International emissions trading in a political economy

We examine whether the international emissions trading (IET) scheme can reduce global emissions in a political economy framework. Countries act noncooperatively when choosing the tradable emission permits and the environmental tax. The formulation of environmental policies is influenced by interest groups. Our results show that the effect of IET on global emissions depends crucially on which policies are influenced by lobbying activities. In the case where only environmental taxes are influenced by lobbying, IET tends to reduce global emissions when the capitalists’ political power is strong and, surprisingly, when the environmentalists’ political power is weak.     

Redealing the cards: How an eco-industry modifies the political economy of environmental taxes

This article presents a combined economic–political model of environmental taxation setting. The model introduces a third lobby group – the lobby of an eco-industry – in addition to the traditional lobbies of polluting firms and environmentalists. Pressure groups interact to influence the environmental tax chosen by a regulator maximizing its chances of being reelected. The eco-industry lobby adds a new political contribution toward a higher environmental tax. The imperfectly competitive structure of the eco-industry also modifies the incentives of the usual lobbies. When the foreign environmental policy is constant, environmentalists can be in favor of a decrease in the local tax in order to reduce foreign pollution. We also discuss the formation of alliances between the eco-industry and one of the other lobbies and their potential impact. In general, the impact of lobbying activities on the politically optimal tax is ambiguous and depends on the relative concentration of each pressure group.     

POLITICAL ECONOMY AND THE EFFICIENCY OF COMPENSATION FOR TAKINGS

To assess compensation for regulation-induced "takings," the authors model political support for regulation as a function of externalities, landowner wealth, and tax burdens. When competing social interests have equal influence on political outcomes, compensation should not be paid. However, when environmentalists and property owners have unequal influence, the model yields several counterintuitive implications. For example, disenfranchised environmentalists should support takings compensation, since it reduces landowner opposition to regulation. The authors also show how compensation rules can limit the deadweight social costs of income transfers, while recognizing their effects on regulator and landowner behavior. (JEL K11 , D72 , L51 )     

Optimal Tax Policy under Environmental Quality Competition

This paper studies the socially optimal emission and commodity tax policy when consumers are willing to pay a price-premium for environmentally friendlier variants of a commodity vertically differentiated in environmental quality. The first-best levels of quality can be obtained by a combination of a uniform ad valorem tax and an emission tax (or a subsidy for buying green products). The first-best emission tax is higher than the social valuation of the positive externality associated with average environmental quality. Regardless of environmentally conscious consumers, if only one instrument is available, the second-best emission tax is equal to the social valuation of the positive externality associated with average environmental quality. A uniform ad valorem tax increases welfare only if the social valuation of the positive externality associated with average environmental quality is low enough.     

Optimal Tax and Public Investment Rules for Congestion Type of Externalities

Optimal government policy is considered in a second-best framework where consumers and producers cause an externality of the congestion type and income distribution issues are taken into account. The theoretical results of the optimal tax literature are adapted using the concept of the net social Pigouvian tax. An illustrative AGE model uncovers the relative importance of its components. The model demonstrates that the level of the externality tax does not depend strongly on distribution concerns, as reoptimization of the other taxes ensures that the income distribution objective is reached. The model also allows us to study the interaction between externality taxes and public abatement.     

Variety‐Controlling Public Policy Under Addiction and Saturation

This paper constructs a tractable general equilibrium model for investigating the dissimilar effects of addiction and saturation on consumption and public policy. By introducing an industry‐specific intertemporal consumption externality, we provide clear analytical results that a lump‐sum subsidy for firms can increase welfare in the presence of a negative externality (saturation). A tax can accomplish the same given a positive externality (addiction). Unlike existing studies of cultural goods, these results are not based on assumptions concerning exogenous different preferences across groups, but rather on conventional monopolistic competition and consumption habit formation models in macroeconomics.     

International commodity taxation in the presence of unemployment

In this paper, we evaluate the impact of commodity tax competition on welfare and employment under the destination and origin principles, when the labor market is imperfectly competitive owing to a binding fixed wage. Our main finding is that commodity taxation causes an employment externality whose signs may be opposite under the two principles. While tax competition leads to inefficient tax rates under both principles, we also prove that the origin principle guarantees lower unemployment and higher welfare when the fixed wage is high. Finally, we show that the employment externality still exists in a standard union model of wage determination.     

