nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒04‒27
24 papers chosen by
Keunjae Lee
Pusan National University

  1. Contemporary Microeconomic Foundations for the Structure and Management of the Public Sector By Iris Claus; John Creedy; Josh Teng
  2. Average Marginal Income Tax Rates for New Zealand, 1907-2009 By Fiona McAlister; Debasis Bandyopadhyay; Robert Barro; Jeremy Couchman; Norman Gemmell; Gordon Liao
  3. Progressive Taxation and Macroeconomic (In)stability with Utility-Generating Government Spending By Jang-Ting Guo; Shu-Hua Chen
  4. Tax-benefit systems, income distribution and work incentives in the European Union By Jara Tamayo, Holguer Xavier; Tumino, Alberto
  5. Tax evasion: Is this a government fight, or can anyone join? By Marcelo Arbex; Enlinson Mattos
  6. On the Efficiency of Equal Sacrifice Income Tax Schedules By Costa, Carlos Eugênio; Pereira, Thiago
  7. Tax attractiveness and the location of German-controlled subsidiaries By Keller, Sara; Schanz, Deborah
  8. The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraints By Oscar Parkyn; Tugrul Vehbi
  9. Economy-Wide Impacts of Industry Policy By Anita King
  10. The Determinants of Income Polarization on the Household and Country Level across the EU By Mario Holzner
  11. Government Solvency, Austerity and Fiscal Consolidation in the OECD: A Keynesian Appraisal of Transversality and No Ponzi Game Conditions By Azizi, Karim; Canry, Nicolas; Chatelain, Jean-Bernard; Tinel, Bruno
  12. Tax Policy with Uncertain Future Costs: Some Simple Models By Christopher Ball; John Creedy
  13. Regionalization and its effects in Finland ? a regional AGE modelling analysis By Jussi Ahokas; Jouko Kinnunen; Juha Honkatukia; Antti Simola; Saara Tamminen
  14. Gender Norms, Work Hours, and Corrective Taxation By Aronsson, Thomas; Granlund, David
  15. Structural and Cyclical Effects of Tax Progression By Jana Kremer; Nikolai Stähler
  16. The Effect of Public Capital on Aggregate Output – Empirical Evidence for 22 OECD Countries – By Wesselhöft, Jan-Erik
  17. Working Paper 01-13 - The impact of subsidies and fiscal incentives on corporate R&D expenditures in Belgium (2001-2009) By Michel Dumont
  18. Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience By Goodness C. Aye; Mehmet Balcilar; Rangan Gupta; Charl Jooste; Stephen M. Miller; Zeynel Abidin Ozdemir
  19. Federal Transfers and Fiscal Discipline in India: An Empirical Evaluation By Antra Bhatt; Pasquale Scaramozzino
  20. “Fiscal sustainability and fiscal shocks in a dollarized and oil-exporting country: Ecuador” By María Lorena Marí del Cristo; Marta Gómez-Puig
  21. The impact of the Goods and Services Tax on mortgage costs of Australian credit unions By Benjamin Liu; Allen Huang
  22. The Signaling Effect of Environmental and Health-Based Taxation and Legislation for Public Policy: An Empirical Analysis By Brockwell, Erik
  23. Fiscal Federalism and Competitive Bidding for Foreign Investment as a Multistage Game By Hari K. Nagarajan; Kolumum R. Nagarajan; Raghbendra Jha
  24. Environmental tax reform and induced technological change By YAMAGAMI, Hiroaki

  1. By: Iris Claus; John Creedy; Josh Teng (The Treasury)
    Abstract: This paper reports estimates of the elasticity of taxable income with respect to the net-of-tax rate for New Zealand taxpayers. The relative stability of the New Zealand personal income tax system, in terms of marginal rates, thresholds and the tax base, provides helpful conditions for deriving these estimates. The elasticity of taxable income was estimated to be substantially higher for the highest income groups. Generally it was higher for men than for women. Changes in the timing of income flows for the higher income recipients were found to be an important response to the announcement of a new higher-rate bracket. The marginal welfare costs of personal income taxation were consistent across years, being relatively small for all but the higher tax brackets. For the top marginal rate bracket of 39 per cent, the welfare cost of raising an extra dollar of tax revenue was estimated to be well in excess of a dollar. Furthermore, for the top bracket the marginal tax rate was often found to exceed the revenue-maximising tax rate.
