Redistributive taxation and social insurance

This paper studies the role of social insurance as a redistributive mechanism in presence of an optimal (linear or general) income tax. It considers a second-best setting with two unobservable individual characteristics: ability, measured by the wage rate and risk, measured by the probability of incurring a loss. It shows that both tax progressivity and the optimal level of social insurance crucially depend on the correlation between ability and risk.This paper has been prepared for the IIPF 51 st Congress held in Lisbon, August 21–24, 1995. The authors are grateful to F. Gahvari, M. Lundholm, M. Marchand, J.-C. Rochet, P. Sørenson and the referees for their comments.     

Externalities and optimal taxation

This paper reexamines the optimal tax design problem (income and commodities) in the presence of externalities. The nature of the second–best, and the choice of the tax instruments, are motivated by the informational structure in the economy. The main results are: (i) environmental levies (linear or nonlinear) differ in formula from Pigouvian taxes by the expressions for the optimal tax on private goods; (ii) externalities do not affect commodity tax formulas (linear and nonlinear) for private goods; (iii) externalities do not affect the income tax structure if commodity taxes are nonlinear and affect it if commodity taxes are linear; and (iv) a general income tax plus strictly Pigouvian taxes are sufficient for efficient taxation if individuals of different types have identical marginal rates of substitution (at any given consumption bundle).     

Pensions with endogenous and stochastic fertility

This paper studies the design of a pay-as-you-go social security system in an overlapping generations model where fertility is in part stochastic and in part determined through capital investment. If investments are publicly observable, pension benefits must be linked positively to the level of investment, and payroll taxes negatively to the number of children. The outcome is characterized by full insurance with all parents, regardless of their number of children, enjoying identical consumption levels. Without observability, benefits must increase, and payroll taxes decrease, with the number of children. The second-best level of investment, and the resulting average fertility rate, are less than their corresponding first-best levels.     

Who are Those Misclassified As ‘Others’? A Note on Indonesian Labour Force Statistics 1

This paper examines possible kinds of misclassification of those placed in the large ‘others’ group in Indonesian labour force statistics, i.e. people registered as outside the labour force and neither attending school nor homemaking. It argues that a large proportion of those classified as ‘others’ are unemployed, unpaid workers and people attending informal education, as well as those in transition between two educational institutions. The paper discusses possible reasons for the remarkable differences between Census and labour force surveys in the reported size of the ‘others’ group, and considers the consequences for statements on trends in open unemployment if adjustment is made for the high ‘others’ share.     

The need for a policy of regionalisation

“Possibilities of a regional structural policy in industrial states as demonstrated by the example of the Federal Republic of Germany.” This was the subject of the main lecture which Senator Kern delivered on Dec. 20, 1972, in the course of his tour of Japan in Tokio at the Keidanren, the most influential of Japanese business organisations. The Senator’s lecture provoked a lively discussion in which 30 leading members of the Japanese business world participated.