Equity,efficiency, and the structure of indirect taxation

Optimal tax formulae are derived and optimal tax rates calculated for the case where there are many consumers, an income tax is impossible and the government has to trade off efficiency in order to improve the real distribution of income. Consistent aggregation assumptions are used to permit the derivation of simple tax rules depending only on the behaviour of the average consumer and of a socially representative consumer. Calculations for the U.K. in 1972 show how subsidies and taxes vary with the government's revenue requirement and with the degree of egalitarianism in the social welfare function.     

How do market reforms affect China's responsiveness to environmental policy?

A large percentage of total investment in China is allocated by the central government at below-market interest rates in pursuit of non-economic objectives. This has resulted in low rates of return and a high number of non-performing loans, threatening the future health of the Chinese economy. As a result, reform of capital markets is a high priority of the Chinese government. At the same time, the country is implementing various environmental policies to deal with serious pollution issues. In this paper we ask how reforms of the capital market will affect the functioning of a carbon tax. This allows us to assess how China's willingness to join global efforts to reduce carbon emissions is influenced by China's current efforts to reduce investment subsidies. We compare the costs of a carbon tax in a reformed economy with the costs of a carbon tax in the current subsidized economy. We find that in the subsidized economy the tax-interaction effect dampens the effect of a carbon tax resulting in smaller reductions in emissions than what would result in a reformed economy. Importantly, we also find that the effect on economic welfare from a carbon tax is lower in the subsidized economy; in fact, for lower levels of reductions, the carbon tax is actually welfare improving. These results have important implications for an economy undergoing economic transition. The carbon tax rate required to achieve a certain level of emission reductions will be higher in an economy with capital subsidies. However, the welfare implications of the tax indicate that the current system with capital subsidies is highly distorting implying that there is a high efficiency cost for the non-economic objectives the government is pursuing by maintaining this system of subsidies.     

Is commodity taxation unfair?

In a model where agents have unequal skills and heterogeneous preferences about consumption goods and leisure, this paper studies how to combine commodity taxes and non-linear income tax. It proposes a particular social welfare function on the basis of fairness principles. It then derives a simple criterion for evaluating the social welfare consequences of various tax schedules. Under the proposed approach, the optimal tax should have no commodity tax for some range of consumptions, and income redistribution would feature high subsidies to the working poor. It is also shown that, even when the income tax fails to be optimal, commodity taxes may not improve social welfare.     

Capital and Consumption Tax Reforms in a Small Open Economy

The effects of a reform in capital and consumption taxes on private welfare and government tax revenue are examined for a small open, capital‐importing economy. A trade‐off between private welfare and tax revenue is encountered in maximizing social welfare. Nonetheless, lowering capital taxes and raising consumption taxes can increase both private welfare and tax revenue if the initial tax rates are not optimal. In addition, a tax reform by this fashion is a likely response to a rise in the foreign rate of return on capital.     

Consequences of a tax on the brain drain for unemployment and income inequality in less developed countries

Welfare implications of an income tax paid by emigrant skilled workers are analyzed in a model which assumes international capital mobility and allows for unemployed labor in the modern sector of a developing country. The tax discourages overinvestment in education and also contributes to the welfare of those remaining through the direct revenue effect. However, expected earnings of unskilled workers decline as a result of the tax, while those of non-migrant skilled workers rise. The tax may thus exacerbate domestic income inequality. In addition, modern sector employment, output, and capital stock may fall.     

Growth,revenue, and welfare effects of tariff and tax reform: Win–win–win strategies

We examine growth, revenue, and welfare effects of tariff and tax reform with a two-good, two-factor endogenous growth model. Learning-by-doing and intersectoral knowledge spillovers contribute to endogenous growth consistent with incomplete specialization. We obtain two main results. First, trade liberalization raises (or lowers) the growth rate if and only if the import sector is more effective-labor-intensive (or capital-intensive). Second, we can attain growth, revenue, and welfare gains by combining consumer–price–neutral tariff and tax reform for growth enhancement with an additional rise in the consumption tax on the less distorted good.     

Household Transport Demand in a CGE-framework

The main objective of this study is to improve the modelling of household demand for transport services in a Computable General Equilibrium (CGE) model. The new extended model is then used for numerical calculations to test how the Swedish economy reacts to a carbon target. Special attention will be given to distributional effects and the connection between labour supply and work journeys in a sparsely populated country like Sweden. A differentiation between trip purposes and trip length, a complementary relationship between work journeys and labour supply, and a subdivision of households by density of population and income influence the numerical results. Our main conclusions from the analysis of a carbon target are that if the carbon tax revenue is recycled by decreasing the employers’ social contribution fee, welfare costs are lower than with lump-sum replacements of tax revenue to households. The welfare cost may be reduced even further if work journeys are not additionally taxed as compared to the base year. However, the lower total welfare cost is obtained at the expense of making society more unequal, since both labour tax recycling (cuts in employers’ social contributions) and exempting tax on work journeys will make low income groups carry a higher burden. An increased carbon dioxide tax is also shown to increase welfare differences between sparsely populated areas and city regions in Sweden.      

