Combined Income Taxes and Tax-Benefit Systems

We extend the analysis of income tax progression to combined taxes, benefits, and the tax-benefit system. The overall redistributive impacts of constituent reforms are identified. Our findings point to the importance of interaction effects and demonstrate the dangers of isolated reforms.     

Living Standard,Social Welfare,and the Redistribution of Income in a Heterogeneous Population

The paper considers the redistribution of income in a population of households which may differ by type. The redistribution is based on (differences in) living standard and a principle of between‐type‐progressive transfers (BTPT). We characterize the relationship between a social welfare ordering satisfying the BTPT principle and the concept of living standard the principle is based on. It turns out that there is a close link: The ordering of living standard can be derived from the social welfare ordering. Conversely, the class of welfare orderings fulfilling the BTPT principle for a given concept of living standard can be completely described.     

Income Taxation with Labor Responses

When incomes are exogenously given, U. Jakobsson ( Journal of Public Economics s 5 (1976), 161–168) proved that a progressive tax structure always reduces inequality. We investigate the implications for effective progression of relaxing the assumption of exogenous incomes when individuals have the same preferences but different talents. We extend the standard result and conclude that it is generally impossible to disentangle the respective contributions to inequality reduction of the tax schedule and agents' preferences. For a linear tax schedule to result in less unequally distributed incomes it is sufficient that the elasticity of labor supply be nonincreasing in exogenous income and nondecreasing in productivities. The latter condition proves to be necessary and sufficient when the tax schedule is proportional.     

CROSS‐HEDGING OF EXCHANGE RATE RISKS: A NOTE*

This note studies the optimal production and hedging decisions of a competitive international firm that exports to two foreign countries. The firm faces multiple sources of exchange rate uncertainty. Cross‐hedging is plausible in that one of the two foreign countries has a currency forward market. We show that the firm's optimal forward position is an over‐hedge, a full‐hedge or an under‐hedge, depending on whether the two random exchange rates are strongly positively correlated, uncorrelated or negatively correlated, respectively.     

FOREIGN INVESTMENT AND THE ROLE OF JOINT VENTURES

Foreign investment in developing countries and in economies in transition may be discouraged by fluctuations in the value of local currencies, particularly when risk sharing markets, such as currency future markets are missing. International joint ventures can be regarded as an institution for risk sharing. We demonstrate that a properly designed joint venture between the foreign firm and a local partner makes foreign investment more likely. Furthermore, foreign investment may be increased by a joint venture.