    Keywords: Income taxation; Taxable income; Elasticity of taxable income; Excess burden of taxation.
    JEL: H24 H31
    Date: 2012–08
  2. By: Fiona McAlister; Debasis Bandyopadhyay; Robert Barro; Jeremy Couchman; Norman Gemmell; Gordon Liao (The Treasury)
    Abstract: Estimates of marginal tax rates (MTRs) faced by individual economic agents, and for various ggregates of taxpayers, are important for economists testing behavioural responses to changes in those tax rates. This paper reports estimates of a number of personal marginal income tax rate measures for New Zealand since 1907, focusing mainly on the aggregate income-weighted average MTRs proposed by Barro and Sahasakul (1983, 1986) and Barro and Redlick (2011). The paper describes the methodology used to derive the various MTRs from original data on incomes and taxes from Statistics New Zealand Official Yearbooks (NZOYB), and discusses the resulting estimates.
    Keywords: Average marginal tax rates; New Zealand
    JEL: H20 H24
    Date: 2012–09
  3. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Shu-Hua Chen (National Taipei University)
    Abstract: We examine the theoretical interrelations between progressive income taxation and macroeconomic (in)stability in an otherwise standard one-sector real business cycle model with utility-generating government purchases of goods and services. When private and public consumption expenditures are complements in the household utility and the tax schedule is progressive, we analytically show that the economy exhibits indeterminacy and sunspots if and only if the degree of government-spending preference externality is higher than a critical threshold. Unlike traditional Keynesian-type stabilization policies, raising the tax progressivity may destabilize this version of our model by generating endogenous cyclical áuctuations. Moreover, the economy always displays saddle-path stability and equilibrium uniqueness under utility substitutability between private and public consumptions and progressive taxation.
    Keywords: Progressive Income Taxation; Equilibrium (In)determinacy; Utility-Generating.
    JEL: E32 E62
    Date: 2013–04
  4. By: Jara Tamayo, Holguer Xavier; Tumino, Alberto
    Abstract: In this paper we study the impact of tax-benefit systems on income inequality and work incentivesacross the 27 Member States of the European Union (EU). Using EUROMOD, the EU-wide taxbenefitmicrosimulation model, we disentangle the role of taxes, benefits and social insurancecontributions in influencing country specific Gini coefficients and Marginal Effective Tax Rates.The extent to which tax-benefit systems contribute to income redistribution and provide work incentives at the intensive margin is found to vary considerably across the 27 Member States of the EU. Our results further highlight the presence of a trade-off between income redistribution and work incentives across EU-27 countries.
    Date: 2013–03–28
  5. By: Marcelo Arbex (Department of Economics, University of Windsor); Enlinson Mattos (São Paulo School of Economics, Getulio Vargas Foundation)
    Abstract: In the traditional optimal taxation literature, taxpayers and consumers are viewed and treated as potential tax evaders. We consider an optimal commodity taxation model where consumers have an important role as tax enforcers. Requesting purchase receipts (individual auditing) is time consuming and the government offers a fraction of the taxes collected to provide incentive for buyers to participate in the auditing activity. We show that tax rebates have a non-trivial income effect, which modifies the traditional (dual approach) "Ramsey equation". Tax-enforcement policies affect buyers' allocations directly, in addition to standard changes in the good's price. Comparing numerical results across three tax-enforcement regimes, we observe that welfare is higher if individual auditing is the only tax enforcement policy.
    Keywords: Optimal Taxation, Indirect Tax Evasion, Tax Enforcement and Auditing.
    JEL: E62 H21 H26 K42
    Date: 2013–04
  6. By: Costa, Carlos Eugênio; Pereira, Thiago
    Abstract: In an economy which primitives are exactly those in Mirrlees (1971), we investigatethe efficiency of labor income tax schedules derived under the equal sacrifice principle.Starting from a given government revenue level, we useWerning’s (2007b) approach toassess whether there is an alternative tax schedule to the one derived under the equalsacrifice principle that raises more revenue while delivering less utility to no one. Forour preferred parametrizations of the problem we find that inefficiency only arises atvery high levels of income. We also show how the multipliers of the Pareto problemmay be extracted from the data and used to find the implicit marginal social weightsassociated with each level of income.
