re examination of uniform commodity taxes under a non linear income tax system and its implication for production efficiency abstract this paper shows that the result of uniform commodity tax under nonlinear income taxation by atkinson and stiglitz 1976 no longer holds if the production side of an economy is taken into the consideration in particular imposing a non uniform commodity tax can pareto improve welfare even under nonlinear income taxation in addition the paper shows that if the government uses a nonlinear income tax system for income redistribution then the introduction of distortions in the public sector can pareto improve welfare contrary to the results in diamond and mirrlees 1971

uncertainty and optimal taxation in defense of commodity taxes abstract this paper re examines the theory of optimal commodity taxation in the presence of a linear income tax under wage uncertainty there are two categories of goods the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after the paper i characterizes the structure of the optimal commodity taxes in view of the insurance they provide against random wage movements ii proves that optimal taxation requires a mix of differential commodity taxes and a uniform lump sum tax and iii demonstrates that the post uncertainty goods should face a positive tax rate which is higher than the tax rate on the pre committed goods

externality correcting taxes and regulation externality correcting taxes and regulation in much of the literature on externalities taxes and direct regulation have been considered as alternative policy instruments both instruments might be imperfect in practice reflecting informational deficiencies and other limitations we analyse the use of taxes and regulation in combination to control externalities arising from individual consumption behaviour we consider the cases either where taxes are imperfectly differentiated to reflect individual differences in externalities or where some consumption escapes taxation in both cases we characterize the optimal instrument mix and we show how changing the level of direct regulation alters the optimal externality tax

retail pricing and clearance sales sellers of new products are faced with having to guess demand conditions to set price appropriately but sellers are able to adjustprice over time and to learn from past mistakes additionally it is not necessary that all goods be sold with certainty it is sometimes better to set a high price and to risk no sale this process is modeledto explain retail pricing behavior and the time distribution of transactions prices start high and fall as a function of time on theshelf the initial price and rate of decline can be predicted and depends on thinness of the market the proportion of customers who are window shoppers and other observable characteristics copyright 1986 by american economic association

on the desirability of taxing capital income in optimal social insurance abstract this paper analyzes optimal linear taxes on labor income and savings in a two period life cycle model with ex ante identical households endogenous leisure demands in both periods and general processes of skill shocks over the life cycle we demonstrate that the atkinson stiglitz theorem breaks down under risk capital taxes are employed besides labor income taxes for two distinct reasons i capital taxes reduce labor supply distortions on second period labor supply since second period labor supply and saving are substitutes ii capital taxes insure first period income risk although this benefit is partially off set because first period labor supply and saving are complements our results imply that retirement saving should not be actuarially fair

the long run determinants of inequality what can we learn from top income data this paper studies determinants of income inequality using a newly assembled panel of 16 countries over the entire twentieth century we focus on three groups of income earners the rich p99 100

optimal wage taxation when human capital and employment are endogenous this paper studies how optimal wage tax conclusions from the classic two period life cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers in the absence of a corrective policy young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment a combination of wage taxes and wage subsidies can restore proper price signals numerical simulations suggest that even modest employment elasticities can be sufficient to substantially impact the magnitudes and even the signs of optimal wage tax rates jel h21 h3 j24

commodity taxation in welfare states i introduction while the nature of unemployment is diverse a substantial part of unemployment in many developed countries it is argued stems from generous social welfare systems meyer 1990 nickell and layard 1999 and see figure 1 1 in fact the organization for economic cooperation and development oecd data show that countries with generous unemployment insurance ui face high unemployment rates and tend to have high commodity tax rates see figure 2 this paper attempts to account for these empirical patterns in the optimal taxation framework in a general equilibrium context the unemployment mentioned above can be viewed as a result of a a low work incentive induced by generous social insurance welfare benefits combined with b the subsequent employment adjustment by firms e g not renewing employment contracts or hiring a portion of temporary part time workers as regular workers to raise labor productivity to deal with this type of unemployment the government may need to seek reforms of social insurance welfare systems including a reduction in unemployment benefits but the public s redistributive motives often do not permit implementation of such reforms 2 under this socioeconomic constraint this paper raises a question can commodity taxation help reduce unemployment and improve efficiency perhaps a slightly different but equally interesting question that concerns many welfare states in recent decades may be suppose that a society agreed on the expansion of welfare programs in financing the increased welfare expenditure which tax increase consumption taxes or income taxes is more relevant figure 1 omitted figure 2 omitted to address these questions we examine the role of commodity taxation in a general equilibrium model where a taking into account wage unemployment benefits and taxes workers choose work effort that the firm can observe only through costly monitoring and b firms use both wage and monitoring as effort eliciting devices and they fire those caught shirking therefore the chosen level of a worker s effort affects the probabilities of employment and unemployment and thus involuntary unemployment arises from moral hazard 3 in this contractual setting with imperfect information we consider the government s problem of maximizing the representative worker s expected utility using income and commodity taxes we derive new results on commodity taxation and present supportive results using quantitative analysis our key results suggest that commodity taxation can be used to alleviate moral hazard and hence unemployment which can account for why countries with generous social welfare systems tend to adopt high commodity tax rates see figure 2 this main result is based on the following feature of the model given the aforementioned environment optimal commodity and income tax rates can be determined in contrast to the indeterminacy result of atkinson and stiglitz 1976 henceforth as 4 therefore our results provide an explanation for the widely observed coexistence of direct and indirect taxation to illustrate the intuition behind our results consider a situation where a a society provides liberal unemployment benefits for unemployed workers and b the government sets the levels of income and commodity tax rates so as to finance the expenditures for ui and public goods liberal unemployment benefits are equivalent to treating the consumption of unemployed workers favorably i e between states consumption choice distortion which creates moral hazard in the supply of effort under imperfect information about effort obviously drastic reforms in social insurance systems e g cutting benefits can correct moral hazard but the public s redistributive motives do not permit such reforms in this setting we show that strengthening commodity taxation while lessening income taxation penalizes moral hazard which lowers the between states consumption choice distortion leading to a greater supply of effort