基于外部性视角的银行债转股模型研究

商业银行资本运作和乘数效应对货币供给量的影响扮演着重要角色,具有非常大的外部性。以外部性为切入点,对股份制银行和第三方之间的债转股行为所产生的效应进行剖析。从银行-政府-储户的角度出发,通过比较机会成本,测定一组货币乘数、资本充足率和税率,从而制定出一个完全补偿的最优债转股交易额度。在银行-政府-储户系统下,肯定了债转股行为对社会总收益的贡献,同时提出了通过税收政策对其债权人权益的保护,做到有效的帕累托改进。     

Strategic interoperability standards and trade taxes

In a two-country international trade framework, the paper considers the interplay between the governments' incentives for conducting traditional trade policies and their incentives for the policies toward compatibility between the products of the firms competing in the international market. The model assumes that one domestic and one foreign firm supply partially incompatible products for the home country market while consumers value both variety and a network externality. Motivated by the benefits of the network externality, the home government sets a standard requiring the foreign firm to guarantee a minimum level of compatibility between its own product and the product of the domestic rival. The paper analyzes the home country standard setting and import tariff policies as well as the incentives of the foreign country for imposing the export tax and conducting a policy which enhances the degree of compatibility between the rival products in the export market.     

Tax competition and tax structure in open federal economies: Evidence from OECD countries with implications for the European Union

Tax competition arguments suggest that governments that operate in an open economy (such as local governments) should not and will not rely on non-benefit taxes, such as the income tax. Yet we observe reliance on income taxes by local governments in many countries, and such reliance changes over time. Evidence from a panel data set of 13 OECD countries over the period 1975-1984 suggests that competition between levels of government (resulting in a vertical fiscal externality) and between governments at the same level (resulting in a horizontal fiscal externality) provide some economic rationale for these changes. Moreover, the evidence indicates that the vertical and horizontal fiscal externalities interact. These results have some interesting implications for fiscal policy in the European Union, particularly as the EU continues to evolve. One implication for the EU is that enlargement that increases tax base disparities within the EU (and is not accompanied by an EU-level income tax) will tend to lower national income tax rates, although this must be qualified because it also depends on the mobility of the population. A second implication is that fiscal expansion of the EU to include an EU-level income tax may tend to lower the reliance of national governments on income taxes through the vertical externality, but may also tend to equalize tax bases across countries, and so increase reliance on national income taxes through the horizontal externality.     

Preferential versus multilateral trade liberalization and the role of political economy

In this paper we analyze the effect of the freedom to pursue preferential trade liberalization, permitted by Article XXIV of the GATT, on country׳s incentives to participate in multilateral negotiations and on feasibility of global free trade. We present a model, in which countries choose whether to participate in preferential or multilateral trade agreements under political pressures from domestic special interest groups. We show that heterogeneity in political preferences across countries plays an important role in determining the relative merits of preferential and multilateral approaches to trade liberalization. On one hand, the opportunity to liberalize preferentially may be necessary to induce countries with strong political motivations to participate in multilateral free trade negotiations. On the other hand, when countries share similar political preferences, multilateral free trade that would have been politically supported otherwise becomes unattainable if countries can pursue preferential liberalization.     

Trade,environment, and income inequality: An optimal taxation approach

In a small open economy, how should a government pursuing both environmental and redistributive objectives design domestic taxes when redistribution is costly? And how does trade liberalization affect the economy's levels of pollution and inequalities, when taxes are optimally and endogenously adjusted? Using a general equilibrium model under asymmetric information with two goods, two factors (skilled and unskilled labor), and pollution, this paper characterizes the optimal mixed tax system (nonlinear income tax and linear commodity and production taxes/subsidies) with both production and consumption externalities. While optimal income taxes are not directly affected by environmental externalities, conditions are derived under which under‐ or over‐internalization of social marginal damage is optimal for redistributive considerations. Assuming that redistribution operates in favor of the unskilled workers and that the dirty sector is intensive in unskilled labor, simulations suggest that trade liberalization involves a clear trade‐off between the reduction of inequalities and the control of pollution when the source of externality is only production; this is not necessarily true with a consumption externality. Finally, an increase in the willingness to redistribute income toward the unskilled results paradoxically in less pollution and more income inequalities.     

