Public debt and optimal taxes without commitment

Benhabib and Rustichini [Optimal taxes without commitment, J. Econ. Theory 77 (1997) 231-259] study the properties of optimal capital taxes in economies without commitment and no government debt. They find that capital taxes may be different from zero at steady state. This note shows that, once governments have the possibility of issuing debt and smoothing taxes over time, optimal steady state capital taxes turn out to be zero.     

Sensitivity of optimal commodity taxes to relaxing leisure/goods separability and to the wage rate

This paper uses a new labour-augmented demand functional form to calculate optimal commodity taxes for India. The optimal taxes, which are far from uniform, are extremely sensitive to deviation from leisure/goods separability and to variation in the wage-rate parameter.     

Migration and optimal income taxes

The issue addressed in this paper is the optimal taxation of incomes earned in the home economy, and of incomes earned abroad, when people can migrate. As a preliminary, the optimal taxation of home incomes when there is migration and no taxation of foreign incomes, is discussed. Then in a more general setting, we deal with optimal taxation of different kinds of labour when another kind of labour is not taxable, and show how this bears on the taxation of foreign incomes. The last sections of the paper analyse a simple model in which people choose between taxable labour at home, taxable labour abroad, and untaxable labour. A condition is found implying that the optimal tax on foreign income is higher than on the home income of a person of equal utility.     

Health effects and optimal environmental taxes

The literature on environmental taxation in the presence of pre-existing distortionary taxes has shown that interactions with these distortions tend to raise the cost of an environmental tax, and thus that the optimal environmental tax is less than marginal environmental damages. A recent paper by Schwartz and Repetto (2000) challenges this finding, arguing that the health benefits from reduced pollution will also interact with pre-existing taxes, and may cause the optimal environmental tax to exceed marginal damages.Schwartz and Repetto’s analysis represented health effects implicitly in the utility function. In contrast, the present paper explicitly represents health effects in an analytically tractable general equilibrium model. This model shows that interactions with health effects from pollution actually will tend to reduce the optimal environmental tax, contradicting, Schwartz and Repetto’s conclusion. This demonstrates the usefulness of explicitly modeling health effects, and it reinforces the general notion that tax-interactions tend to raise the costs of an environmental tax.     

How should commodities be taxed?: Market structure,product heterogeneity and the optimal structure of commodity taxes

This paper is concerned with the form in which commodity taxes are best imposed, and particularly with the appropriate balance between specific and ad valorem components. This neglected issue is of policy importance in relation to the harmonization of tax structures within the EEC, and of theoretical interest as a point of contact between optimal tax theory and models of non-price competition. The roles of the two taxes as purely corrective devices under a variety of market forms are established and discussed. The analysis suggests that heavily taxed commodities should normally be subject to high specific rather than high ad valorem taxes.     

Optimally uniform commodity taxes,taste differences and lump-sum grants

Optimal commodity taxes for an economy with many households should be at a uniform proportional rate under certain conditions. These include (i) linear and parallel Engel curves with intercepts dependent on household composition, (ii) separability between goods and labour, and (iii) optimal demogrants.     

Which commodity taxes should supplement the income tax?

The analysis takes as its point of departure a continuum of consumers economy in which an optimum income tax exists and is the only tax instrument in operation. The welfare effects of introducing small excise taxes to supplement the income tax are then explored. Essential in this context are changes in the tax distortions of work incentives. It is shown that a commodity should be taxed or subsidized depending on whether it is positively or negatively related to leisure in a sense which is precisely defined. The results are related to earlier contributions to the literature on direct versus indirect taxation.     

Randomization of commodity taxes: An expenditure minimization approach

Using an expenditure minimization approach, necessary and sufficient conditions for local random taxation are obtained in terms of the curvature of the compensated demand function, so that intuition from excess burden analysis can be applied. Major findings include: (1) random taxation is locally optimal if the compensated demand function is sufficiently convex; (2) horizontally equitable taxation is locally optimal if the compensated demand function is concave, and (3) local randomization is not optimal if the tax revenue requirement is sufficiently close to zero or to any local maximum. We also derive an inverse elasticity characterization of the optimal random tax structure.     

Moral hazard and optimal commodity taxation

This paper demonstrates that in an economy with moral hazard and more than one commodity, competitive equilibrium is not constrained-efficient. To correct the market failure, differential commodity taxation is necessary. A general optimal tax formula is derived, and special cases of is discussed.     