the distribution of abilities and the progressive income tax abstract this paper develops a model of endogenous labor supply where agents are uncertain about their future wages assuming risk aversion some redistributive taxation is thus warranted it is shown that for a particular parameterization of the tax system an optimally progressive income tax exists comparative ststics analysis demonstrates how this tax system is effected by changes in the wage distribution the paper ends with a discussion of whether an optimally progressive income tax can be politically sustained it is shown that generally this is not the case in a political system with majority voting

welfare egalitarianism in non rival environments we study equity in economies where a set of agents commonly own a technology producing a non rival good from their private contributions a social ordering function associates to each economy a complete ranking of the allocations we build social ordering functions satisfying the property that individual welfare levels exceeding a legitimate upper bound should be reduced combining that property with efficiency and robustness properties with respect to changes in the set of agents we obtain a kind of welfare egalitarianism based on a constructed numerical representation of individual preferences

optimal taxation in the presence of tax evasion expected utility versus prospect theory abstract it is now well known that the predictions of expected utility theory eut applied to tax evasion are quantitatively and qualitatively at variance with the evidence while prospect theory pt makes the correct predictions in this literature the tax rate is exogenous we endogenize the tax rate and require that a successful theory should explain jointly the facts on the tax rate tax gap and the level of government expenditure we find that the data is best described by taxpayers using pt and the government using standard utility theory eut the results are robust to several possible alternative specifications we discuss how our results have a bearing on the debate between liberalism versus paternalism in behavioral economics we also propose an alternative explanation based on the notion of context dependent preferences

the friedman rule in an overlapping generations model with nonlinear taxation and income misreporting this paper models a two period overlapping generations economy with money populated with individuals of different skills they face a nonlinear income tax schedule and can engage in tax evasion money serves two purposes the traditional one modeled through a money in the utility function it also facilitates tax evasion the main message of the paper is that income tax evasion in this framework leads to the violation of the friedman rule the paper also shows that even in the absence of tax evasion when optimality requires differential commodity taxation complementarity of real cash balances and labor supply does not guarantee the optimality of the friedman rule as a boundary solution an additional assumption is required

capital is back wealth income ratios in rich countries 1700 2010 how do aggregate wealth to income ratios evolve in the long run and why we address this question using 1970 2010 national balance sheets recently compiled in the top eight developed economies for the united states united kingdom germany and france we are able to extend our analysis as far back as 1700 we find in every country a gradual rise of wealth income ratios in recent decades from about 200 300 in 1970 to 400 600 in 2010 in effect today s ratios appear to be returning to the high values observed in europe in the eighteenth and nineteenth centuries 600 700 this can be explained by a long run asset price recovery itself driven by changes in capital policies since the world wars and by the slowdown of productivity and population growth in line with the s g harrod domar solow formula that is for a given net saving

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

indirect taxation is superfluous under separability and taste homogeneity a simple proof indirect taxation is of no use when nonlinear income taxation is available in an economy where everyone has the same taste for goods an elementary proof of this result due to atkinson and stiglitz atkinson a stiglitz j 1976 the design of tax structure direct versus indirect taxation journal of public economics 6 55 75 is provided

public goods self selection and optimal income taxation using the self selection approach to tax analysis this paper derives a modified samuelson rule for the provision of public goods when the government deploys an optimal nonlinear income tax this approach gives a straightforward interpretation of the central result in this area generalises it and provides a simple characterisation of optimal policy in a wide range of circumstances the analysis also emphasises and clarifies the significance of the choice of numeraire for the optimality of decentralising public spending decisions it is well known that the famous samuelson rule for the provision of public goods may not be applicable when the tax revenues used to finance the public goods come from distorting taxes the principle was recognized as long ago as pigou 1947 long before the samuelson rule was devised pigou saw that in addition to the resource cost involved in transferring funds from the private to the public sector there was a deadweight loss involved from this insight he suggested that the criterion for providing public goods should be more stringent than the samuelson rule would later suggest in particular one might expect that the inclusion of the deadweight loss of taxes as part of the cost of providing a public good would lead to a reduction in its optimal provision relative to a situation in which lump sum taxes were available the problem was investigated more systematically by atkinson and stern 1974 who considered the case in which a public good is financed by a set of optimal commodity taxes all individuals were assumed to be identical so efficiency alone dictated the objective they found that no prima facie case could be made for the pigou position that the use of distortionary taxes called for a reduction in the supply of the public good their analysis clearly showed that there were two influences at work when the financing of a public good was by distorting taxes on the one hand

