nep-pub New Economics Papers
on Public Finance
Issue of 2009‒10‒10
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Income Taxation, Outsourcing and Policy Cooperation in a Dynamic Economy By Aronsson, Thomas; Koskela, Erkki
  2. Commodity tax competition – purchases of spirits in the Scandinavian countries By Odd Erik Nygård
  3. Environmental tax in a green market By Dorothée Brécard
  4. Optimal Taxation and Environmental Policy in a Decentralized Economic Federation with Environmental and Labor Market Externalities By Sjögren, Tomas
  5. Migrants and mafia as global public goods By Fossati, Amedeo; Montefiori, Marcello

  1. By: Aronsson, Thomas (Department of Economics, Umeå University); Koskela, Erkki (Department of Economics)
    Abstract: This paper concerns optimal income taxation in a two-country OLG economy, where each country is characterized by asymmetric information between the government and the private sector, and where one of the countries outsources part of its production to the other. In the country whose firms outsource production abroad, the government will respond to outsourcing by implementing a more progressive labor income tax structure and higher marginal capital income tax rates than it would have done in the absence of outsourcing. The tax policy response by the government in the country that receives foreign production capacity is, in general, ambiguous and depends on a tradeoff between wage-equality and factor income from abroad. By using the noncooperative Nash equilibrium as a reference case, we also consider tax policy cooperation leading to higher welfare.
    Keywords: Outsourcing; redistribution; optimal nonlinear taxation; intertemporal model
    JEL: H21 H25 J31 J62
    Date: 2009–10–02
  2. By: Odd Erik Nygård (Statistics Norway)
    Abstract: A simulation model consisting of a representative consumer for each Scandinavian country is constructed and calibrated, in which consumers consume two goods: spirits and 'other goods'. Spirits is exposed to cross-border shopping, and the countries engage in tax competition. The equilibrium tax rates show large price differentials on spirits in Scandinavia. The findings also suggest that Norway and Denmark pay more attention to cross-border shopping and tax competition when setting the tax rates compared to Sweden. Furthermore, the equilibrium tax rates are rather robust with respect to the type of game that we consider, due to the fact that the utility maximizing tax rate for each country is rather insensitive with respect to other countries’ tax rates. Nevertheless, the sequential game equilibrium consists of somewhat higher taxes and utility levels for each country compared to the simultaneous game equilibrium, meaning that the former equilibrium Pareto-dominates the latter.
    Keywords: indirect taxes; excise taxes; cross-border shopping; commodity tax competition; alcohol; spirits; optimal taxation
    JEL: C7 D12 H1 H31
    Date: 2009–09
  3. By: Dorothée Brécard (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: We examine the impact of an emission tax in a green market characterized by consumers' environmental awareness and competition between firms for both environmental quality and product prices. The unique aspect of this model comes from the assumption that the cost for an increase in quality is fixed. We show that the emission tax improves welfare, thanks to a decline in pollution and despite an accentuation of product differentiation. The higher the marginal environmental damage is, the higher the optimal tax will be. The optimal tax, however, becomes lower than the marginal damage when the market is not too large. Finally, when marginal environmental damage is not too low, the optimal tax leads to a green product monopoly.
    Date: 2009
  4. By: Sjögren, Tomas (Department of Economics, Umeå University)
    Abstract: This paper concerns optimal taxation and environmental policy in the presence of transboundary environmental damage and labour market distortions, where the latter gives rise to wage bargaining externalities between countries. I consider a decentralized economic federation where the federal government chooses emission targets to be implemented by the national governments. The results show that the labour market externality will influence the target levels for emissions chosen by the central government. I then proceed to characterize the optimal tax policy at the national level. The decentralized federation structure produces incentives for the national governments to use the tax policy to influence the policies chosen by the federal level. It is shown how these objectives interact with the additional objective to minimize the distortion on the national labour market.
    Keywords: Transboundary Externalities; Labour Market Distortions; Economic Federation; Optimal Taxation
    JEL: H21 H23 H77 J51
    Date: 2009–10–02
  5. By: Fossati, Amedeo; Montefiori, Marcello
    Abstract: Global public goods, differently from what it might be thought, are quite common in the real world. This work suggests that both the governments' struggle against Mafia and the prevention of immigration can be regarded as global public goods. We assume a federation of jurisdictions with two tiers of Government: the central and the local. Regional utility directly represents the preferences of citizens, since the local governments aim at individualistic utility maximization; central government uses the redistribution of resources among the members of the federation to maximize the social welfare which is given, as usual, by the sum of regional utilities. The Central Government aims at welfare maximization. To get its goal it has to find out the efficient way to fund and provide public goods taking into account not only their particular characteristics but also the fact that, in many circumstances, their production faces increasing cost, which may depend both on the quantity of good produced and on the type (high or low cost) of the producer (which, in this framework, coincides with the jurisdiction). Thus the first issue addressed by the paper concerns the choice between central and local provision. Furthermore, as far as the informational structure is concerned, the centre lacks information concerning the type of each region. Thus, the central government's key informational problem concerns the regional costs and quantities with regard both to the public and the private good. Indeed we assume that the centre can observe the expenditure levels but neither the costs nor the outputs associated with those expenditure levels.
    Keywords: global public good, asymmetric information, adverse selection, redistribution, Mafia
    JEL: H21 H41 H70
    Date: 2009–09

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