The computation of quantity-constrained equilibria by virtual taxes

A method to compute Drèze equilibria is derived by defining virtual-tax equilibria, giving a constructional proof of the existence of such equilibria and showing the equivalence with Drèze equilibria. Some numerical examples conclude the paper.     

Oligopoly and the redistribution of market share under commodity taxation

This paper examines the effect of ad valorem and specific commodity taxation on firm market share in a duopoly where firms have different costs. Two reasons suggested for these cost asymmetries are inter-firm differences in efficiency and differences in product quality. When cost differences are efficiency-based, then specific and ad valorem commodity taxation increases the market share of the lower-cost firm and decreases the market share of the higher-cost firm. If the cost difference results from differing product quality, the specific tax increases the market share of the high quality (higher-cost) firm and decreases the market share of the low quality (lower-cost) firm, whereas, the ad valorem tax has just the opposite effect.     

Harmonization of commodity taxes: Destination,origin and restricted origin principles

The three tax principles are compared using a multiproduct custom union model. It is shown that if member countries use the destination or origin principles, no distortion or redistribution of income occurs, even if their tax rates differ. However, under the restricted origin principle, different tax rates result in distortion and income redistribution. Equal tax rates still result in a redistribution of real income. An exact measurement of this redistribution is derived. Given these results it seems possible to conclude that the origin principle is superior to the other tax principles.     

Computational intermediation and the evolution of computation as a commodity

The consumer who purchases computational power ultimately purchases a reduction in the time interval between the initiation and the completion of work. This paper looks at computation as a commodity and the nascent industry of computational intermediation, and proposes a model for the market for computational power as distinct from the market for computers. Some interesting results emerge. The model implies that the demand for computation is discontinuous and that there is a lower limit to the quantity of computation consumers will demand that is independent of the price of power. The model identifies a range of computational powers that could be supplied by computational intermediaries but which will not be supplied by computer manufacturers, and suggests a model for pricing computation.     

Measurable welfare change with optimal commodity taxation

This paper extends the recent work of Julian Le Grand on the measurability of welfare changes in the presence of second-best taxation to the case of optimal commodity taxes and shows that the effects of public sector activities in the presence of such taxes may be accurately measured by use of observable market data.     

Optimally uniform commodity taxes and non-linear engel curves: A generalisation of the linear case

A sufficient condition for optimally uniform commodity taxes is derived in the more realistic non-linear Engel curve case and in a form that allows easy checking from the various parameter estimates. This general condition is shown to yield certain well-known sufficient conditions as special cases.     

Linear Pigovian taxes and the optimal size of a polluting industry

Confusion surrounding the appropriateness of long-run considerations in effluent regulation has arisen in the literature and recently carried over into textbooks. We use a factor input model under oligopsony to show that, when firms can influence the level of marginal damages, a linear pollution tax does not satisfy the long-run entry-exit condition. Previous results to the contrary are shown to depend on restrictive assumptions. Efficient policy design requires a lump-sum refund or any one of various non-linear pricing schemes. JEL Classification: Q2, L1
Il y a beaucoup de confusion dans les débats qui entourent la réglementation des effluents, et son caractère plus ou moins appropriéà long terme, tant dans la littérature spécialisée que dans les manuels. Les auteurs tentent d'éliminer cette confusion en analysant les émissions à l'aide d'un modèle standard de demande d'intrant. Quand les entreprises peuvent influencer la valeur présente des dommages marginaux, un impôt linéaire sur la pollution n'entraîne pas nécessairement les décisions appropriées d'entrée et de sortie. On peut corriger le problème à l'aide d'un remboursement forfaitaire ou de l'une ou l'autre des formes de tarification non-linéaire.     

The existence and computation of competitive equilibria in markets with an indivisible commodity

This paper considers an exchange economy called a generalized assignment market, in which sellers and buyers trade one indivisible commodity possibly with product differentiation for a perfectly divisible commodity. The existence of a competitive equilibrium in this economy is proved using Kakutani's fixed point theorem. This existence theorem is applied to a production economy in which sellers are formulated as producers with convex cost functions. Two examples of housing markets are provided and their competitive equilibria are numerically calculated.