Public Finance Review

This article examines the role of information acquisition and the interaction between learning and individual choices in a model of voluntary public good provision. It shows that if agents form conjectural variations via a simple econometric learning process, final equilibira are dependent upon initial conditions. There is a significant set of possible equilibria that arise as limit points of this process and they may be given a simple geometric interpretation.

There is a common belief that tax withholding systems have worked not only as Abstract efficient tax collection mechanisms but also as effective tax evasion controls. However, little is known about the role of withholding in tax compliance beyond the fact that withholding may reduce opportunities for evasion. This article analyzes in an experimental setting some effects that withholding may have on tax compliance. In particular, three hypotheses are examined concerning the reasons that individuals who unexpectedly find themselves underwithheld might decide to evade taxes: the reflection effect from prospect theory, which holds that risk-averse individuals may behave as risk-lovers when they perceive prospects as losses; the liquidity position of taxpayers; and fiscal illusion. The empirical results from the experiments give some support to the liquidity hypothesis but do not support the other two hypotheses.

This article considers the direct provision of merit goods when consumers and the government hold different sets of beliefs about the likelihood of uncertain events. In a simple model, it is shown that direct provision of the good can outperform tax and subsidy systems when consumers differ only in their beliefs. However, when agents differ in other characteristics, it is demonstrated that transfers in-kind need not raise welfare.

This article examines a form of public production that contracts out the top Abstract management of the transit agency. This allows a test of Fama's conjecture that competition among managers, even when financial incentives are deferred, is sufficient to mitigate the principal-agency problem. Previous work has found little difference in cost and has concluded that the public versus contract management distinction is of little practical interest. This article demonstrates that, whereas total costs are similar, the input selection and input utilization decisions that lead to total cost are quite different between management types. This cost decomposition goes a long way toward describing how and why productive inefficiency occurs and what can be done to eliminate this inefficiency.

This article analyzes the provision of public goods and services by state and local Abstract governments with fixed intergovernmental grants. Equilibrium conditions are derived for an activity with private and pure public joint products, funded by state funds and fixed intergovernmental grants. Fixed grants are shown to impose an additional constraint on lower level governments and induce them to supply fewer units of the public good. Also, such grants impose a cost on the grantor equal to the potential loss in spillins for each agent.

Thirty-two of the 40 states with broad-based income taxes are now using voluntary Abstract check-offs on their tax returns as a way of soliciting contributions for nongame wildlife programs and other activities. This study uses both individual and aggregate data to examine the factors that influence check-off contributions. Income and the number of other check-offs on the tax form were among the major determinants. An appraisal of the check-off suggests that the tendency to add more check-offs to the tax return quickly erodes its revenue productivity. Furthermore, the check-offis open to serious questions about its fairness.

The authors develop a two-period duopoly model characterized by demand uncer-Abstract tainty to consider how a state government should tax the extraction of a nonrenewable resource. They demonstrate that if firms are risk averse, they tilt production toward the future and underproduce in the present even more than they would in a world of perfect certainty. Therefore, states should set extractive per-unit taxes such that they increase over time at a rate faster than the interest rate to motivate an increase in production in the present relative to the future.

This article considers the impact of mandatory worksite modifications for handi-Abstract capped workers on optimal employment at the competitive firm. The authors argue that worker impairments introduce production uncertainty, and they demonstrate that for firms with decreasing absolute risk aversion, mandatory worksite modifications reduce the optimal employment level. Simulation exercises suggest that the employment reduction could be substantial, particularly in smaller firms. They also show that by using appropriately coordinated tax policies, the undesirable employ ment effect of mandatory worksite modifications can be mitigated. However, if the government relies on these policies to eliminate the effect entirely, firms lose any incentive to minimize modification costs.