This paper studies …scal federalism when voter information varies across regions.We develop a model of political agency with heterogeneously informed voters. Rentseeking politicians provide public goods to win the votes of the informed. As a result, rent extraction is lower in regions with higher information. In equilibrium, electoral discipline has decreasing returns. Thus, political centralization e¢ ciently reduces aggregate rent extraction. The model predicts that a region's bene…ts from centralization are decreasing in its residents' information. We test this prediction using panel data on pollutant emissions across U.S. states. The 1970 Clean Air Act centralized environmental policy at the federal level. In line with our theory, we …nd that centralization induced a di¤erential decrease in pollution for uninformed relative to informed states.
The standard expected utility (EUT) model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). Recent literature shows cases in which incorporating prospect theory (PT) does and does not overturn the Puzzle. In a general environment that nests both PT and EUT preferences, we provide a detailed study of how the elements of PT affect the Puzzle. PT does not always reverse the Puzzle, hence we give and interpret conditions for when it does and does not. When allowing for stigma and/or variable audit probability, PT reverses the Puzzle in the same way and with the same limitations as does EUT, if equally augmented.
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We build a framework linking competition in the media market to political participation, media slant, and selection of politicians. Media outlets report on the ability of candidates running for office and compete for audience through their choice of slant. Citizens derive utility from following a rule that maximises their group's welfare. The rule specifies whether to vote and consume news. Our results can reconcile seemingly contradictory empirical evidence showing that entry in the media market can either increase or decrease turnout. We also provide insights about the impact of competition on the most competent candidate's chance of election.
JEL Classification Codes: D72, L82
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