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

fair production and allocation of an excludable nonrival good we study fairness in economies with one private good and one partially excludable nonrival good a social ordering function determines for each profile of preferences an ordering of all conceivable allocations we propose the following free lunch aversion condition if the private good contributions of two agents consuming the same quantity of the nonrival good have opposite signs reducing that gap improves social welfare this condition combined with the more standard requirements of unanimous indifference and responsiveness delivers a form of welfare egalitarianism in which an agent s welfare at an allocation is measured by the quantity of the nonrival good that consumed at no cost would leave her indifferent to the bundle she is assigned

optimal grouping of commodities for indirect taxation indirect taxes contribute to a sizeable part of government revenues around the world typically there are few different tax rates and the goods are partitioned into classes associated with each rate the present paper studies how to group the goods in these few classes we take as given the number of tax rates and study the optimal aggregation or classification of commodities of the fiscal authority in a second best setup the results are illustrated on data from the united kingdom

which commodity taxes should supplement the income tax the analysis takes as its point of departure a continuum of consumers economy in which an optimum income tax exists and is the only tax instrument in operation the welfare effects of introducing small excise taxes to supplement the income tax are then explored essential in this context are changes in the tax distortions of work incentives it is shown that a commodity should be taxed or subsidized depending on whether it is positively or negatively related to leisure in a sense which is precisely defined the results are related to earlier contributions to the literature on direct versus indirect taxation the history of debates on the proper roles of direct and indirect taxation goes back at least to the days of gladstone as well described by atkinson 1977 the prevailing political opinion of the balance between the two types of taxes has varied over time at present the swing in a number of european countries seems to be in favour of reforms towards tax systems which rely more heavily on indirect taxation and less on income taxation in view of this long economic political record it is not surprising that the choice between income tax and commodity taxes has also become an important subject in tax theory an early contribution to the understanding of this issue was corlett and hague 1953 54 their main model considers a three good economy containing leisure and two taxed commodities there is only one consumer or a population of identical consumers labour is the only source of income producer prices are fixed the government s revenue requirement is given the starting point of the analysis is a situation in which the two commodities are taxed at uniform rates the question which is analyzed is then how the government can raise welfare by slightly differentiating the tax rates the answer which is derived is that the consumer good which is the stronger substitute for labour complement with leisure should be taxed at

firms timing of production with heterogeneous consumers i revisit endogenous timing in a quantity setting duopoly game in the basic model i show that given strong heterogeneity in consumers willingness to pay wtp and a moderately small consumer segment with low wtp sequential moving outcomes can appear in equilibrium with the follower enjoying second mover advantage owing to consumer heterogeneity in wtp there is a local property that a firm s aggressive behaviour may lead to a competitor responding more aggressively hence the sequential moves can restrict firms total outputs to avoid a price collapse and result in firms strategic choices that pareto dominate those under the simultaneous move i further generalize my results and show that although firms compete in quantity under some conditions of the demand function features of strategic complements can appear

structural change and economic growth this paper presents a model in which a country s measured average propensity to save endogenously rises when its economy industrializes the model has agricultural and manufacturing sectors only agriculture uses land if at early dates income per capita is low agricultural consumption is important land is valuable and capital gains on land may constitute most wealth accumulation leaving the country s nipa aps low if exogenous technological progress raises incomes over time engel s law shifts demand to manufactured goods then land s portfolio importance relative to reproducible capital diminishes and the national income and products account saving rate can rise this paper presents a model illustrating that structural change due to the operation of engel s law can systematically affect an economy s measured saving rate according to the model a country s national income and product account average propensity to save will rise naturally if and when technological progress sufficiently lifts its income per capita this suggests a new interpretation of time series evidence while saving rates historically tend to be higher after industrialization than before one cannot automatically infer that changing wealth accumulation behaviour led to modernization rather structural change accompanying growth may have caused the rise in saving rates this paper also warns that international trade could lead to a contrasting pattern in cross sectional data highincome nations might contemporaneously have lower measured saving rates than poor countries recent work by mankiw romer and weil 1992 islam 1995 mankiw 1995 and others investigates long run patterns the analyses assume that each economy has attained or is moving toward a steady state equilibrium as in solow 1956 a country s steady state level of per capita gdp depends on its average propensity to save aps its rate of population growth the efficiency of its production sector etc regression outcomes seem consistent with the solow model s prediction that a higher aps will ceteris paribus lead to a higher level of income per capita the idea is that heterogeneity of exogenous preferences leads to international differences in aps s and in turn to long run differences

