and taxation are constrained by past investments in the legal and fiscal capacity of the state. They study the economic and political determinants of such investments and find that legal and fiscal capacity are typically complements. Their theoretical results show that, among other things, common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity of both forms. Their preliminary empirical results uncover a number of correlations in cross-country data which are consistent with the theory.

Oriana Bandiera and Andrea Prat (joint with Tommaso Valletti): 'Active and Passive Waste in Government Spending: Evidence from a Policy Experiment'

A paper by Oriana Bandiera and Andrea Prat (joint with Tommaso Valletti) Active and Passive Waste in Government Spending: Evidence from a Policy Experiment is forthcoming in the American Economic Review.

The authors propose a distinction between active waste and passive waste as determinants of the cost of public services. Active waste entails utility for the public decision maker (as in the case of bribery) whereas passive waste does not (as in the case of inefficiency due to red tape). To assess the empirical relevance of both forms of waste, the authors analyze purchases of standardized goods by Italian public bodies and exploit a policy experiment associated with a national procurement agency. A revealed preference argument implies that if public bodies with higher costs are more likely to buy from the procurement agency rather than from traditional suppliers, cost differences are more likely to be due to passive waste. The authors find that: (i) Some public bodies pay systematically more than others for observationally equivalent goods and such price differences are sizeable; (ii) Differences are correlated with governance structure: the central administration pays at least 22 per cent more than semi-autonomous agencies (local government is at an intermediate level); (iii) The variation in prices across public bodies is principally due to variation in passive rather than active waste; (iv) Passive waste accounts for 83 per cent of total estimated waste.