Social Accounting and the Public Sector

This paper contributes to the theory of social accounting. As such, it tries to extend earlier literature on the welfare equivalence of the comprehensive net national product in two main directions, both of which refer to the public sector. One is by considering welfare measurement problems associated with redistributive policy and public good provision, when the public revenues are raised by distortionary taxes. The other is by addressing the consequences of a 'federation-like' decision structure, where independent tax and expenditure decisions are made both by the central government and by lower level governments. In particular, the analysis shows how so called vertical fiscal external effects, which are associated with tax base sharing among the central and lower level governments, contribute to social accounting.Welfare measurement; second best; public goods; economic federations

Welfare Measurement and Public Goods in a Second Best Economy

This chapter concerns welfare measurement in economies, where the government raises revenue by means of distortionary taxation. A major issue is the treatment of (state-variable) public goods in the context of social accounting. Although the marginal value that the government attaches to a public good is model-specific (as it depends on the exact nature of the underlying decision-problem), the analysis explains how the direct resource cost of providing increments to the public good and the marginal cost of public funds can be used to measure this marginal value. The first part of the chapter is based on a representative-agent growth model with linear taxation, whereas the second part addresses a model with heterogeneous agents and nonlinear taxation. The latter model also provides a framework for analyzing redistribution in the context of social accounting, and enables me to compare the results with those that would follow in a first best resource allocation.Social accounting; second best; public goods

Journal Staff

This paper concerns the provision of a state-variable public good in a two-type model under present-biased consumer preferences. The preference for immediate gratification facing the high-ability type weakens the incentive to adjust public provision in response to the self-selection constraint

Income Taxation, Old Age Pensions and Disability Benefits

This paper concerns two issues related to optimal income taxation. First, we show how the labor income tax and the old age pension system interact in the optimal tax and expenditure structure. Second, we derive marginal capital income tax rates for high-ability and low-ability working individuals as well as for the disabled.Optimal Taxation; Pension; Welfare Programs

Public Goods and Optimal Paternalism under Present-Biased Preferences

This paper deals with the optimal provision of a state-variable public good in a two-type model, when the consumers have present-biased preferences due to quasi-hyperbolic discounting. The results show that the preference for immediate gratification facing the (mimicking) high-ability type weakens the incentive to adjust the public provision in response to the self-selection constraint.Public Goods; Quasi-Hyperbolic Discounting; Redistribution; Asymmetric Information

Optimal Paternalism: Sin Taxes and Health Subsidies

The starting point for this paper is the potential self-control problem underlying the consumption of unhealthy food. The purpose is to analyze public policies, which are designed to correct for the welfare loss associated with such behavior. Contrary to previous studies, our analysis suggests that subsidies on wealth and health capital are part of the policy package, which can be used to implement a socially optimal resource allocation.Health; Quasi-Hyperbolic Discounting; Taxes; Subsidies

Present-Biased Preferences and Publicly Provided Health Care

In this paper, we analyze the welfare effects of publicly provided health care in an economy where the consumers have "present-biased" preferences due to quasi-hyperbolic discounting. The analysis is based on a two-type model with asymmetric information between the government and the private sector, and each consumer lives for three periods. We present formal conditions under which public provision to the young and middle-aged generation, respectively, leads to higher welfare. Our results show that quasi-hyperbolic discounting provides a strong incentive for public provision to the young generation; especially if the consumers are naive (instead of sophisticated).Public provision of private goods; hyperbolic discounting; intertemporal model; asymmetric information

Outsourcing, Public Input Provision and Policy Cooperation

This paper concerns public input provision as an instrument for redistribution under international outsourcing by using a model-economy comprising two countries, North and South, where firms in the North may outsource part of their low-skilled labor intensive production to the South. We consider two interrelated issues: (i) the incentives for each country to modify the provision of public input goods in response to international outsourcing, and (ii) whether international outsourcing justifies policy cooperation. If the public input good is substitutable for (complementary with) outsourcing in terms of the production function faced by northern firms, then outsourcing contributes to increase (decrease) the public input provision in the North. For the South, the optimal policy response depends on the level of outsourcing. We also show how policy cooperation with respect to public input provision can be designed to increase the overall social welfare.outsourcing, redistribution, public input goods, asymmetric information

Optimal Taxation and Risk-Sharing Arrangements in an Economic Federation

This paper analyzes optimal taxation and risk-sharing arrangements in an economy with two levels of government. Both levels provide public goods and finance their expenditures via labor income taxation, where the tax base is responsive to the private agents' labor supply decisions. The localities are assumed to experience different random productivity shocks, meaning hat the private labor supply decisions as well as the choices of income tax rates are carried out under uncertainty. Part of the central overnment's decision problem is then to provide ax revenue sharing between the local governments. The optimal degree of revenue sharing depends on whether or not the localities/regions differ with respect to labor supply incentives.Optimal taxation; multilevel government; fiscal externalities; uncertainty; risk-sharing

Outsourcing, Public Input Provision and Policy Cooperation

This paper concerns public input provision as an instrument for redistribution under international outsourcing by using a model-economy comprising two countries, North and South, where firms in the North may outsource part of their low-skilled labor intensive production to the South. We consider two interrelated issues: (i) the incentives for each country to modify the provision of public input goods in response to international outsourcing, and (ii) whether international outsourcing justifies policy cooperation. If the public input good is substitutable for (complementary with) outsourcing in terms of the production function faced by northern firms, then outsourcing contributes to increase (decrease) the public input provision in the North. For the South, the optimal policy response depends on the level of outsourcing. We also show how policy cooperation with respect to public input provision can be designed to increase the overall social welfare.Outsourcing; redistribution; public input goods; asymmetric information