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The "Flypaper Effect" Is Not an Anomaly

  • Roemer, John E
  • Silvestre, Joaquim

The empirical nonequivalence between grants by a central government and increases in community income (the "flypaper effect") has been considered anomalous. But the "anomaly" label is na*ve: in a multiconsumer community, equivalence demands an unlikely match of tax rules and income-growth patterns. We go beyond the single-policy-variable, median-voter model and apply Roemer's concept of Party Unanimity Nash Equilibrium, which allows for party competition in multidimensional policy spaces. We compute the equilibria for a model with two independent policy variables (intercept and slope of an affine tax schedule) and obtain numerical values that agree with the empirical literature. Copyright 2002 by Blackwell Publishing Inc.

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 4 (2002)
Issue (Month): 1 ()
Pages: 1-17

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Handle: RePEc:bla:jpbect:v:4:y:2002:i:1:p:1-17
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  1. John E. Roemer, . "The Democratic Political Economy Of Progressive Income Taxation," Department of Economics 97-11, California Davis - Department of Economics.
  2. Hamilton, Jonathan H., 1986. "The flypaper effect and the deadweight loss from taxation," Journal of Urban Economics, Elsevier, vol. 19(2), pages 148-155, March.
  3. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
  4. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December.
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