fair income tax fairness is a key concept in redistribution issues in this paper we study how particular requirements of fairness can shed light on the design of the optimal income tax schedule we consider a population of heterogeneous individuals or households who differ in two respects first they have unequal skills and therefore unequal earning abilities second they differ in terms of their preferences about consumption and leisure and as a consequence typically make different labour time choices both kinds of differences generate income inequalities we study how to justify and compute a redistribution income tax in this context redistribution through an income tax usually entails distortions of incentives but the resulting efficiency loss has to be weighed against potential improvements in the fairness of the distribution of resources we address this efficiency equity trade off here by constructing social preferences which obey the standard pareto principle in addition to fairness conditions

optimal taxation of risky human capital in a two period life cycle model with ex ante homogeneous households earnings risk and a general earnings function we derive the optimal linear labor tax rate and optimal linear education subsidies the optimal income tax trades off social insurance against incentives to work education subsidies are not used for social insurance but they are only targeted at offsetting the distortions of the labor tax and internalizing a fiscal externality both optimal education subsidies and tax rates increase if labor and education are more complementary because education subsidies indirectly lower labor tax distortions by stimulating labor supply optimal education subsidies taxes also correct non tax distortions arising from missing insurance markets education subsidies internalize a positive negative fiscal externality if there is underinvestment overinvestment in education because of risk education policy unambiguously allows for more social insurance if education is a risky activity however if education hedges against labor market risk optimal tax rates could be lower than in the case without education subsidies

is commodity taxation unfair abstract in a model where agents have unequal skills and heterogeneous preferences about consumption goods and leisure this paper studies how to combine commodity taxes and non linear income tax it proposes a particular social welfare function on the basis of fairness principles it then derives a simple criterion for evaluating the social welfare consequences of various tax schedules under the proposed approach the optimal tax should have no commodity tax for some range of consumptions and income redistribution would feature high subsidies to the working poor it is also shown that even when the income tax fails to be optimal commodity taxes may not improve social welfare

towards a theory of the direct indirect tax mix despite the fact that all developed economies levy broadly based indirect taxes alongside direct taxes little theory is devoted to explaining the direct indirect tax mix our purpose is to show that if different taxes have different evasion characteristics some optimal tax mix emerges naturally assuming that only income tax can be evaded and focusing on a two class economy we analyse the case for supplementing optimal non linear income taxation with commodity taxation and we develop conditions under which the latter should or should not be uniform

on the taxation of durable goods this paper proposes a mirrleesian theory of commodity taxation in the presence of durable goods nondurable goods should be taxed uniformly provided that the preferences over nondurable consumption are weakly separable from labor effort a uniform taxation across all goods is optimal if the utility from durable consumption is linear and the preferences are additively separable between durable goods nondurable goods and labor effort if those conditions are not met wealth effects and substitution effects justify the use of differential commodity taxes to characterize the sign of the tax differential the paper exploits a substitution euler equation that links the marginal rate of substitution between durable and nondurable consumption across time finally an application of this theory suggests that housing investment should face higher tax rates than nondurable consumption

the cyclicality of new product introductions this study analyzes empirically the cyclical nature of the timing of new product introductions in u s manufacturing new product introductions vary more in nonseasonal frequencies than in seasonal frequencies however the seasons alone account for only a small part of their total variability with demand factors being much more important demand fluctuations account for 35 80 and 17 43 respectively of the seasonal and cyclical variability of new product introductions in various industries finally new product introductions respond more to fluctuations in aggregate demand than in market demand and in business cycles than in seasonal cycles

what do and don t we know about the value added tax a review of richard m bird and pierre pascal gendron s the vat in developing and transitional countries the vat has taken the tax world by storm over the last fifty years but left little trace in the academic literature bird and gendron provide an impressively informed and informative account of the vat experience in lower income countries largely vin dicating the tax and standard advice for its design but they rightly stress too that dominant expert opinion on the vat remains troublingly uninformed by serious analysis and evidence this article focuses on some of these gaps and recent attempts to start filling them

direct versus indirect taxation the design of the tax structure revisited this article studies the optimal direct indirect tax mix problem when individuals differ in several unobservable characteristics productivity and endowments it presents general expressions for the optimal commodity tax rates and proves that contrary to atkinson and stiglitz s 1976 result differential commodity taxation remains a useful instrument of tax policy even if preferences are separable between labor and produced goods when cross substitution effects are zero the expressions resemble traditional many households ramsey rules in a cobb douglas illustration where endowments differ only in good 1 interpreted as wealth the tax on good 2 provides an indirect way to tax the unobservable wealth

