Job Market Paper
Updated June 2016
I investigate the effects of population ageing on immigration policies. Voters' attitude towards immigrants depends on how the net gains from immigration are divided up in the society by the fiscal policy. In the theoretical literature this aspect is treated as exogenous to the political process because of technical constraints. This generates inconsistent predictions about the policy outcome. I propose a new equilibrium concept for voting models to analyse the endogenous relationship between immigration and fiscal policies and solve this apparent inconsistency. I show that the elderly and the poor have a common interest in limiting immigration and in increasing public spending. This exacerbates the effects of population ageing on public finances and results in a high tax burden on working age individuals and further worsens the age profile of the population. Moreover, I show that if the share of elderly population is sufficiently large, then a society is unambiguously harmed by the tightening in the immigration policy caused by the demographic change. Finally I show that the implications of the model are consistent with the patterns observed in UK attitudinal data and in line with the findings of the empirical literature about migration.
I investigate the equilibrium properties of a deterministic voting model in which the policy space is multidimensional and politicians have limited ability to commit to platforms. Specifically, a politician running alone can only offer his ideal policy. Voters can form coalitions to increase the commitment ability of politicians. Coalition structures are required to be stable in any equilibrium. This analysis is useful to answer a large class of Political Economy questions in which the multidimensional nature of the policy is crucial to model voters’ trade-offs. I show that, under suitable restrictions on voter preferences, a Median Voter Theorem holds. The main result consist of two monotone comparative statics results for the equilibrium policy outcome. Moreover, I characterize the types of coalitions that can be stable in an equilibrium. Lastly, I show how this model relates to popular alternatives in the literature, and that the main result is robust to a variety of different assumptions about the notion of stability.
I investigate the relationship between income inequality and size of the public sector in a theoretical framework. I extend the Meltzer-Richard model of public intervention in redistribution allowing for two different kinds of public spending. Specifically, voters choose - through the political process - a two-dimensional policy consisting of a linear tax on labour income and of the provision of a Public Good. Under the assumption of balanced governmental budget, these two choices determine the amount of a uniform lump-sum grant. The multidimensionality of the policy space implies that the traditional Median Voter Theorem does not hold. I adopt the model of electoral competition proposed by Dotti (2015) to tackle such problem. I show that, if in the proximity of a political equilibrium the endogenous progressivity of the tax system is sufficiently low, then a rise in the median-to-mean income ratio increases the size of the government. This prediction has opposite sign relative to the one in the traditional analysis. Moreover, I show that the progressivity of the tax system is increasing in the median-to-mean income ratio. Such results are consistent with most findings in the empirical literature.
I study the relationship between income inequality and public intervention in education in a probabilistic voting model. Traditional Political Economy models typically imply a positive relationship between income inequality and public intervention in redistributive policies. Empirical evidence suggests that this may hold true only for certain kinds of policies, such as public education, but it may not hold true for other forms of public intervention. I propose a method to study the sign of this this relationship in the case in which forms of redistribution other than the public provision of education are available to voters. Moreover, I allow consumers to opt-out of the public education system and get private education. This feature of the public provision of education plays a crucial role in shaping the results. I show that an increase in income inequality causes a rise in governmental intervention in education if the expected marginal returns to education are larger for children of low income parents. This finding is is consistent with the results in the empirical literature about public investment in education. Moreover, I show that the policy adjustment tends to reduce future inequality. Lastly, I show that for other kind of publicly provided goods, such as Health care, the relationship has ambiguous or opposite sign.