高新技术企业认定与企业劳动雇佣

本文以2008–2020年沪深A股上市公司为样本,检验高新技术企业认定对企业劳动雇佣的影响及经济后果。以上市公司是否获得高新技术企业认定作为自然实验,采用双重差分法检验发现,高新技术企业认定显著促进了企业劳动雇佣增加,在金融发展水平更高的地区,这种促进效应更显著。进一步检验发现,税收优惠、政府补贴和银行贷款是高新技术企业认定对企业劳动雇佣的主要影响机制。最后,企业劳动雇佣的增加还显著促进了企业创新,提高了企业全要素生产率。本文不仅有助于从企业劳动雇佣视角丰富高新技术企业认定的经济后果的相关文献,而且还可以从高新技术企业认定的视角拓展企业劳动雇佣的影响因素的相关研究。本文的研究结果表明,高新技术企业认定不仅可以提高社会福利,还可以提高经济绩效,实现了《高新技术企业认定管理办法》的预期目标。本文的研究为进一步实施高新技术企业认定政策和扩大就业规模提供了理论依据和政策参考。     

LONG‐RUN GROWTH AND WELFARE EFFECTS OF TAX REFORM

This paper introduces an endogenously‐determined fertility rate into a Romer‐type endogenous growth model and, accordingly, investigates the effects on fertility, economic growth and social welfare of a revenue‐neutral tax reform that involves switching from an income tax to a consumption tax. We show that, in a departure from the existing literature, tax reform could be harmful, rather than favourable, to both growth and welfare, due to an endogenous fertility rate. We also conduct a simple numerical analysis to investigate under what conditions the negative effect on growth and welfare occurs.     

Optimum taxation with errors in administration

The paper compares the welfare levels which can be achieved by two distinct tax regimes: lump-sum taxation, where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics, and income taxation, where characteristics are not observed but personal incomes are measured and taxed. Where there are no errors in classifying individuals, lump-sum taxation is superior, but, where mistakes are made in the allocation of lump-sum grants or subsidies, income taxation may be more attractive. The level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of Feldstein (1973). Where there is strong aversion to inequality, then income taxation becomes preferable at quite small errors.In analysing income taxation it is shown that in the Feldstein model with endogenous wages the marginal tax rate (in optimum income taxation) on the more skilled is negative and that on the less skilled is positive in contrast to the standard results [see Seade (1977)] with exogenous wages.     

AN APPROXIMATION FOR THE OPTIMAL LINEAR INCOME TAX RATE

This paper derives a convenient method of calculating an approximation to the optimal tax rate in a linear income tax structure. Individuals are assumed to have Cobb-Douglas preferences and the wage rate distribution is lognormal. First, the optimal tax rate is shown, for a general form of social welfare function, to be the smallest root of a quadratic equation involving a welfare-weighted average wage rate. Second, an approximation to this average is derived for an isoelastic social welfare function. This average depends on the degree of inequality aversion of the welfare function and the coefficient on consumption in individuals' utility functions. Calculations show that the method performs well in comparison with standard simulation methods of computing the optimal tax rate.     

Welfare Effects of National Taxes in an Economy with Regions

The present paper illustrates that changes in national commodity and income tax rates will affect the location choices of mobile factors of production within an economy with regions as well as the total supply of these factors to the economy. It is also argued that revenue (expenditure) neutral changes in the tax mix, for example, an increase in the commodity tax combined with a decrease in the income tax rate, will affect the domestic distribution of mobile factors, their supply to the economy and social welfare. In other words, revenue neutrality should not be used as a guide to the welfare effects of tax mix changes.     

Equally-distributed equivalent utility,ex post egalitarianism and utilitarianism

We provide an axiomatization of expected equally-distributed equivalent-utility social welfare functions in the context of Harsanyi?s impartial observer theorem. For this family of social welfare functions, we show what additional axiom is necessary and sufficient for the observer to exhibit aversion to ex post inequality. We also relate this axiomatization to our axiomatization in a companion paper of generalized utilitarian social welfare functions. Given certain richness assumptions, the only social welfare functions that belong to both families are the utilitarian.     