changes in business cycles evidence and explanations this paper shows that the volatility of annual real macroeconomic indicators for the united states and the average severity of recessions have declined only slightly between the pre world war i and post world war ii eras recessions have however become somewhat less frequent and more uniform it argues that the advent of macroeconomic policy after world war ii can account for both the observed continuity and change countercyclical monetary policy and automatic stabilizers have prolonged postwar expansions and prevented severe depressions at the same time policy induced booms and recessions have led to continued volatility of the postwar economy

fair allocation of indivisible goods and criteria of justice a set of n objects and an amount m of money is to be distributed among m people example the objects are tasks and the money is compensation from a fixed budget an elementary argument via constrained optimization shows that for m sufficiently large the set of efficient envy free allocations is nonempty and has a nice structure in particular various criteria of justice lead to unique best fair allocations that are well behaved with respect to changes of m this is in sharp contrast to the usual fair division theory with divisible goods

time consistent taxation in a dynastic family model with human and physical capital and a balanced government budget this paper analyzes optimal time consistent taxation in a dynastic family model with human and physical capital and with a balanced government budget when tax revenue is used for publicly provided consumption or lump sum transfers leisure would be higher than its social optimum pareto optimal taxation requires taxing capital income more heavily than labour income and subsidizing investment at the same rate of the tax also it requires either subsidizing labour at the same rate as a consumption tax or subsidizing consumption at the same rate as a labour income tax and hence it is not a practical guide to policy further a consumption tax or equivalently a uniform income tax with investment subsidies at the same rate can be improved on by taxing capital income more heavily than labour income ce memoire analyse la fiscalite optimale et consistante dans le temps dans un modele de famille dynastique avec capital humain et physique et un budget gouvernemental equilibre quand le revenu fiscal est utilise pour financer la consommation publique ou pour des transferts forfaitaires le niveau de loisir sera plus eleve que l optimum social la fiscalite optimale paretienne exige qu on taxe le revenu du capital plus fortement que celui du travail et qu on subventionne l investissement au meme taux que la taxe elle exige aussi soit qu on subventionne le travail au meme taux que la taxe a la comsommation soit qu on subventionne la consommation au meme taux que l impot sur le revenu du travail et donc ce n est pas un guide pratique pour la politique de plus un regime de taxe sur la consommation ou de maniere equivalente d impot uniforme sur le revenu avec subvention a l investissement au meme taux peut etre ameliore en taxant le revenu du capital plus fortement que celui du travail

from smith to schumpeter a theory of take off and convergence to sustained growth abstract this paper proposes a theory of the emergence of modern schumpeterian growth that focuses on the within industry forces that regulate the response of firms and entrepreneurs to smithian market expansion and thus identifies an amplification mechanism that the literature has neglected because it solves the model in closed form the paper provides analytical insight on the forces that drive the economy s phase transition and the associated qualitative transformation of industrial activity the resulting s shaped path of gdp per capita replicates the key feature of the data an accelerating phase followed by a deceleration with convergence to a stationary growth rate the model also yields predictions for grand ratios like consumption gdp profits gdp and the distribution of income across factors of production

the desirability of commodity taxation under non linear income taxation and heterogeneous tastes abstract this paper revisits the atkinson stiglitz result on uselessness of commodity taxation in the presence of optimal non linear income taxation in a more general setup namely when tastes are heterogeneous this general analysis displays the key economic assumptions under which the atkinson stiglitz result is robust a small tax on a given commodity is desirable if high income earners have a relatively higher taste for this commodity or if consumption of this commodity increases with leisure an application to the case of savings suggests that even in the presence of optimal non linear earnings taxation there is a role for a supplemental capital income tax in the standard overlapping generation model

tax evasion in an open economy abstract ignoring tax evasion possibilities a value added and a cash flow income tax have similar behavioral and distributional consequences yet the available means of tax evasion under each can be very different under a vat avoidance occurs through cross border shopping whereas under an income tax it can occur through shifting taxable income abroad given evasion we show that a country would make use of both taxes in order to minimize the efficiency costs of evasion activity relying relatively more on whichever tax is harder to evade we then make use of aggregate danish tax and accounting data from 1992 to measure the amount of evasion that occurred under the two taxes while the estimates of evasion activity are small the figures imply that denmark could reduce the real costs of evasion activity by relying more on value added taxes

is piketty s second law of capitalism fundamental in capital in the twenty first century thomas piketty uses what he calls the second fundamental law of capitalism to predict that capital to income ratios are poised to increase dramatically as economies growth rates fall during the twenty first century this law states that in the long run the capital to income ratio equals s g where s is the economy s saving rate and g its growth rate we argue that this law rests on a theory of saving that is hard to justify first it holds the net saving rate constant as growth falls driving the gross savings rate to one as growth goes to zero second it is inconsistent with both the textbook growth model and the theory of optimal saving in both of these theories the net saving rate goes to zero as growth goes to zero third both of these theories provide a reasonable fit to observed data on gross and net saving rates and growth rates in cross country panel data whereas piketty s does not finally contrary to piketty s second law both of these theories predict that capital to income ratios increase only modestly as growth falls