    Date: 2013–04–18
  7. By: Keller, Sara; Schanz, Deborah
    Abstract: This paper analyzes whether taxation has an influence on the location decisions of multinational enterprises. As a tax measure, we employ the Tax Attractiveness Index (see Keller and Schanz 2013). This index covers 18 different tax factors, such as the taxation of dividends and capital gains, withholding taxes, the existence of a group taxation regime, and thin capitalization rules. Our count data regression analysis is based on a novel hand-collected data set consisting of the subsidiaries of German DAX30 companies. Controlling for non-tax effects, we find that a country's tax environment as measured by the Tax Attractiveness Index has a significantly positive effect on the number of Germancontrolled subsidiaries located there. Hence, our study implies that location decisions depend on a bundle of tax factors as captured by the index. In a second step, we show that the location decisions of German DAX30 companies cannot be explained by the statutory tax rate alone. In contrast, withholding taxes, double treaty networks, and special holding regimes seem to play a decisive role in location decisions. Previous studies examining only the influence of statutory tax rates may thus have underestimated the effects of taxation on the activities of multinational companies. --
    Keywords: tax attractiveness,location decision,multinational enterprise,count data model
    Date: 2013
  8. By: Oscar Parkyn; Tugrul Vehbi (The Treasury)
    Abstract: This paper investigates the macroeconomic effects of fiscal policy in New Zealand using a structural Vector Autoregression (SVAR) model. The model is the five-variable structural vector autoregression (SVAR) framework proposed by Blanchard and Perotti (2005), further augmented to allow for the possibility that taxes, spending and interest rates might respond to the level of the debt over time. We examine the dynamic responses of output, inflation and the interest rate to changes in government spending and revenues and analyse the contribution of shocks to New Zealand’s business cycle for the period 1983:1-2010:2. We find that the effects of government expenditure shocks in New Zealand appear to be positive but small in the short-run at the cost of higher interest rates and lower output in the medium to long-run. The sign of the effects of tax policy changes are less clear cut, but again the effects on GDP appear similarly modest. Past fiscal policy is analysed through a historical decomposition of the shocks in the model. This suggests that discretionary fiscal policy has had a generally pro-cyclical impact on GDP over the last fifteen years, and a material impact on the real long-term interest rate. A fiscal expansion has a positive but limited impact on inflation.
    Keywords: Fiscal policy, business cycle fluctuations, vector autoregression, debt feedback
    JEL: C32 E32 E62
    Date: 2013–01
  9. By: Anita King (The Treasury)
    Abstract: Estimates of marginal tax rates (MTRs) faced by individual economic agents, and for various ggregates of taxpayers, are important for economists testing behavioural responses to changes in those tax rates. This paper reports estimates of a number of personal marginal income tax rate measures for New Zealand since 1907, focusing mainly on the aggregate income-weighted average MTRs proposed by Barro and Sahasakul (1983, 1986) and Barro and Redlick (2011). The paper describes the methodology used to derive the various MTRs from original data on incomes and taxes from Statistics New Zealand Official Yearbooks (NZOYB), and discusses the resulting estimates.
    Keywords: CGE modelling; industry policy; economy-wide effects
    JEL: C68 D58 E29 E61
    Date: 2012–09
  10. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: A multi-level approach to test for the determinants of income polarization both at the household as well as the country level is applied to a panel of about 300,000 households in EU countries over the period of 2003-2009. Among the policy relevant macro variables, higher progressive labour taxation and to a certain extent capital taxation is positively correlated with lower levels of income polarization. Also public expenditures on social protection, education and economic subsidies are related to a lower degree of polarization. Finally, lower unemployment, a stronger industrial base and more trade openness are also associated with lower levels of polarization.
    Keywords: government expenditures, taxes, income polarization, multi-level model
    JEL: D63 H23 H5
    Date: 2012–09
  11. By: Azizi, Karim; Canry, Nicolas; Chatelain, Jean-Bernard; Tinel, Bruno
    Abstract: This paper investigates the relevance of the No-Ponzi game condition for public debt (i.e. the public debt growth rate has to be lower than the real interest rate, a necessary assumption for Ricardian equivalence) and of the transversality condition for the GDP growth rate (i.e. the GDP growth rate has to be lower than the real interest rate). First, on the unbalanced panel of 21 countries from 1961 to 2010 available in OECD database, those two conditions were simultaneously validated only for 29% of the cases under examination. Second, those two conditions were more frequent in the 1980s and the 1990s when monetary policies were more restrictive. Third, in tune with the Keynesian view, when the real interest rate is higher than the GDP growth, it corresponds to 75% of the cases of the increases of the debt/GDP ratio but to only 43% of the cases of the decreases of the debt/GDP ratio (fiscal consolidations).
