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on Public Finance |
| By: | Eytan Sheshinski |
| Abstract: | This paper extends the standard model of optimum commodity taxation (Ramsey (1927) and Diamond-Mirrlees (1971)) to a competitive economy in which some markets are inefficient due to asymmetric information. As in most insurance markets, consumers impose varying costs on suppliers but firms cannot associate costs to customers and consequently all are charged equal prices. In a competitive pooling equilibrium, the price of each good is equal to average marginal costs weighted by equilibrium quantities. We derive modified Ramsey-Boiteux Conditions for optimum taxes in such an economy and show that they include general-equilibrium effects which reflect the initial deviations of producer prices from marginal costs, and the response of equilibrium prices to the taxes levied. It is shown that condition on the monotonicity of demand elasticities enables to sign the deviations from the standard formula. The general analysis is applied to the optimum taxation of annuities and life insurance. |
| Keywords: | asymmetric information, pooling equilibrium, Ramsey-Boiteux Conditions, annuities |
| JEL: | D43 H21 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1815&r=pub |
| By: | Henrik Jacobsen Kleven; Claus Thustrup Kreiner; Emmanuel Saez |
| Abstract: | This paper analyzes the optimal income tax treatment of couples. Each couple is modelled as a single rational economic agent supplying labor along two dimensions: primary and secondary earnings. We consider fully general joint income tax systems. Separate taxation is never optimal if social welfare depends on total couple incomes. In a model where secondary earners make only a binary work decision (work or not work), we demonstrate that the marginal tax rate of the primary earner is lower when the spouse works. As a result, the tax distortion on the secondary earner decreases with the earnings of the primary earner and actually vanishes to zero asymptotically. Such negative jointness is optimal because redistribution from two-earner toward one-earner couples is more valuable when primary earner income is lower. We also consider a model where both spouses display intensive labor supply responses. In that context, we show that, starting from the optimal separable tax schedules, introducing some negative jointness is always desirable. Numerical simulations suggest that, in that model, it is also optimal for the marginal tax rate on one earner to decrease with the earnings of his/her spouse. We argue that many actual redistribution systems, featuring family-based transfers combined with individually-based taxes, generate schedules with negative jointness. |
| JEL: | H21 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12685&r=pub |
| By: | Beaudry, Paul (University of British Columbia, and NBER.); Blackorby, Charles (University of Warwick and GREQAM) |
| Abstract: | This paper explores how to optimally set tax and transfers when taxation authorities : (1) are uninformed about individuals’ value of time in both market and non-market activities and (2) can observe both market-income and time allocated to market employment. In contrast to much of the optimal income taxation literature, we show that optimal redistribution in this environment involves distorting market employment upwards for low net-income individuals through phased-out wage-contingent employment subsidies, and distorting employment downward for high net-income individuals through positive and increasing marginal income tax rate. We also show that workfare may also be used as part of an optimal redistribution program. |
| Keywords: | Taxation ; Redistribution ; Wage Subsidies Screening |
| JEL: | D82 H21 H23 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:766&r=pub |
| By: | Hideo Konishi (Boston College) |
| Abstract: | This paper establishes the existence and efficiency of equilibrium in a local public goods economy with spatial structures by formalizing Hamilton's (1975 Urban Studies) elaboration of Tiebout's (1956 JPE) tale. We use a well-known equilibrium concept from Rothschild and Stiglitz (1976, QJE) in a market with asymmetric information, and show that Hamilton's zoning policy plays an essential role in proving existence and efficiency of equilibrium. We use an idealized large economy following Ellickson, Grodal, Scotchmer and Zame (1999, Econometrica) and Allouch, Conley and Wooders (2004). Our theorem is directly applicable to the existence and efficiency of a discrete approximation of mono- or multi-centric city equilibrium in urban economics with commuting time costs even if we allow existence of multiple qualities of (collective) residences, when externalities due to traffic congestion are not present. |
| JEL: | C62 D60 H41 H70 H73 R52 |
| Date: | 2006–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:655&r=pub |
| By: | Sijbren Cnossen |
| Abstract: | This paper estimates the external costs of harmful alcohol use in the European Union (EU) and confronts them with the alcohol excise duty collections per adult and per litre of pure alcohol in the various Member States. In all but one Member State, drinkers do not appear to pay their way. This reflects the EU’s acquiescence in a formidable alcohol problem. Fifteen per cent of adults ‘drink too much’, while the extent of youth drinking has reached alarming proportions. The external costs should be internalised in price through an appropriate optimal alcohol excise duty, supplemented by regulatory measures aimed at specific problem groups. Further, a coordinated alcohol tax policy seems called for, which would, among others, raise the minimum duties on wine, beer and spirits, preferably in line with their relative alcohol content. A drawback of these measures is that they would reduce the welfare of moderate drinkers. |
| Keywords: | alcohol taxation, European Union, external costs, social costs |
| JEL: | H20 H80 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1821&r=pub |
| By: | Wolfram F. Richter |
| Abstract: | Assuming decreasing returns to education and the endogenous supply of qualified and non-qualified labour it is shown to be efficient to supplement a consumption tax with positive incentives for education. If the return from education is isoelastic and if the choice is between (i) subsidizing the monetary cost of education and (ii) taxing nonqualified labour income more heavily than qualified labour income while keeping the effective cost of education constant, the latter policy is shown to be second-best efficient. In particular, any tax distortions should be constrained to labour choices while the choice of education should remain undistorted. The result holds for arbitrary utility functions. |
| Keywords: | endogenous choice of labour and education, efficient taxation, human capital investment, double dividend hypothesis |
| JEL: | H20 I20 J24 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1832&r=pub |
| By: | Dirk Schindler |
| Abstract: | We show in a two-period world with endogenous savings and two assets, one of them exhibiting a stochastic return, that an interest-adjusted income tax is optimal. This tax leaves a riskless component of interest income tax free and taxes the excess return with a special tax rate. There is no trade-off between risk allocation and efficiency in intertemporal consumption. Both goals are reached. As the resulting tax system divides income into three parts, the tax can also be called a Triple Income Tax. This distinction and a special tax rate on the excess return are necessary in order to have an optimal risk-shifting effect. |
| Keywords: | optimal taxation, uncertainty, consumption tax, triple income tax |
| JEL: | H21 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1834&r=pub |
| By: | Sam Bucovetsky; Andreas Haufler |
| Abstract: | Current policy initiatives taken by the EU and the OECD aim at abolishing preferential corporate tax regimes. This note extends Keen's (2001) analysis of symmetric capital tax competition under preferential (or discriminatory) and non-discriminatory tax regimes to allow for countries of different size. Even though size asymmetries imply a redistribution of tax revenue from the larger to the smaller country, a non-discrimination policy is found to have similar effects as in the symmetric model: it lowers the average rate of capital taxation and thus makes tax competition more aggressive in both the large and the small country. |
| Keywords: | corporate taxation, preferential tax regimes |
| JEL: | H25 H73 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1846&r=pub |