labour income uncertainty taxation and public good provision this article examines optimal nonlinear income taxation commodity taxation and public good provision under income uncertainty in a moral hazard framework uniform commodity taxation and the samuelson rule for public good provision are desirable under similar conditions as in the conventional tax model deviations from these rules is warranted if one can encourage effort by subsidising certain goods and overproviding public goods we also determine a rule for the optimal marginal income tax rate and provide some numerical simulations conditions for the validity of the solution procedure used in this class of models the first order approach are also explored uncertainty is a key component of many important real world decision making processes consider for example an individual s decision to acquire specific skills through education educational investments must be made well before the resolution of uncertainty related to the returns to skill thus the tax system which affects the net returns of different skill levels has a potentially large impact on educational decisions skill attainment and productivity a progressive tax system offers insurance to workers by redistributing income from the lucky to the unlucky other forms of social insurance such as unemployment and health insurance work in a similar manner a well known problem in the design of optimal income tax under uncertainty or any insurance mechanism is asymmetric information between the government and individuals income is partly due to individual effort and partly due to luck but the planner can only observe realised income not effort the optimal redistribution scheme is a balance between providing the workers with adequate incentives to acquire skills and sufficient insurance mirrlees 1974 was the first to examine the design of optimal redistributive income tax under income uncertainty this moral hazard model later used among others by varian 1980 tuomala 1984 and low and maldoom 2004 is an alternative to the more well known adverse selection model of mirrlees 1971 where income dispersion arises from differences in innate skill levels the moral hazard model is perhaps most appealing in the tax context when effort is interpreted as an ex ante decision on educational investment alternatively one can interpret the discussion as a general analysis of social insurance 1 income tax is only one element albeit an important one in the design of optimal government redistributive policy indeed recent optimal tax literature has devoted a lot of attention to the use of other instruments such as commodity taxation minimum

public provision of private goods self selection and income tax avoidance several contributions in the optimal taxation literature have emphasized that when individuals preferences are not separable between leisure and other goods it is desirable to supplement a nonlinear income tax with public provision of private goods moreover it has also been shown that the choice between a topping up and an opting out scheme depends on whether the publicly provided good is a complement or substitute with leisure with opting out topping up being the preferred scheme for goods which are substitutes complements for labor in this paper using the self selection approach to tax analysis we revisit these results in the presence of tax avoidance and investigate how public provision interacts withthe agents incentives to engage in tax avoidance three results are obtained first we show that tax dodging opportunities imply that non separability between labor and other goods is neither a necessary nor a sufficient condition to make public provision of private goods a welfare enhancing policy instrument second we show how tax dodging opportunities limit the scope for using topping up provision schemes as a redistributive device finally we show that for most of the public provision schemes previously analyzed in the literature being a welfare enhancing policy instrument goes hand in hand with weakening the agents incentives to shelter income from the tax authority however we also point out an important exceptionto this pattern

uncertainty optimal taxation and the direct versus indirect tax controversy this paper examines how the presence of uncertainty affects the design of tax policy when both indirect taxes and a general income tax are available to the government there are two categories of goods the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after the paper proves that contrary to a b atkinson and j e stiglitz s 1976 result differential commodity taxation remains a useful instrument of optimal tax policy even if preferences are separable between labor and produced goods copyright 1995 by royal economic society

optimally uniform commodity taxes taste differences and lump sum grants abstract optimal commodity taxes for an economy with many households should be at a uniform proportional rate under certain conditions these include i linear and parallel engel curves with intercepts dependent on household composition ii separability between goods and labour and iii optimal demogrants

a pareto improving commodity tax reform under a smooth nonlinear income tax abstract this paper analyzes the welfare effects of commodity tax reform in an economy with a nonlinear income tax and linear commodity taxes the main result is that we can find a tax reform program that improves every consumer s utility in the pareto sense unless efficiency loss in the economy is minimized under incentive compatibility the tax reform rule proposed here applies to a broad class of economies with arbitrary smooth income taxes the expenditure function approach makes our analyses clear and simple some intuition is presented on the role of commodity taxation in a mixed tax economy the relationship with previous work in optimal tax and tax reform theory is also discussed we extend our result to the case where the government spends tax revenue to provide a public good

taxation as insurance and the case of rate differentiation according to consanguinity under inheritance taxation abstract does there exist an economically convincing reason for differentiating tax rates according to consanguinity as it is the rule under inheritance taxation in most western countries many writers have answered this question in the negative in this paper inheritance expectations are treated like income expectations as in friedman 1957 they fall into a permanent and a transitory component if people take the permanent one as known and the transitory one as random then an insurance theoretic argument can be made for progressive taxation in general and rate differentiation according to consanguinity under inheritance taxation in particular