Redistributive effects of minimal equal sacrifice taxation

We examine the circumstances under which minimal equal sacrifice taxation reduces income inequality. Focusing on absolute sacrifice and relative inequality, we show that after tax incomes are more equally distributed than before tax incomes and that after tax inequality decreases with the revenue to be raised if and only if the elasticity of the marginal utility of income is decreasing. However, other things equal, after tax inequality is shown to decline as the utility function becomes more concave. We investigate next how these conclusions extend when one takes the absolute inequality view and considers that it is the relative loss in utility that has to be equalized across individuals.     

Trade Liberalization in the Presence of Foreign Direct Investment and Tax Credits: Estimates for Costa Rica

The paper uses a calibrated general-equilibrium model to quantify the welfare impact of trade liberalization—and compute the optimal tariff structure—for Costa Rica when trade-policy-induced foreign direct investment and international capital taxation with credits are present. It shows that complete trade liberalization reduces Costa Rica's welfare, as it leads to an outflow of capital and loss of tax revenue which more than offset the efficiency gains from an enhanced resource allocation. The optimal tariff structure for the Costa Rican economy turns out to be a mixture of relatively small import tariffs and subsidies.     

Optimal Taxation of Risky Human Capital*

In a two‐period life‐cycle model with ex ante homogeneous households, earnings risk, and a general earnings function, we derive the optimal linear labor tax rate and optimal linear education subsidies. The optimal income tax trades off social insurance against incentives to work. Education subsidies are not used for social insurance, but they are only targeted at offsetting the distortions of the labor tax and internalizing a fiscal externality. Both optimal education subsidies and tax rates increase if labor and education are more complementary, because education subsidies indirectly lower labor tax distortions by stimulating labor supply. Optimal education subsidies (taxes) also correct non‐tax distortions arising from missing insurance markets. Education subsidies internalize a positive (negative) fiscal externality if there is underinvestment (overinvestment) in education because of risk. Education policy unambiguously allows for more social insurance if education is a risky activity. However, if education hedges against labor‐market risk, optimal tax rates could be lower than in the case without education subsidies.     

Revenue‐enhancing Trade Liberalization in a Differentiated Duopoly

Existing studies suggest that in developing countries, tax reforms that increase consumption taxes can compensate for shortfalls in revenue from a tariff reduction. However, these revenue‐enhancing tariff–tax reforms have a critical shortcoming—they generally reduce welfare under imperfect competition. This paper shows that tax reforms such as consumption tax reforms do not necessarily have to be implemented to make up for revenue shortfalls from tariff reductions under imperfect competition, because trade liberalization through tariff cuts leads to an increase in government revenue when domestic and imported goods have a high substitutability. This revenue‐enhancing effect of a tariff reduction occurs for a wider degree of product substitutability when initial tariff and consumption tax rates are high. More importantly, we show that even if initial tariff and consumption tax rates are sufficiently low, a tariff reduction still increases government revenue for a low degree of product differentiation under Bertrand competition.     

Taxation,insurance, and precautionary labor

We examine optimal taxation and social insurance with adverse selection in competitive insurance markets. In a previous literature, it has been shown that, with perfect insurance markets, social insurance improves welfare since it is able to redistribute without creating distortions. This result has been taken as robust to the introduction of adverse selection as this would only provide additional justifications for social insurance. We show, however, that adverse selection can weaken the case for social insurance compared to a situation with perfect markets. Whenever social insurance mitigates private underinsurance, it also causes welfare-reducing effects by decreasing precautionary labor supply and hence tax revenue. In addition, adverse selection may reduce the redistributive potential of social insurance. We illustrate our general results using different equilibrium concepts for the insurance market. Notably, we derive conditions under which a complete renunciation of social insurance is optimal and the government only relies on income taxation to achieve its redistributive objectives.     

Pollution Regulation and the Efficiency Gains from Technological Innovation

Previous studies suggest a preference for emissions taxes over (non-auctioned) emissions permits and performance standards based on their potential for promoting technological innovation. We present simulation results that cast some doubt on the empirical importance of this assertion: the welfare gain induced by an emissions tax is significantly larger than that induced by other policies only in the case of very major innovations. We also find that the presence of technology spillovers per se does not necessarily imply large inefficiencies. Thus, despite spillovers, the welfare gain from additional policies to promote innovation (such as R&D subsidies) may be limited.     

Tax revenue and the marginal cost of public funds in Sweden

We assess the welfare cost of raising a marginal unit of tax revenue in a balanced-budget, general-equilibrium framework. The calculated social cost of an increment of public funds is sensitive to both the specific type of tax increase and the type of public spending used on the margin. ‘Best-guess’ assumptions on labor supply elasticities yield marginal costs of public funds for different fiscal mixes of between 0.67 and 4.51 at prevailing tax rates in Sweden. Alternative labor supply assumptions well within the range of current estimates substantially affect the results and can imply infinite marginal welfare costs. Marginal welfare costs are also sensitive to assumptions about both the income and substitution effects of labor supply.