Three essays on public economics and public finance

In the first essay, we examine the conditions under which the regulatory process leads to collusion, and if there is collusion, whether it will be observed in the political or bureaucratic sector. The political cost disciplines the politician, while monitoring intensity limits the bureaucrat\u27s discretion. According to our model, high political pressure is critical to achieve a state with no collusion between agents. If the political cost is relatively small, higher penalties on the bureaucrat will just open the possibility of political corruption. In a politician\u27s initiative regime, if the transfer offered to the politician in exchange for legislative effort is less than the payoffs earned by monitoring bureaucrat, political collusion does not occur. If monitoring costs are very large, the politician might decide not to control the bureaucrat, and corruption will take place in that sector. In a voter\u27s initiative regime, a no-collusion state can be accomplished by choosing the levels of monitoring and political control appropriately.;The second essay provides an explanation to the fact that the middle class is overrepresented in the welfare state. We claim that this observation is closely related to the implicit allegiance with other social groups. The allegiance can take place between different subgroups within the middle class. This type of behavior is captured by the pooling equilibrium of the model. The middle class obtains its ideal policy if it pursues a moderate policy change from the current status quo. We show that there exists a pooling equilibrium which supports a policy change toward the ideal policy of the middle class. If the differences in political power between social groups are small, a separating equilibrium exists in which the ideal policies of the upper middle class are adopted. Such proposal is unconditionally supported by the rich, i.e. in a separating equilibrium, external allegiance is crucial.;The third essay considers a model where state governments are engaged in a strategic determination of corporate profit tax rates under different systems of formula apportionment. We show that in a symmetric equilibrium, the tax rate is inefficiently low due to the strategic interaction between state governments. However, we also show that the degree of inefficiency is less severe when the formula relies on output shares. Consequently, we can claim that the recent shift by most states in the U.S. towards a FA that employs only sales shares constitutes a welfare improvement. However, there is still a distortion due to tax competition between state governments. A cooperative formula apportionment may weaken the negative externalities created by tax competition at the local level