factor eliminating technical change endogenous growth requires that non reproducible factors of production be either augmented or eliminated attention heretofore has focused almost exclusively on augmentation in contrast we study factor elimination maximizing agents decide when to reduce the importance of non reproducible factors we use a cobb douglas production function with two factors of production one reproducible capital and one not labor there is no augmenting progress of any kind thus excluding the standard engine of growth what is new is the possibility of changing factor intensities endogenously by spending resources on r d the economy starts with no capital and no knowledge of how to use it by conducting r d the economy learns new technologies that use capital which then is built there are two possible ultimate outcomes the economy may achieve perpetual growth or it may stagnate with no growth the rst outcome is an asymptotic version of the ak model of endogenous growth and the second outcome is the standard solow model in the absence of any exogenous sources of growth which outcome is achieved depends on parameter values of saving and production and there always is a feasible saving rate that will give the perpetual growth outcome the model thus provides a theory of the endogenous emergence of a production technology with constant returns to the reproducible factors that is one that is capable of supporting perpetual economic growth the model also allows derivation of the full transition dynamics which have interesting properties one especially notable feature is that the origin is not a steady state an economy that starts with pure

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

is redistribution through indirect taxes equitable abstract a move towards a non uniform indirect tax structure may result in some vertical redistribution it will also lead to a different treatment of households with the same total expenditures but with different preferences to evaluate the social desirability of such rate differentiation we introduce a distinction between needs for which individuals are not responsible and tastes for which they are we show some empirical results for belgium obtained with the microsimulation program aster in these calculations we compare the actual belgian system of indirect taxes with a simpler structure with only two rates

why are products sold on sale explanations of pricing regularities this paper reports on interesting changes in markdown pricing practices over time and differences in the pricing within a product line the price discrimination and the uncertainty hypotheses appear to better explain the data than the peak load hypothesis fashion has become more important over time and appears to explain the greater seasonal variation in retail apparel prices in recent years differences in uncertainty also explains differences in the pricing of different types of men s dress shirts

income uncertainty and optimal redistribution 1 introduction redistribution policy under a utilitarian criterion aims to transfer dollars from one group in the population to another if the weighted utility gain to the recipients exceeds the utility cost to the donors under diminishing marginal utility of income part of any exogenous change in one group s income should be shared with the other group for example if taxpaying workers suffer a negative shock to their mean earnings then part of this utility shock should be spread to nonworkers in the form of lower transfer payments and vice versa for the case of a positive shock this article demonstrates the counterintuitive result that under reasonable preference representations a policymaker may respond optimally to a negative utility shock by redistributing income away from the harmed group thus exacerbating the group s utility loss in particular under risk aversion a mean preserving increase in the variance of income typically has an effect on well being analogous to a decrease in mean income 1 it may nevertheless be welfare enhancing to transfer income away from those suffering an increase in income uncertainty even though this policy compounds their welfare loss the main ideas can be demonstrated in a simple framework for illustration the analysis will focus on redistribution from taxpaying workers to nonworkers the central result is that a meanpreserving increase in earnings uncertainty among taxpayers can increase optimal transfer amounts to nonworkers increasing optimal income replacement rates even though the redistribution exacerbates the taxpayers utility loss from the increase in uncertainty 2 model footnote 1 many factors in the economy affect earnings uncertainty even conditional on being employed such as the form of compensation e

wealth and inequality over eight centuries of british capitalism abstract this paper constructs annual data for the wealth income ratio w y for the uk over the period 1210 2013 it is found that the w y ratio has fluctuated at one two century frequencies about a constant level of approximately 500 over the past eight centuries furthermore a u shaped w y path is identified over the past two centuries and it is argued that the descending part of the u shape is driven by the transition from pre industrial modes of production to industrialization and that the post 1980 upturn in the w y ratio represents the transition from the industrial to the post industrialization era

a market entry timing model for new techniques a central issue in new product development and planning is the market timing entry decision an entry too early may risk pushing an under developed product into the marketplace with possible negative results however a product technology may sacrifice sales if entry is delayed too long a market diffusion model is developed that incorporates negative word of mouth associated with new product failure resulting from premature introduction our analysis suggests that when introducing a new technology significant penalties may be associated with mistiming introduction the analysis was applied to a problem facing the photovoltaic program of the department of energy a proposal to construct a 100 home demonstration program for photovoltaics pv in the southwest was being evaluated the analysis of this case showed that an argument can be made to delay the demonstration program for several years and that significant risks in terms of lowered ultimate market penetration exist when starting this pv demonstration program prematurely

