Commodity Taxation and Social Welfare: The Generalised Ramsey Rule

Commodity taxes have three distinct roles: (1) revenue collection, (2) interpersonal redistribution, and (3) resource allocation. The paper presents an integrated treatment of these three concerns in a second-best general equilibrium framework, which leads to the 'generalised Ramsey rule' for optimum taxation. We show how many standard results on optimum taxation and tax reform have a straightforward counterpart in this general framework. Using this framework, we also try to clarify the notion of 'deadweight loss' as well as the relation between alternative distributional assumptions and the structure of optimum taxes.Commodity taxation, efficiency, redistribution, shadow prices

NUTRITION IN INDIA: FACTS AND INTERPRETATIONS

The Indian economy has recently grown at historically unprecedented rates and is now one of the fastest-growing economies in the world. Real GDP per head grew at 3.95 percent a year from 1980 to 2005, and at 5.4 percent a year from 2000 to 2005. Measured at international prices, real per capita income in India, which was two-thirds of Kenya’s in 1950, and about the same as Nigeria’s, is now two and a half times as large as per capita income in both countries. Real per capita consumption has also grown rapidly, at 2.2 percent a year in the 1980s, at 2.5 percent a year in the 1990s, and at 3.9 percent a year from 2000 to 2005. Although the household survey data show much slower rates of per capita consumption growth than do these national accounts estimates, even these slower growth rates are associated with a substantial decrease in poverty since the early 1980s, Deaton and Drèze (2002), Himanshu (2007). Yet, per capita calorie intake is declining, as is the intake of many other nutrients; indeed fats are the only major nutrient group whose per capita consumption is unambiguously increasing. Today, more than three quarters of the population live in households whose per capita calorie consumption is less than 2,100 in urban areas and 2,400 in rural areas – numbers that are often cited as “minimum requirements” in India. A related concern is that anthropometric indicators of nutrition in India, for both adults and children, are among the worst in the world. Furthermore, the improvement of these measures of nutrition appears to be slow relative to what might be expected in the light of international experience and of India’s recent high rates of economic growth. Indeed, according to the National Family Health Survey, the proportion of underweight children remained virtually unchanged between 1998-99 and 2005-06 (from 47 to 46 percent for the age group of 0-3 years). 2 Undernutrition levels in India remain higher even than for most countries of sub-Saharan Africa, even though those countries are currently much poorer than India, have grown much more slowly, and have much higher levels of infant and child mortality. In this paper, we do not attempt to provide a complete and fully documented story of poverty, nutrition and growth in India. In fact, we doubt that such an account is currently possible. Instead, our aim is to present the most important facts, to point to a number of unresolved puzzles, and to present an outline of a coherent story that is consistent with the facts. As far as the decline in per capita calorie consumption is concerned, our leading hypothesis, on which much work remains to be done, is that while real incomes and real wages have increased (leading to some nutritional improvement), there has been an offsetting reduction in calorie requirements, due to declining levels of physical activity and possibly also to various improvements in the health environment. The net effect has been a slow reduction in per capita calorie consumption. Whatever the explanation, there is historical evidence of related episodes in other countries, for example in Britain from 1775 to 1850, where in spite of rising real wages, there was no apparent increase in the real consumption of food, Clark et al (1995). Per capita calorie consumption also appears to have declined in contemporary China in the 1980s and 1990s (a period of rapid improvement in nutrition indicators such as height and weight), see Du, Lu, Zhai and Popkin (2002). One of our main points is that, just as there is no tight link between incomes and calorie consumption, there is no tight link between the numbers of calories consumed and nutritional or health status. Although the number of calories is important, so are other factors, such as a balanced diet containing a reasonable proportion of fruits, vegetables, and fats, not just calories from cereals, as are factors that affect the need for and retention of calories, such as activity 3 levels, clean water, sanitation, good hygiene practices, and vaccinations. Because of changes in these other factors, the fact that people are increasingly choosing away from a diet that is heavy in cereals does not imply that nutritional status will automatically get worse. Nor should a reduction in calories associated with lower activity levels be taken to mean that Indians are currently adequately nourished; nothing could be further from the truth. We start by documenting the decline in per capita calorie consumption (Section 2.1), as well as the state of malnutrition (Section 2.2). We then look at possible reasons for the reduction in calories (Section 3.1), and try to tease out how it fits into the general picture of economic growth and malnutrition in India (Section 3.2). Section 4 concludes. We emphasize at the outset that our analysis covers the period up to 2006, so that we do not discuss what has happened to calorie consumption or to nutritional status in the subsequent two years, during which there has been a marked increase in the price of food, both in India and around the world.