    Keywords: Government solvency, Austerity, Fiscal Consolidation, No-Ponzi Game condition, transversality condition, Keynesian countercyclical budgetary policy, monetary policy, economic growth.
    JEL: E43 E5 E6 H6 O4
    Date: 2013–04–24
  12. By: Christopher Ball; John Creedy (The Treasury)
    Abstract: This paper considers the extent to which the standard argument, that the disproportionate excess burden of taxation suggests the use of tax-smoothing in the face of future cost increases, is modified by uncertainty regarding the future. The role of uncertainty and risk aversion are examined using several highly simplified models involving a possible future contingency requiring an increase in tax-financed expenditure.
    Keywords: Tax Smoothing; Uncertainty; Risk Aversion; Excess Burden
    JEL: H20 D81 D90
    Date: 2013–04
  13. By: Jussi Ahokas; Jouko Kinnunen; Juha Honkatukia; Antti Simola; Saara Tamminen
    Abstract: Regional structural change is currently among the greatest challenges facing the public sector in many EU countries. In countries like Finland, where the public sectors have a large role in providing educational, health and social services, structural change rapidly becomes a fiscal problem. Demography is directly linked to the demand for public services and to the potential growth of regional economies. On the one hand, ageing increases the demand for age-related services; on the other, it decreases labour supply, limiting the growth potential of many regions. <br><br> The state?s main tools for regional policies consist of both direct subsidies to the regions, as well as a mechanism reallocating tax revenues between poor and rich municipalities. However, the welfare costs of funding subsidies to poorer regions may be considerable. Thus, instruments not involving changes in spending have been preferred. Here, we consider the relocation of certain functions of the central government to the periphery ? regionalization ? as an instrument for coping with regional structural change. An improvement in regional municipal finances should also reduce the transfers received from the central government. This study aims at evaluating the effects of regionalization on regional development in recent years and in the near future. The study is related to an ongoing evaluation of the financial relations between the central government and local authorities. <br><br> Regionalization has in practice meant the relocation of central government jobs. We can cover the relocation of jobs quite accurately, and also had a data to make a plausible valuation of the number of employees that actually relocated with the jobs. Moreover, we are able to calculate state transfers to municipalities at the level of individual municipalities within each region. However, to capture all the implications of relocation to regional economies, we extend the model to take into account the average size and age profile of the families of those who relocate. In this way, we obtain an estimate of the effects of regionalization on demand for public services locally, as well as on the overall effect on local population, labour supply and state, municipal and social security funds? budget balances. <br><br> We analyse regionalization at the level of the twenty regions of Finland, using a dynamic, regional, AGE model. Our main finding is that regionalization has negative overall economic effects for Finland ? it decreases national product and employment, deteriorates the fiscal balance and increases state transfers to municipalities. However, these effects are small by magnitude. We found that the cumulative decrease in GDP until 2018 was a bit less than 0.05 percentages. The policy altogether succeeds in leveling regional disparities. We also find that while regionalization has been beneficial for many regions by creating new jobs and increasing municipal tax revenues, it has also used resources wastefully as there has been double efforts during the transition period.
    Keywords: regionalization, regional policies, structural change
    JEL: R53 R13
    Date: 2013–04–10
  14. By: Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics); Granlund, David (Department of Economics, Umeå School of Business and Economics)
    Abstract: This paper deals with optimal income taxation based on a model with households where men and women allocate their time between market work and household production, and where households differ depending on which spouse has comparative advantage in market work. The purpose is to analyze the tax policy implications of gender norms represented by a market-work norm for men and household-work norm for women. We also distinguish between a welfarist government that respects all aspects of household preferences, and a paternalist government that disregards the disutility to households of deviating from the norms. The results show how the welfarist government may use tax policy to internalize the externalities caused by these norms, and how the paternalist government may use tax policy to make the households behave as if the norms were absent.
