Should We Use Distributional Weights in CBA When Income Taxes Can Deal with Equity?

Kaplow (1996) and others argue forcefully in favor of using the standard cost-benefit test alone, without any distributional concern, given “standard simplifying assumptions.” This paper, on the contrary, demonstrates that distributional weights, equal to the social marginal utility of income, should be applied in cost-benefit analysis, given weak separability in public goods instead of in leisure. This result holds for linear as well as non-linear income taxes, and whether they are optimal or not. A correspondingly modified Samuelson rule is derived and more general policy recommendations discussed.public goods; distributional weights; equity and efficiency; separability; cost-benefit; optimal taxation

Environmental Policy when People's Preferences are Inconsistent, Non-Welfaristic, or simply Not Developed

This paper discusses how a benevolent policy maker should act based on some, possibly non-welfaristic,ethical principle in cases where people's preferences are not perfectly informed,consistent and fully developed with regard to all goods, including all kinds of environmental goods, as is normally assumed in mainstream economic theory. When stated or revealed preferences do not reflect the maximization of individual welfare, it is argued that welfare,rather than preferences, has intrinsic value. However, it is also argued that properly designed stated preference methods may provide useful information about people’s views about alternative ethical ends, besides human well-being, and that policy makers should take such views seriously.ethics; environmental policy; environmental valuation; cost-benefit analysis; endogenous preferences; preference construction; irrationality; bounded rationality; cognitive dissonance; anthropocentrism

Estimating individual driving distance by car and public transport use in Sweden

How much to drive, and how much to use public transport, are modelled as three- and two level decisions, respectively, based on micro-data for Sweden. The choices whether to have a car, whether to drive given access to a car, and how much to drive given that the individual drives at all are then estimated using a three equation model. Also after correcting for other variables, such as income, men are driving much more, and using less public transport, compared to women. People living in big cities are less likely to drive, but those who do are on average driving about as much as others. Age and access to company-cars are also important determinants for travel behaviour, but being a member of an environmental organisation is not. Driving increases with income, but to a lower degree compared to most aggregated studies on national level. The difference is explained in a simple model with income-dependent structural changes, implying that it becomes more difficult to live without a car when average income increases. This indirect effect is found to be of a similar size as the ordinary income elasticity typically found in cross-section analysis within a country or region.Transport demand; car ownership; car use; driving; public transport demand; multi-level decisions; social context; gender and transport

Positional Concerns with Multiple Reference Points: Optimal Income Taxation and Public Goods in an OLG Model

This paper concerns optimal income taxation and provision of a state-variable public good under asymmetric information in a two-type overlapping generations model, where people care about their relative consumption. Each individual may compare his/her own current consumption with his/her own past consumption as well as with other people’s current and past consumption. The appearance of positional concerns affects the policy choices via two channels: (i) the size of the average degree of positionality and (ii) positionality differences between the (mimicked) low-ability type and the mimicker. Under plausible empirical estimates, the marginal labor income tax rates become substantially larger, and the absolute value of the marginal capital income tax rate of the low-ability type becomes substantially smaller, compared to the conventional optimal income tax model. The extent by which the rule for public provision should be modified depends crucially on the preference elicitation format.Optimal income taxation; asymmetric information; public goods; relative consumption; status; positional goods

State-Variable Public Goods When Relative Consumption Matters: A Dynamic Optimal Taxation Approach

This paper concerns the optimal provision of a state-variable public good, where the global climate is the prime example. The analysis is based on a two-type optimal income tax model with overlapping generations, where people care about their relative consumption. We consider both keeping-up-with-the-Joneses preferences (where people compare their own current consumption with others’ current consumption) and catching-up-with-the-Joneses preferences (where people compare their own current consumption with others’ past consumption). The extent to which the rule for public provision ought to be modified is shown to depend crucially on the preference elicitation format.State variable public goods; asymmetric information; relative consumption; status; positional preferences; climate policy

Veblen’s Theory of the Leisure Class Revisited: Implications for Optimal Income Taxation

Almost all previous studies on public policy under relative consumption concerns have ignored the role of leisure for status comparisons. Inspired by Veblen (1899), this paper considers a two-type optimal income tax model, where people care about their relative consumption, and where the importance of relative consumption increases with the use of leisure due to increased consumption visibility. We show that increased consumption positionality typically implies higher marginal income tax rates for both ability-types. Using a leisure-weighted measure of reference consumption, rather than a measure where leisure plays no role as in the previous literature, increases the marginal income tax rate implemented for the low-ability type and decreases the marginal income tax rate implemented for the high-ability type, i.e., it gives rise to a regressive tax component.optimal taxation; redistribution; public goods; relative consumption; status; positional goods

Conspicuous Leisure: Optimal Income Taxation when both Relative Consumption and Relative Leisure Matter

Previous studies on public policy under relative consumption concerns have ignored the role of leisure comparisons. This paper considers a two-type optimal nonlinear income tax model where people care both about their relative consumption and their relative leisure. Increased consumption positionality typically implies higher marginal income tax rates for both the high-ability and the low-ability type, whereas leisure positionality has an offsetting role. However, this offsetting role is not symmetric; concern about relative leisure implies a progressive income tax component, i.e., a component that is larger for the high-ability than for the low-ability type. Moreover, leisure positionality does not modify the policy rule for public good provision when the income tax is optimally chosen.Optimal taxation; redistribution; public goods; relative consumption; status; positional goods

Discounting and Relative Consumption

This paper analyzes optimal social discount rates where people derive utility from relative consumption. We identify and compare three separate discount rates -- the social rate (taking positional externalities into account), the private rate, and the conventional Ramsey rate. Two main findings resulted for the standard case with a positive growth rate -- 1) the social discount rate exceeds the private discount rate if the degree of positionality increases with consumption, and 2) the social discount rate is smaller than the Ramsey rate if preferences are quasi-concave in own and reference consumption, and exhibit risk aversion with respect to reference consumption. Numerical calculations demonstrate that the latter difference may be substantial and economically important for such issues as global warming.discounting, relative consumption, Ramsey rule, degree of positionality, keeping up with the Joneses

Adding Time to Pushdown Automata

In this tutorial, we illustrate through examples how we can combine two classical models, namely those of pushdown automata (PDA) and timed automata, in order to obtain timed pushdown automata (TPDA). Furthermore, we describe how the reachability problem for TPDAs can be reduced to the reachability problem for PDAs.Comment: In Proceedings QFM 2012, arXiv:1212.345

Zenoness for Timed Pushdown Automata

Timed pushdown automata are pushdown automata extended with a finite set of real-valued clocks. Additionaly, each symbol in the stack is equipped with a value representing its age. The enabledness of a transition may depend on the values of the clocks and the age of the topmost symbol. Therefore, dense-timed pushdown automata subsume both pushdown automata and timed automata. We have previously shown that the reachability problem for this model is decidable. In this paper, we study the zenoness problem and show that it is EXPTIME-complete.Comment: In Proceedings INFINITY 2013, arXiv:1402.661