Biofuels and Climate Change Mitigation: A CGE Analysis Incorporating Land-Use Change

We examine the impact of a “green network effect” in a market characterized by consumers’ environmental awareness and competition between firms in terms of both environmental quality and product prices. The unique aspect of this model comes from the assumption that an increase in the number of consumers of green (brown) product increases the satisfaction of each green (brown) consumer. We show that, paradoxically, when the network effect of a green product is higher than that of a brown product, this externality reduces product environmental quality and raises consumption of the green product. Conversely, when the network effect of the brown product is higher, the externality improves product environmental quality and raises consumption of the brown product. In both cases, the network effect does not affect the overall pollution level. The externality correction requires the use of three optimal fiscal policies: an ad valorem tax on products, an emission tax, and a subsidy or a tax on the green purchase. A second-best optimum can also be reached through the green taxation.     

On Environmental Taxation under Uncertain Environmental Damage

This paper addresses optimal taxation, when therelationship between the consumption of a`dirty' good and the resulting environmentaldamage is uncertain and treated as a randomvariable by policy makers. The main purpose isto analyze how increased uncertainty, measuredas a mean preserving increase in the spread ofthis random variable, affects the optimalcommodity tax on the dirty consumption good. Incase the only task of government is to correctthe environmental externality, and if thepreferences are characterized by nondecreasingabsolute risk aversion, we find that thecommodity tax on the dirty consumption goodincreases in response to additionaluncertainty. If, on the other hand, thegovernment provides a public good and uses alump-sum tax in addition to the commodity tax,it is possible that the commodity tax decreasesas a response to additional uncertainty, evenif the preferences are characterized bynondecreasing absolute risk aversion. A similarresult emerges, although for different reasons,if the lump-sum tax is replaced by a laborincome tax.     

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.     

Endogenous timing in private and mixed duopolies with emission taxes

This paper examines an endogenous timing game in product differentiated duopolies under price competition when emission tax is imposed on environmental externality. We show that a simultaneous-move (sequential-move) outcome can be an equilibrium outcome in a private duopoly under significant (insignificant) environmental externality, but this result can be reversed in a mixed duopoly. We also show that when environmental externalities are significant, public leadership yields greater welfare than private leadership, and that public leadership is more robust than private leadership as an equilibrium outcome. Finally, we find that privatization can result in a public leader becoming a private leader, but this worsens welfare.     

A Montero payment mechanism for regulating non-point pollution emissions

Regulating externalities from pollution is difficult when the regulator can not observe individual firms’ externality generation. Taxing the aggregate emissions of a group of polluters, which can often be observed, has been suggested. However, these taxes are vulnerable to collusion and strategic behavior, and they generate distorted entry-exit incentives. To address these disadvantages, I suggest combining an aggregate tax mechanism with the quota payment mechanism suggested by Montero for allocating emission quotas. The suggested tax system induces compliance with quotas and solves the noted problems for a subset of these regulation problems.     

Tax competition in federations revisited

We extend Keen and Kotsogiannis (2002, 2004) by considering all-purpose public goods that are beneficial to both producers and consumers. Horizontal externality (resp. vertical externality) exerted by tax competition will not necessarily lead to inefficient outcomes.     

SPECIAL INTERESTS AND THE GAINS FROM POLITICAL INTEGRATION

This paper presents a formal study of economic influence by special-interest groups under political integration and separation. We first show that countries where more groups are organized to lobby gain from political integration on economic grounds. The reason is that a more organized country, under a political union, can affect policies in the other country to its advantage, something that a less organized country can do to a lesser extent. We then study the interaction of political integration and endogenous lobbying structure. We show that political integration affects the formation of interest groups. Moreover, if a country is more organized before political integration, this will continue to be the case afterward.     

Optimal Income Taxation and International Labour Mobility

This paper considers how a linear income tax should be set optimally when individuals are internationally mobile. The optimum tax analysis is founded on a social welfare function where each individual counts in the social welfare according to residence time in the home country. The discussion of the optimal income tax is organized from two perspectives. The first relates to the optimum income tax when a uniform lump sum transfer is used, while the second concerns the optimal rate of tax when a transfer is used which depends on time of residence in the taxing jurisdiction.