Fiscal federalism, social mobility, and poverty alleviation: Essays in political economy

This collection of essays considers the social choice of publicly-financed goods. Each essay analyzes how individuals trade off the benefits of public consumption against the costs of paying income taxes. Heterogeneity of tax burdens when income taxation is proportional drives policy preferences, which determine public policy through majority rule. The essays consider provision of publicly-provided goods in three different political economic settings.;The first essay considers how social mobility affects policy preferences when policy choices are lasting. I restrict attention to mobility processes that feature upward mobility of the poor. The median-income voter is shown to be upwardly-mobile in expectation, and decisive in the lasting policy decision. The model predicts a negative relation between the level of public expenditure and the degree of upward mobility as perceived by voters. An empirical analysis of a sample of developed economies corroborates this prediction.;The second essay on fiscal federalism investigates how the degree of centralization of public provision is determined by the heterogeneity between the federation's districts. The paper shows the existence of a majority-rule equilibrium in the federal election when supplemental locally-financed provision is differentiated by cost structure from centrally-financed provision. Importantly, the decisive federal voter never has income equal to the median of the federal income distribution. When a lower fiscal tier exists, less provision is financed centrally, as voters from rich districts bid down centrally-financed provision in a federal system, so as to exploit deeper (per capita) local tax bases.;The third essay on poverty alleviation treats welfare transfers as a public good which eliminates the public bad of poverty. Local governments establish minimum consumption thresholds for the poor, financed by proportional income taxation. Despite the fact that income transfers are negative for a majority of voters, redistribution to the poor is present in the political equilibrium due to the public good property of poverty alleviation. Using county-level demographic and government expenditure data from the US Census, I find empirical evidence to support the comparative static predictions of the model.