Fertility, Education and Development: Further Evidence from India

There has been a significant decline in fertility in many parts of India since the early 1980s. This paper reexamines the determinants of fertility levels and fertility decline, using panel data on Indian districts for 1981 and 1991. We find that women's education is the most important factor explaining fertility differences across the country and over time. Low levels of child mortality and son preferences also contribute to lower fertility. By contrast, general indicators of modernization and development such as urbanisation, poverty reduction, and male literacy bear no significant association with fertility. En passant, we probe a subject of much confusion - the relation between fertility decline and gender bias.Fertility, demographic transition, female literacy, India

School Participation in Rural India.

This paper presents an analysis of the determinant of school participation in rural north India, based on a recent household survey which includes detailed information on school characteristics. School participation especially among girls, responds to a wide range of variables, including parental education and motivation, social background, dependency ratios, work opportunities, village development, teacher posting , teacher regularity and mid-day meals. The remarkable lead achieved by the state of Himachal Pradesh is fully accounted for by these variables. School quality matters, but it is not related in a simply way to specific inputs.Education, India, Child Labour, School Quality

Voluntary Matching Grants can Forestall Social Dumping

The European economic integration leads to increasing mobility of factors, thereby threatening the stability of social transfer programs. This paper investigates the possibility to achieve by means of voluntary matching grants both the optimal allocation of factors and the optimal level of redistribution in the presence of factor mobility. We use a fiscal competition model a la Wildasin (1991) in which states differ in their technologies and preferences for redistribution. We first investigate a simple process in which the regulatory authority progressively raises the matching grants to the district choosing the lowest transfer and all districts respond optimally to the resulting change in transfers all around. This process is shown to increase total production and the level of reditribution. However it does not guarantee that all districts gain, nor that an efficient level of redistribution is attained. Assuming complete information among districts, we first derive the willingness of each district to match the contribution of other districts and we show that the aggregate willingness to pay for matching rates converges to zero when both the efficient level of redistribution and the efficient allocation of factors are achieved. We then describe the ajustment process for the matching rates that will lead districts to the efficient outcome and guarantee that everyone will gain.

Shareholder-efficient production plans in a multi-period economy

We propose an objective for the firm in a general model of production economies extending over time under uncertainty and with incomplete markets. Trading in commodities and shares of stock occurs sequentially on spot markets at all date-events. We derive the objective of the firm from the assumption of initial-shareholders efficiency. Each shareholder is assumed to communicate to the firm her marginal valuation of profits all date events (expressed in terms of initial resources). In defining her own marginal valuation of the firm's profits, a shareholder will take two elements into consideration. To evaluate the direct impact of a change in dividends the shareholder uses her own vector of marginal rates of substitution for revenue across date-events. In addition, the shareholder will take into account the impact of future dividends on the firm's stock price when she trades shares. To predict the effect on the stock price, she uses a (possibly different) state price process, her price theory. The only restriction that we impose on consumers' price theories is that they should be compatible with the observed equilibrium : given the equilibrium prices and production plans, a price theory must satisfy a no-arbitrage condition. The firm computes its own shadow prices for profits at all date-events by simply adding up the marginal valuations of all its initial shareholders. We prove existence of an equilibrium.Incomplete markets, shareholders, price theories, firm's objective.

