This paper develops an extension of the classical multinomial logit model which approximates a class of models obtained when there is uncontrolled taste variation across agents and choices in addition to the stochastic noise inherent in the logit model. Unlike semiparametric and parametric alternatives, the extended logit model is easy to estimate even when there are many potential choices. Unlike parametric alternatives, it does not require the specification of a distribution of varying tastes. The extended logit model can give a quick indication of the impact of taste variation on estimates and it generates estimates of the covariances of the taste shifters. It can be used as an exploratory device en route to the construction of a model incorporating a particular form of random taste variation and it can be used to determine whether such effort is required at all. When the amount of taste variation is not excessive the approximate model can be adequate itself. The model nests the conventional logit model which leads to a misspecification diagnostic. A method for estimating the model using conventional logit model software is proposed, asymptotic properties of estimators are derived and an application is presented.

The paper examines the consequences of the economic integration of factor markets in a model with two countries that redistribute income among their residents. The social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants. If either capital or labour is internationally mobile, the countries engage in fiscal competition and the partial integration of capital or labour markets is detrimental to the countries' redistributive ability. A move from partial to full integration, however, may alleviate rather than intensify fiscal competition, particularly, if the two countries face sufficiently similar economic and political conditions. In such a situation, for example, tax competition for mobile capital is softened as the labour market becomes more integrated and even vanishes if both factors are fully mobile. As a result, there is more redistribution in equilibrium and a majority of the population in each country is strictly better off.