New Economics Papers
on Public Finance
Issue of 2008‒12‒07
three papers chosen by

  1. Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment By Aronsson, Thomas; Koskela, Erkki
  2. The Contest for Olympic Succes as a Public Good By Loek Groot
  3. Real Options: Applications in Public Economics By Lawrence, Craig; Thomas, Mathew

  1. By: Aronsson, Thomas (Department of Economics, Umeå University); Koskela, Erkki (Department of Economics)
    Abstract: This paper concerns optimal redistributive income taxation and provision of a public input good in a two-type model with a minimum wage policy implemented for the low-ability type, where firms may use some of their resources for outsourcing by locating part of the production process abroad. Our results show that the incentive to relax the self-selection constraint and the incentive to increase employment among the low-skilled reinforce each other in terms of marginal income taxation. In addition, the appearance of equilibrium unemployment also provides an incentive for the government to directly tax outsourcing. Without a direct instrument for taxing outsourcing, the government may reduce the amount of resources spent on outsourcing by increased provision of the public input good, which is desirable in the sense that reduced outsourcing contributes to less wage inequality and increased employment.
    Keywords: outsourcing; optimal nonlinear taxation; public goods; unemployment
    JEL: H21 H25 J31 J62
    Date: 2008–11–27
  2. By: Loek Groot
    Abstract: This study considers the performance of countries at the Olympic Games as a public good. Firstly, it is argued that, at the national level, Olympic success meets the two key conditions of a public good: non-rivalry and non-excludability. Secondly, it is demonstrated that standard income inequality measures, such as the Lorenz curve and the Gini index, can be successfully applied to the distribution of Olympic success. The actual distribution of Olympic success is compared with alternative hypothetical distributions, among which according to population shares, the distribution favoured by a social planner and the noncooperating Nash-Cournot distribution. By way of conclusion, a device is proposed to make the distribution of Olympic success more equitable.
    Keywords: Olympic Games, public goods, externalities, social welfare, Nash
    JEL: D63 H41 H50
    Date: 2008–11
  3. By: Lawrence, Craig; Thomas, Mathew
    Abstract: This paper illustrates the use of real options principles to value prototypical resource and industryinvestment projects. It captures important competitive/strategic dimensions in a step-by-stepanalysis of investment decisions (options) under uncertainty. It compares and contrasts staticdiscounted cash flow analysis (DCF) with real options analysis using three case studies. The initialexample values a resource extraction process using static DCF and then compares the projectvaluation when future information is valued and acted upon. The second example considers a coaldevelopment and uses the binomial valuation approach to capture the option value associated withhaving the right but not the obligation to exit the development. It contrasts this valuation approachagainst static DCF and highlights that future royalty payments could be underestimated if based onthe standard DCF valuation. The third example analyses the impact of providing a subsidy forhybrid vehicle production to accelerate potential uncertain environmental benefits. Lastly, thesuitability of the standard financial and economic evaluation tools used by treasury agencies isconsidered when projects contain real options.
    Keywords: financial economics; investment decisions; public economics; externalities; subsidies; project evaluation
    JEL: H10 G11 H43 H23 G10
    Date: 2008–06–30

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