Voluntary Matching Grants Can Forestall Social Dumping

The European economic integration leads to increasing mobility of factors, thereby threatening the stability of social transfer programs. This paper investigates the possibility to achieve by means of voluntary matching grants both the optimal allocation of factors and the optimal level of redistribution in the presence of factor mobility. We use a fiscal competition model a la Wildasin (1991) in which states differ in their technologies and preferences for redistribution. We first investigate a simple process in which the regulatory authority progressively raises the matching grants to the district choosing the lowest transfer and all districts respond optimally to the resulting change in transfers all around. This process is shown to increase total production and the level of redistribution. However it does not guarantee that all districts gain, nor that an efficient level of redistribution is attained. Assuming complete information among districts, we first derive the willingness of each district to match the contribution of other districts and we show that the aggregate willingness to pay for matching rates converges to zero when both the efficient level of redistribution and the efficient allocation of factors are achieved. We then describe the adjustment process for the matching rates that will lead districts to the efficient outcome and guarantee that everyone will gain.fiscal federalism, adjustment process, matching grants

Espérance morale avec risque moral

Le terme « risque moral » est utilisé ici pour désigner les situations où un décideur unique choisit simultanément un « acte » (au sens de la théorie des jeux contre la nature, telle que développée notamment par L.J. Savage) et une « stratégie », non observable, susceptible d’influencer le cours des événements. Dans les nombreuses applications de la théorie de la décision à des situations de risque moral, on suppose que, pour chaque acte, le décideur choisit, dans un ensemble donné, la stratégie qui maximise l’espérance d’utilité. Les choix entre les actes reflètent alors les espérances d’utilité associées à ces stratégies optimales. On obtient ici une justification axiomatique de cette représentation, en affaiblissant l’axiome appelé « Inversion d’ordre » par Anscombe et Aumann. Aux termes de cet axiome, quand une épreuve aléatoire décide de l’acte qui prévaudra, il doit être indifférent pour le décideur que l’épreuve aléatoire soit conduite avant ou après que l’on observe l’état du monde. L’affaiblissement consiste à stipuler au contraire que le décideur ne préfère jamais strictement que l’épreuve aléatoire soit conduite après observation de l’état du monde plutôt qu’avant (i.e. la valeur de l’information est non négative). Conjointement avec les autres axiomes habituels, cet affaiblissement conduit à un théorème d’espérance morale généralisé : il existe un ensemble (convexe fermé) de probabilités P sur les états du monde, et une utilité sur les conséquences, tels que les préférences entre les actes reflètent les maxima par rapport à P des espérances d’utilité.The words "moral hazard" are used here to denote situations where the decision-maker chooses simultaneously an "act" (as defined in the theory of games against nature, developed in particular by L.J. Savage) and an unobserved "strategy" susceptible of influencing the course of events. In applied work on moral hazard, it is assumed that, for each act, the decision-maker chooses, from a given set, the strategy which maximises expected utility. Preferences among acts are then isomorphic with expected utilities under the maximising strategies. An axiomatic justification of that representation is obtained here by weakening the axiom called "Reversal of order" by Anscombe and Aumann. Under that axiom, when a random device is to decide which of two acts obtains, the device may indifferently be activated before or after observing the true state. The weakening consists in stipulating instead that the decision-maker never prefers strictly that the device be activated after observing the true state instead of beforehand (i.e. the value of information is non-negative). Together with the other standard axioms, this weakening leads to a generalised moral expectation theorem: there exist a (closed convex) set of probability measures P on the states of the world, and a utility on consequences, such that preferences among acts are isomorphic with the maxima over P of the expected utilities

“Almost” Subsidy-free Spatial Pricing in a Multi-dimensional Setting

Consider a population of citizens uniformly spread over the entire plane, that faces a problem of locating public facilities to be used by its members. The cost of every facility is financed by its users, who also face an idiosyncratic private access cost to the facility. We assume that the facilities’ cost is independent of location and access costs are linear with respect to the Euclidean distance. We show that an external intervention that covers 0.19% of the facility cost is sufficient to guarantee secession-proofness or no cross-subsidization, where no group of individuals is charged more than its stand alone cost incurred if it had acted on its own. Moreover, we demonstrate that in this case the Rawlsian access pricing is the only secession-proof allocation.Secession-Proofness, Optimal Jurisdictions, Rawlsian Allocation, Hexagonal Partition, Cross-Subsidization