    Keywords: Social norms; household production; optimal taxation; paternalism
    JEL: D03 D13 D60 D62 H21
    Date: 2013–04–15
  15. By: Jana Kremer (Deutsche Bundesbank, Economics Department, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany); Nikolai Stähler (Deutsche Bundesbank, Economics Department, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany)
    Abstract: In a real business cycle model with labor market frictions, we find that a more progressive tax schedule reduces structural unemployment as it fosters long-run incentives for job creation. Because there exists an optimal level of unemployment in a matching environment (“Hosios condition”), tax progression improves steady-state welfare up to a certain threshold and harms it beyond that. However, tax progression increases the costs of business cycles for those consumers who can save and borrow, while it reduces the business cycle costs for households with limited asset market participation (“rule-of-thumb” consumers). Our analysis suggests that business cycle effects dominate steady-state effects. On the aggregate level, tax progression is welfare-enhancing up to a certain threshold and always shifts relative utility from optimizing to rule-of-thumb consumers. These findings are quite robust to alternative calibrations of our model.
    Keywords: Tax Progression, Business Cycles, Automatic Stabilizers, Welfare
    JEL: H2 J6 E32 E62
    Date: 2013–04
  16. By: Wesselhöft, Jan-Erik (Helmut Schmidt University, Hamburg)
    Abstract: Based on new estimates of public and private capital stocks for 22 OECD countries we study the dynamic effect of public capital on the real gross domestic product using a vector autoregression approach. Whereas most former studies put effort on examining the effects of public capital in a single country, this paper covers a large set of OECD countries. The results show that public capital has a positive effect on output in the short-, medium- and long-run in most countries. In countries where the effect is negative, possible explanations as the different productivities of investments, crowding out or high growth rates of government debt are analyzed.
    Keywords: Public capital stock; VAR model; Cointegration; OECD countries
    JEL: C32 E60 H54
    Date: 2013–04–17
  17. By: Michel Dumont
    Abstract: This paper presents the results of an initial evaluation of federal fiscal incentives in support of Research and Development (R&D) by companies in Belgium. The impact of regional subsidies and the partial exemption from advance payment for R&D personnel is estimated for the period 2001-2009. The results show that the existing measures of public support have stimulated companies to carry out additional R&D activities.
    JEL: H32 O32 O38
    Date: 2013–01–25
  18. By: Goodness C. Aye (Department of Economics, University of Pretoria, Pretoria); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Rangan Gupta (Department of Economics, University of Pretoria); Charl Jooste (Department of Economics, University of Pretoria, Pretoria); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); Zeynel Abidin Ozdemir (Department of Economics, Gazi University)
    Abstract: This study assesses how fiscal policy affects the dynamics of asset markets, using Bayesian vector autoregressive models. We use sign restrictions to identify government revenue and government spending shocks, while controlling for generic business cycle and monetary policy shocks. In addition to examining the effects of anticipated and unanticipated revenue and spending shocks, we also analyse three types of fiscal policy scenarios: a deficit-financed spending increase, a balanced budget spending increase (financed with higher taxes), and a deficit-financed tax cut (revenue decreases but government spending stays unchanged). Using South African quarterly data from 1966:Q1 to 2011:Q2, we show that a deficit spending shock does not affect house prices, but temporarily exerts a positive effect on stock prices. With a deficit-financed tax cut shock, house prices increase persistently while stock prices increase quickly, but only temporarily. A balanced budget shock permanently decreases house prices and temporarily reduces stock prices.
    Keywords: Bayesian Sign-Restricted VAR, fiscal policy, housing prices, stock prices
    JEL: C32 E62 G10 H62
    Date: 2012–08
  19. By: Antra Bhatt (University of Rome "Tor Vergata"); Pasquale Scaramozzino (University of Rome "Tor Vergata")
    Abstract: This paper examines the relationship between federal transfers and fiscal deficits in India. The system of federal transfers has been criticized on the grounds that it distorts the incentives for states to promote fiscal discipline. We analyze the relationship between transfers, state domestic product, and fiscal deficit for a panel of states during the period 1990–2010. The paper finds a positive long-run relationship and bi-directional causality between primary/gross fiscal deficits and non-plan transfers. Further, there is a negative long-run relationship and one-way causality between state domestic product and transfers. These results are confirmed by multi-variate cointegration analysis, which finds a long-run relationship between fiscal transfers, state product per capita and the primary deficit of the states. The evidence in the paper is consistent with the system of fiscal transfers being “gap-filling.”
