The Consumer Tax Equivalent of a Tariff with Imperfect Substitutes

In estimating the Consumer Tax Equivalent (CTE) and Producer Subsidy Equivalent (PSE) of a tariff, it is often assumed that the imported good is a perfect substitute for the relevant locally made good. However, in evaluating the economy-wide effects of a change in tariff using general equilibrium models, it is common to assume that the imported good is an imperfect substitute (so-called Arming-ton assumption)¹ This paper estimates CTE assuming imperfect substitution in order to be consistent with the assumption commonly used in general equilibrium models. It shows how estimates of the CTE and PSE are sensitive to assumptions about the substitution elasticity of demand and the price elasticity of supply for the locally made good.     

Tariff Compensation Without Omniscience*

The piecemeal application of second-best arguments to practical policy-making is highly dangerous. This paper attempts to demonstrate this by taking the recent Australian debate over ‘tariff compensation’ as an example. The attempt to ‘compensate’ for tariff-induced distortions in output prices by means of input subsidies is shown to lead to informational problems so serious that the pursuit of such a policy in practice seems unwise. This point is argued by means of extensive numerical examples. These suggest that the potential welfare gains from tariff compensation, optimally applied, are small relative to the potential costs of well-intentioned but erroneous interventions.     

The Mathews Report on Business Taxation*

The controversial Mathews proposals on inflation and business taxation have been, in part, adopted by the Fraser Government. These proposals are based on the concept of (physical) capacity maintenance which the Report concludes is essential for business survival. It is shown that this conclusion is incorrect and arises only because an irrational pricing policy is assumed. Moreover, the recommendations measure, up rather poorly against conventional criteria such as equity and efficiency. Reform of both company and personal taxation is proposed so as to ensure that only real-income and real-interest receipts are taxed. These new proposals are robust when confronted with the usual criteria.     

The Marginal Costs of Electricity Supply in Victoria*

This paper discusses some of the determinants of the costs of supplying electricity by season, by time of day and by location. A model is constructed of the State Electricity Commission of Victoria grid to illustrate the propositions. It is found that current tariffs bear little relationship to the opportunity costs of supplying electricity.     

Conjunctive Explanations in Cost Variance Investigation: Experimental Replications and Extensions

This study examined conjunctive explanations of cost variances. Two experiments were conducted in order to examine the effect of conjunctive or joint explanatory variables upon cost variance investigation decisions. These variables included the representativeness of the hypothesized explanatory variables; the inter-causality that existed between the explanatory factors; the perceived rarity of the explanation; and the multiplicity of explanatory variables related to the variance under investigation. Experiment 1 indicated significant main effects and insignificant interaction effects for representativeness and inter-causality upon investigation judgments. Experiment 2 revealed no significant effect for event rarity but a significant effect for multiplicity of explanatory factors. The results suggest that certain characteristics of conjunctive explanations do affect cost variance investigation decisions.