Efficiency and Continuity in Public Finance: The Ottoman System of Taxation

Economic historians have recently emphasized the importance of integrating economic and historical approaches in studying institutions. The literature on the Ottoman system of taxation, however, has continued to adopt a primarily historical approach, using ad hoc categories of classification and explaining the system through its continuities with the historical precedent. This paper integrates economic and historical approaches to examine the structure, efficiency, and regional diversity of the tax system. The structure of the system made it possible for the Ottomans to economize on the transaction cost of measuring the tax base. Regional variations resulted from both efficient adaptations and institutional rigidities.

Free Riders, Holdouts, and Public Use: A Tale of Two Externalities

Free riders and holdouts are market failures that potentially impede the completion of otherwise beneficial transactions. The key difference is that the free rider problem is a demand side externality that requires taxation to compel payment for a public good, while the holdout problem is a supply side externality that requires eminent domain to force the sale of land for large scale projects. This paper highlights that distinction between these two problems and uses the resulting insights to clarify the meaning of the public use requirement of the Fifth Amendment takings clause.

A Note on US Royalty Relief, Rent Sharing and Offshore Oil Production

This paper offers an economic analysis explaining why royalty relief under US Federal legislation is expensive in terms of revenue foregone, but is largely ineffective in increasing US offshore oil production. Repeal of royalty relief is therefore justified.

Costly Revenue-Raising and the Case for Favoring Import-Competing Industries

A standard finding in the political economy of trade policy literature is that we should expect export-oriented industries to attract more assistance than import-competing industries. In reality, however, trade policy is heavily biased toward supporting import industries. This paper shows within a standard protection for sale framework, how the costliness of raising revenue via taxation makes trade subsidies less desirable and trade taxes more desirable. The model is then estimated and its predictions tested using U.S. tariff data. An empirical estimate of the costliness of revenue-raising is also obtained.

Asymmetric Information, Tax Evasion and Alternative Instruments of Government Revenue

Using a pure-exchange overlapping generations model, characterized with tax evasion and information asymmetry between the government (the social planner) and the financial intermediaries, we try and seek for the optimal tax and seigniorage plans, derived from the welfare maximizing objective of the social planner. We show that irrespective of whether the economy is characterized by tax evasion, or asymmetric information, a benevolent social planner, maximizing welfare and simultaneously financing the budget constraint, should optimally rely on explicit rather than implicit taxation.

Existence and Uniqueness of Equilibrium in Nonoptimal Unbounded Infinite Horizon Economies

In applied work in macroeconomics and finance, nonoptimal infinite horizon economies are often studied in the the state space is unbounded. Important examples of such economies are single vector growth models with production externalities, valued fiat money, monopolistic competition, and/or distortionary government taxation. Although sufficient conditions for existence and uniqueness of Markovian equilibrium are well known for the compact state space case, no similar sufficient conditions exist for unbounded growth. This paper provides such a set of sufficient conditions, and also present a computational algorithm that will prove asymptotically consistent when computing Markovian equilibrium.

Risk, Transaction Costs, and Tax Assignment: Government Finance in the Ottoman Empire

Risk and transaction costs often provide competing explanations of institutional outcomes. In this paper we argue that they offer opposing predictions regarding the assignment of fixed and variable taxes in a multi-tiered governmental structure. While the central government can pool regional risks from variable taxes, local governments can measure variable tax bases more accurately. Evidence on tax assignment from the mid-sixteenth century Ottoman Empire supports the transaction cost explanation, suggesting that risk matters less because insurance can be obtained in a variety of ways.