Taxation and international oligopoly

The combined use of specific and ad valorem taxation as a policy response to the welfare losses caused by international oligopoly is explored. With Nash competition between countries, taxation is inferior to quantity control. In contrast, when countries cooperate production control and taxation lead to identical outcomes. If a single country regulates the oligopoly, taxation can strictly dominate production control.oligopoly

Taxation and economic growth

The development of endogenous growth theory has opened an avenue through which the effects of taxation on economic growth can be explored. Explicit modelling of the individual decisions that contribute to growth allows the analysis of tax incidence and the prediction of growth effects. This paper reviews the theoretical and empirical evidence to assess whether a consensus arises as to how taxation affects the rate of economic growth. It is shown that the theoretical models isolate a number of channels through which taxation can affect growth and that these effects may be very substantial. Although empirical tests of the growth effect face unresolved difficulties, the empirical evidence points very strongly to the conclusion that the tax effect is very weak.

Mixed oligopoly, subsidization and the order of firms' moves: an irrelevance result for the general case

It is proved that the irrelevance result of Poyago-Theotoky can be extended from the linear-quadratic case to general inverse demand and cost functions. Hence, as long as firms are profitable at the first-best, the optimal subsidy decentralizes it in mixed oligopoly irrespecitve of whether the public firm maximizes welfare or profit and moves simultaneously with private firms, or maximizes welfare and acts as a Stackelberg leader.first-best

Growth and public infrastructure

The paper analyzes a multicountry extension of the Barro model of productive public expenditure. In the presence of positive infrastructural externalities between countries, the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supranational body, such as the European Union, to coordinate the policies of the individual governments. It is shown how intervention by a supranational body can raise welfare by internalizing the infrastructural externality. Infrastructural externalities increase the importance of tax policy in the growth process and distribute the benefits of taxation across countries

Announcement or Contribution? The Relative Efficiency of Manipulated Lindahl Mechanisms

The private provision mechanism is individually incentive compatible but inefficient. The Lindahl mechanism is efficient but not incentive compatible. We analyze the outcome of the manipulated Lindahl mechanism. When the demand announcements of participants are unrestricted the Lindahl mechanism suffers from multiple equilibria. If the government removes the multiplicity by restricting the functional form of announcements the resulting Lindahl equilibrium can be made approximately efficient. Approximate efficiency is achieved by announcements that are one-dimensional regardless of the number of participants in the mechanism. This is in contrast to mechanisms that achieve exact efficiency but require announcements whose dimensionality increases at the same rate as the number of participants. The mechanism we describe benefits from simplicity at the cost of approximate efficiency. We demonstrate that mechanisms in which a linear demand function is announced are supermodular so play will converge to the Nash equilibrium for a range of learning dynamics.

Growth and Public Infrastructure

The paper analyzes a multi-country extension of the Barro model of productive public expenditure. In the presence of infrastructural externalities between countries the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supra-national body, such as the EU, to coordinate the policies of the individual governments. It is shown how the supranational body can ensure the efficient level of infrastructure provision and, as a result, obtain an increased rate of growth. The results of the paper also show how capital flows between countries act to equalize growth rates. This can help explain why there is limited empirical evidence for tax rates causing a difference in growth rates between countries. This is not the same as saying taxation does not affect growth: if production requires public infrastructure then taxation is needed for growth. The flow of capital acts to distribute the benefit of this across countries.

Tax fraud by firms and optimal auditing

Abstract Tax fraud is an issue of increasing importance in China. One particularly signi…cant fraud involves excessive claims for the rebate of VAT on exported goods. This fraud has two interesting features. First, it requires the collusion of an intermediary to supply the false documentation that supports a rebate application. Second, the punishment schedule is convex -with capital punishment used in major fraud cases. These features ensure that the payo¤ function of a …rm engaging in fraud is strictly concave in the level of fraud. This gives a well-de…ned optimization without the need to appeal to risk aversion. We show that the existence of fraud does not a¤ect the real output decision of the …rm nor the tax policy of the government. Audit resources can be used to detect …rms engaged in fraud as well as the intermediaries who supply false documents. Under reasonable assumptions it is shown that resources should be focused on detecting …rms and not intermediaries. Finally, if the government must take action on fraud a convex punishment scheme is shown to be optimal

An irrelevance result with differentiated goods

White (1996), Poyago-Theotoky (2001) and Myles (2002) prove that in the mixed oligopoly the optimal subsidy, equilibrium output level, all firms' profits and social welfare are identical irrespective of whether the public firm maximizes welfare or profit and moves simultaneously with private firms, or maximizes welfare and acts as a Stackelberg leader. They name this observation the `irrelevance result''. Previous results have assumed all firms produce a homogeneous product with quantity as the strategic variable. We show that the irrelevance result extends to product differentiation and to Bertrand competition with price as the strategic variable.

The Consequences of Zakat for Capital Accumulation

The payment of zakat by the owners of wealth is one of the five pillars of Islam. Many countries operate with no enforcement of the obligation to pay, making zakat a form of voluntary redistribution. We analyze how zakat affects capital accumulation in a model that explicitly recognizes the voluntary nature of zakat. The voluntary payment is modelled using both warm-glow and social custom frameworks. These are embedded within an overlapping generations model with heterogenous consumers and endogenous population growth. The results show that zakat can raise the capital-labor ratio when it is motivated by the warm-glow but welfare can be non-monotonic in the strength of the warm-glow. In social custom model reduced participation can lead to a reduced capital labor ratio as the rate of zakat is increased.

The Benefits of Costly Voting

We present a costly voting model in which each voter has a private valuation for their preferred outcome of a vote. When there is a zero cost to voting, all voters vote and hence all values are counted equally regardless of how high they may be. By having a cost to voting, only those with high enough values would choose to incur this cost. Hence, the outcome will be determined by voters with higher valuations. We show that in such a case welfare may be enhanced. Such an effect occurs when there is both a large enough density of voters with low values and a high enough expected value.costly voting, externalities.