To Örebro University

This thesis consists of four self-contained essays.

Essay 1 investigates the vote motive in Swedish general elections. A theoretical model of rational retrospective voting is tested empirically on pooled cross-sectional and panel data from the Swedish Election Studies between 1985 and 1994 supplemented with time series on inflation and unemployment. The principal finding is that microeconomic variables influence the individual vote about as much as macroeconomic variables do. In consequence, self-interest appears to be an important part of an adequate understanding of economic voting in Sweden. When it comes to election outcomes, macroeconomic variables have been much more influential.

Essay 2 studies the impact of grants in the Swedish general elections in 1991 and 1994. I find that specific – neither total nor general – grants have a positive impact on the incumbent central government's vote. In particular grants to education, social services, and communication appear to be favorable for the incumbent government. According to the estimates, it would cost the government approximately .5 percentage of GDP to increase its support by one percentage point. I find only weak evidence of a greater impact in municipalities with a high share of swing voters.

Essay 3 (with Stefan Laséen) investigates how the degree of central bank conservatism affects the government's incentives to reform the labor market. An increase in conservatism triggers two opposite effects. It reduces the inflation bias of discretionary monetary policy and hence the benefits of a reform. It also increases unemployment variability, which increases the precautionary benefits of a reform. In combination, the two effects produce a u-shaped relation between conservatism and labor market reform. To test this prediction, we use data for 19 OECD countries for the period 1980–1994. Our proxies for reform are unemployment, different labor market institutions, and indices of labor market rigidities. Conservatism is proxied by two common measures of central bank independence. We find support for the prediction of a u-shaped relation between conservatism and labor market reform.

Essay 4 (with Luca Micheletto) presents a model where individuals differ both in abilities and in preferences for leisure. We impose a horizontal equity constraint on the problem of finding the optimal utilitarian tax mix. The horizontal equity constraint requires that individuals with the same ability have to pay the same amount of taxes regardless of their preferences. We derive rules for optimal non-linear income and linear commodity taxes under the standard assumption that the government can only observe individual incomes and not abilities or preferences. Contrary to normal findings, we find that a good that is complementary to leisure need not be discouraged by the tax system, and that a good that normally should be discouraged by the tax system need not be taxed at a positive rate even if the economy is composed of only two private commodities plus leisure. Similarly, the marginal effective tax rate need not be equal to zero at the top when the tax mix obeys the horizontal equity constraint.