Efficiency Enhancing Taxation in Two-sided Markets

This paper examines the efficient provision of goods in two-sided markets and characterizes optimal specific and ad-valorem taxes. We show that (i) a monopoly may have too high output compared to the social optimum; (ii) output may be reduced by imposing negative value-added taxes (subsidy) or positive specific taxes.Market Structure and Pricing; Efficiency; Optimal Taxation; Incidence

Optimal Fiscal Policy in Overlapping Generations Models

This paper analyzes the optimal fiscal policy in overlapping generation economies with production where agents live I periods. The primal approach is used to characterize the optimal taxes in steady state and along the transition path to some steady state. The basic idea is to transform the government problem of choosing the optimal taxes, into a simple programming problem of choosing allocations subject to some constraints. The key findings is that if the set of taxes is complete and the utility is homothetic and separable, then capital taxes are zero along the transition path to the steady state after two periods. This result is an equivalent version of Chamley (1986) with overlapping generations. With additional assumptions in the discount factor and endowment of efficiency units, it can be shown that non-separable utility functions satisfy the zero capital taxes result in steady state, but not during the transition path. This is due to the fact that from the government point of view, under this assumptions, the overlapping generation economy is equivalent to an infinitely lived economy.

Optimal Tax Design and Enforcement with an Informal Sector

An optimal commodity tax approach is taken to compare trade taxes and VATs when some commodities are produced informally. Trade taxes apply to all imports and exports, including intermediate goods while the VAT applies only to sales by the formal sector and imports. The VAT can achieve production efficiency within the formal sector, but unlike the trade tax regime, it cannot indirectly tax pure profits. Making the size of the informal sector endogenous in each regime is potentially decisive. The ability of the government to change the size of the informal sector through costly enforcement may also tip the balance in favor of the VAT.informal sector, optimal taxation, value-added tax, trade taxes

Taxes versus quotas : the case of cocoa exports

The authors are particularly interested in evaluating the concern that efficiency or policy-induced changes in the supply of exports of primary commodities, such as cocoa, coffee, and tea, may lead to such a large decline in the prices of those commodities that export revenues and incomes of the exporting countries actually decline. This paper focuses on the implications of quantitative restrictions. It compares the implications of optimal Nash quotas and taxes when two or more countries compete against each other in the world market and finds that the outcome under taxes is less restrictive than under quotas but that the countries'profits are higher under quotas than under taxes. In simulations undertaken for the world cocoa market, it finds that for most countries optimal Nash taxes yield lower profits than the initial taxes or quotas. It also finds that even if countries choose taxes or quotas optimally, growth in a country can lead to a decline in the combined real income of the exporting countries. The simulations also cast doubt on the hypothesis that a market with five or more players can be regarded as roughly perfectly competitive.Environmental Economics&Policies,Economic Theory&Research,Public Sector Economics&Finance,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Access to Markets

Optimal Taxation of Married Couples with Household Production

The literature suggests that the concern for economic efficiency calls for individual-based taxation of married couples with a higher rate on the primary earner. This paper reconsiders the choice of tax unit in the Becker model of household production. Our aim is to study the robustness of previous results to the modelling of time allocation. In addition, we analyze the interaction between the optimal income tax for couples and the chosen commodity tax structure. In the absence of restrictions on the use of commodity taxes, efficient taxation requires joint taxation of the family. In the presence of restricted commodity taxation, the income tax should compensate for the erroneous commodity taxes. In this case, individual taxation is typically optimal, but not necessarily with a higher rate on primary earners as usually suggested.

Efficient CO2 Emissions Control with National Emissions Taxes and International Emissions Trading

In a group of countries like the European Union all countries seek to achieve their national CO2 emissions target by a joint emissions trading scheme covering some part of their economies (trading sector) and by a national emissions tax in the rest of their economies (nontrading sector). Applicable are also emissions taxes overlapping with the trading scheme that can either be freely chosen or are inert. Welfare-maximizing governments determine tax rates and the tradable-permits budget. It is shown that efficiency requires not to levy overlapping emissions taxes and to set the tax rate in the nontrading sector equal to the permit price. In the small-country case emissions control turns out to be efficient if tax rates in the trading sector are flexible. Otherwise it is second-best to violate cost effectiveness and to choose an excessive endowment of tradable permits. If countries are large and optimal tariffs cannot be applied, emissions taxes or subsidies (!) are shown to serve as a perfect surrogate; efficiency cannot be attained unless there is a central authority mandating cost effectiveness and banning overlapping taxes. Fiscal externalities are specified and the countries’ welfare in the large and small country case is compared.emissions taxes, emissions trading, international trade

Redistribution and Education Subsidies are Siamese Twins

We develop a model of human capital formation with endogenous labor supply and heterogeneous agents to explore the optimal level of education subsidies along with the optimal progressive schedule of the labor income tax and optimal capital income taxes.Subsidies on education ensure efficiency in human capital accumulation, while taxes on skilled labor help to redistribute income towards the less able.We thus provide a rationale for the widely observed presence of education subsidies.The actually observed tax codes and level of education subsidies suggest that a large part of education subsidies can be justified on these grounds.redistribution;education;subsidies;human capital;taxation;income tax

The Economics of Vehicle Driving: A General Equilibrium Analysis in a Dynamic Two-Period Vintage Model

My thesis aims to explore the relationship between public policies and vehicle driving from three aspects. First, we examine two policy options for the government to address pollution externality caused by vehicle driving: gasoline taxes and clean vehicle subsidies towards clean technology. We introduce vintage vehicles into our model to measure the impact of policies on households' vehicle driving choices. We show that all policies are effective in reducing pollution and improving the environmental quality. However, they have distinctively different distributional impact on the production side and social welfare. Second, we derive the optimal environmental tax structure in the presence of externalities caused by vehicle driving in the first-best scenario. Analytical results show that the optimal gasoline taxes are composed of two opposing factors and depend on the household's preferences for environmental factors. Our calibration based on the U.S. economy shows that the optimal gasoline taxes should be higher for old cars while the optimal road taxes should be higher for new cars. Third, we formulate the optimal environmental tax structure in the presence of other distortionary taxes. We find that the optimal environmental taxes constitute both the efficiency part and the Pigovian part. Optimal taxes depend not only on the household's preferences for the environmental factors but also on the degree of complementarities with normal consumption goods

On the Optimal Taxation of an Exhaustible Resource Under Monopolistic Extraction

In a simple model of resource depletion (isoelastic demand and constant unit extraction cost), we fully characterize the set of linear effiency-inducing tax/subsidy schemes. We show that this set is infinite and all the larger as the cost of extraction is low. Depending on the magnitude of the latter, we show that there may exist optimal linear strict taxes, thus allowing the regulator to induce efficiency without subsidizing the mine industry at any date. We illustrate and argue that the exhaustibility constraint the monopolist extractor faces can be exploited by the regulator to relax the standard trade-off between inducing efficiency and raising revenues from the monopoly.Exhaustible resources;Imperfect competition;Optimal taxation

Optimal federal taxes with public inputs.

This paper deals with the solution to vertical expenditure externalities in a federation with two levels of government sharing taxes. Under these circumstances, the Nash equilibrium does not satisfy the condition for production efficiency in the provision of public inputs. This vertical expenditure externality is removed when the federal government, behaving as Stackelberg leader, chooses the optimal tax rate on labor income. The sign of this tax rate depends on the elasticity of marginal productivity of the public input with respect to employment. Moreover, the previous result concerning both vertical (tax and expenditure) externalities are independent each other is confirmed here.vertical externalities, public input, federal taxes.