    Keywords: Federal transfers, India, public finance, panel cointegration, panel ECM
    JEL: H77 R23 C33
    Date: 2013–04–17
  20. By: María Lorena Marí del Cristo (Faculty of Economics, University of Barcelona); Marta Gómez-Puig (Faculty of Economics, University of Barcelona)
    Abstract: This paper investigates the fiscal sustainability of an emerging, dollarized, oil-exporting country: Ecuador. A cointegrated VAR approach is adopted in testing, first, if the intertemporal budget constraint is satisfied in Ecuador and, second, in identifying the permanent and transitory shocks that affect a fiscal policy characterized by inertia and a heavy dependence on oil revenues. Following confirmation that the debt-GDP ratio does not place the Ecuadorian budget under any pressure, we reformulate the model and identify two forces that push the fiscal system out of equilibrium, namely, economic activity and oil revenues implemented in the government budget. We argue that Ecuador needs to recover control of its monetary policy and to promote the diversification of its economy in order that non-oil tax revenues can replace oil revenues as a pushing force. Finally, we calculate quarterly elasticities of tax revenues with respect to Ecuador’s GDP and that of eight Eurozone countries. We illustrate graphically how the Eurozone countries with low positive or high negative elasticities’ levels suffer debt problems after the crisis. This finding emphasizes the pressing need for Ecuador to strengthen the connection between its tax revenues and output, and also suggests that the convergence of these elasticities in the Eurozone might contribute to the success of an eventually future fiscal union.
    Keywords: Cointegrated VAR, fiscal sustainability, fiscal shocks, debt, Ecuador JEL classification: C32, E62, H60
    Date: 2013–04
  21. By: Benjamin Liu; Allen Huang
    Keywords: Australian GST, mortgage costs of credit unions, housing affordability, lender pricing behaviour
    JEL: G21 G14 H25 G12
    Date: 2013–01
  22. By: Brockwell, Erik (CERE, Centre for Environmental and Resource Economics)
    Abstract: The main objective of this article is to examine how taxes affect consumption of commodities that are detrimental to health and the environment: tobacco, alcoholic beverages, household energy and petroleum fuel (petrol) for transportation. Specifically, we examine if a tax increase leads to a significantly larger change in consumption than a producer price change, which is referred to as the signaling effect from taxation. This objective is achieved through an empirical analysis using the Linear Almost Ideal Demand System. The analysis uses aggregated cross sectional time series data and information on major legislation introductions in Sweden, Denmark and the United Kingdom from 1970 to 2009. We find the main result to be that the signaling effect is significant for “Alcoholic Beverages” and “Electricity” in Sweden, “Electricity” in Denmark and “Electricity and Gas” and “Electricity” the United Kingdom. This implies that tax policy is more effective in tackling consumption of commodities which produce negative public effects (negative externalities affecting the social good such as pollution) than those for negative private effects (negative externalities affecting the private good such as health).
    Keywords: environmental taxation; health-based taxation; public policy
    JEL: I18 Q58
    Date: 2013–04–19
  23. By: Hari K. Nagarajan; Kolumum R. Nagarajan; Raghbendra Jha
    Abstract: This paper models the behavior of states in a federal country wising to attract foreign firms to locate within their own individual jurisdictions. The essential intertemporal character of this decision is modeled as a multi-stage game to attract such foreign investment in these states. It is found that, when states with unequal political or economic infrastructure compete, the resulting Nash equilibrium profiles are inefficient. Under certain conditions, states that have won once, can “allow†a rival to win in a subsequent stage. The resulting Nash Equilibrium is more efficient. If the option of “allowing†a rival to win is not available, then states may resort to “suicide†strategies defined as outcomes created by history of losses.
    Keywords: Fiscal Federalism, Multi stage games, suicide strategies
    JEL: C70 H73 H77
    Date: 2013
  24. By: YAMAGAMI, Hiroaki
    Abstract: This paper examines the importance of induced technological change in considering the efficiency costs of environmental policy. In particular, in modeling an endogenous formation of energy-saving technology through a variety of intermediates, the paper studies the welfare effects of environmental tax reform in a general equilibrium model. Using this model, the paper shows that environmental tax reform induces an expansion of the variety of intermediates by increasing rents from innovating new intermediates and, thereby, brings technological change. Then, the induced variety expansion by environmental tax reform achieves positive externalities and plays an important role both to decrease the efficiency costs and to improve the environmental quality.
    Keywords: Double dividend, Energy saving, Environmental tax reform, Induced technological change, Tax-interaction effect
    JEL: D62 H23 Q55 Q58
    Date: 2013–04

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