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.

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

Democracy and Power

"Noam Chomsky visited India in 1996 and 2001 and spoke on a wide range of subjects, from democracy and corporate propaganda to the nature of the world order and the role of intellectuals in society. He captivated audiences with his lucid challenge of dominant political analyses, the engaging style of his talks, and his commitment to social equality as well as individual freedom. Chomsky’s early insights into the workings of power in the modern world remain timely and compelling. Published for the first time, this series of lectures also provides the reader with an invaluable introduction to the essential ideas of one of the leading thinkers of our time.

“I am not aware that this has been thought through” – Jean Drèze speaks to Pragya Tiwari about the new Aadhaar Act

In March, the Aadhaar Bill was passed, empowering the government to use the Unique Identity scheme for delivering subsidies and services and potentially enabling it to require that citizens enroll. However, the bill has come under significant criticism. Pragya Tiwari discusses the context of the latest dispute, and speaks to development economist Jean Drèze about the potential weaknesses of the government’s campaign to link benefits to Aadhaar

Hunger and Public Action

This book analyses the role of public action in solving the problem of hunger in the modern world. The study is divided into four parts. The first, making extensive use of the concepts of entitlements and capabilities explores the interaction of nutritional, economic, social, and political elements and their influence on hunger and deprivation. The problem of famine prevention is the main focus of the second part, with special attention given to Africa and India. The third part is devoted to the issue of fighting chronic undernourishment and the lessons to be learnt from the policies of China, India, and some other countries. The last part draws together the main themes and concerns of the earlier chapters, and provides an integrated view of the role of public action in eliminating hunger. The study suggests that there is indeed some space for public action in solving the problem of hunger and deprivation. In the case of famine prevention, social security could provide early warning systems and employment provision plans. To fight endemic deprivation, the authors suggest, among other things, that basic health care, elementary education, and food programmes should be looked at

Sequentially complete Markets Remain Incomplete

We consider the well-known result of Arrow (1953) that the set of equilibria of an economy with complete markets coincides with the one of an economy with sequentially complete markets. We show by means of two examples that this results is problematic when there exist multiple equilibrium continuations to the initial-period component of an intertemporal equilibrium. Some consequences are drawn.microeconomics ;