optimal tax mix with income tax non compliance abstract although developing countries face high levels of income inequality they rely more on consumption taxes which tend to be linear and are less effective for redistribution than a non linear income tax one explanation for this pattern is that the consumption taxes are generally more enforceable in these economies this paper studies the optimal combination of a linear consumption tax with a non linear income tax for redistributive purposes in our model households might not comply with the income tax code by reporting income levels that differ from their true income however the consumption tax is fully enforceable we derive a formula for the optimal income tax schedule as a function of the consumption tax rate the recoverable elasticities and the moments of the taxable income distribution our equation differs from those of mirrlees 1971 and saez 2001 because households face a consumption tax and they respond to income tax not only through labor supply but also through mis reporting their incomes both aspects are empirically relevant to our calibration of the optimal top rate in the russian economy we then characterize the optimal mix between a linear consumption tax rate and a non linear income tax schedule finally we find that the optimal consumption tax rate is non increasing in the redistributive motives of the social planner

comparative national balance sheets a study of twenty countries 1688 1978 raymond w goldsmith has combined his experience good sense and flair with figures to construct this groundbreaking comparative study of the balance sheets of twenty of the largest nations a pioneer in the field of national accounts goldsmith now presents a work that will be a valuable tool in tracking the economic progress of and between nations the majority of the balance sheets were created especially for this project their components gleaned from fragmentary and heterogeneous data there are approximately 3 500 entries each measuring the value of one type of tangible or financial asset or liability at a given date goldsmith s estimates are keyed to fifteen benchmark dates in the economic progress of the cited nations and for twelve nations he was able to construct balance sheets dating back to the nineteenth century or earlier combined worldwide balance sheet are included for 1950 and 1978 comparative national balance sheets will provide an essential basis for the quantitative analysis of the long term financial development of these nations in addition to national balance sheets for all large countries except brazil and china sectoral balance sheets for france germany great britain india japan and the united states in the postwar period are also included

optimal taxation and optimal tax systems the theory of optimal taxation has for the pas two decades been the reigning normative approach of taxation this paper argues that in its current state optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy it is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist the coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy the paper first presents the three cornerstone propositions of optimal tax theory and then it discusses the influence of these propositions on recent tax policy developments it concludes by sketching an alternative to optimal taxation called the theory of optimal tax systems which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology the optimal tax systems perspective is shown to shed light on the choice of tax instruments the problem of tax evasion and the appropriate tax treatment of capital income this abstract was borrowed from another version of this item

putting distribution back at the center of economics reflections on capital in the twenty first century when a lengthy book is widely discussed in academic circles and the popular media it is probably inevitable that the arguments of the book will be simplified in the telling and retelling in the case of my book capital in the twenty first century 2014 a common simplification of the main theme is that because the rate of return on capital r exceeds the growth rate of the economy g the inequality of wealth is destined to increase indefinitely over time in my view the magnitude of the gap between r and g is indeed one of the important forces that can explain historical magnitudes and variations in wealth inequality however i do not view r g as the only or even the primary tool for considering changes in income and wealth in the 20th century or for forecasting the path of income and wealth inequality in the 21st century in this essay i will take up several themes from my book that have perhaps become attenuated or garbled in the ongoing discussions of the book and will seek to re explain and re frame these themes first i stress the key role played in my book by the interaction between beliefs systems institutions and the dynamics of inequality second i briefly describe my multidimensional approach to the history of capital and inequality third i review the relationship and differing causes between wealth inequality and income inequality fourth i turn to the specific role of r g in the dynamics of wealth inequality specifically a larger r g gap will amplify the steady state inequality of a wealth distribution that arises out of a given mixture of shocks fifth i consider some of the scenarios that affect how r g might evolve in the 21st century including rising international tax competition a growth slowdown and differential access by the wealthy to higher returns on capital finally i seek to clarify what is distinctive in my historical and political economy approach to institutions and inequality dynamics and the complementarity with other approaches

optimal wage and income taxation with wage uncertainty optimal taxation in a two period model with human capital investment and second period wage uncertainty is analyzed a proportional tax on wages dominates lump sum taxation and the socially optimal level of human capital exceeds that which individuals choose a tax on interest income may raise welfare by encouraging investment in human capital the interest income tax reduces the difference between returns to physical and human capital from individuals inability to reduce human capital risk through diversification a positive interest income tax rate may therefore be optimal even with an optimal wage tax by encouraging m ore investment in human capital copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on environmental taxation under uncertain environmental damage this paper addresses optimal taxation when therelationship between the consumption of a dirty good and the resulting environmentaldamage is uncertain and treated as a randomvariable by policy makers the main purpose isto analyze how increased uncertainty measuredas a mean preserving increase in the spread ofthis random variable affects the optimalcommodity tax on the dirty consumption good incase the only task of government is to correctthe environmental externality and if thepreferences are characterized by nondecreasingabsolute risk aversion we find that thecommodity tax on the dirty consumption goodincreases in response to additionaluncertainty if on the other hand thegovernment provides a public good and uses alump sum tax in addition to the commodity tax it is possible that the commodity tax decreasesas a response to additional uncertainty evenif the preferences are characterized bynondecreasing absolute risk aversion a similarresult emerges although for different reasons if the lump sum tax is replaced by a laborincome tax

about capital in the twenty first century in this article i present three key facts about income and wealth inequality in the long run emerging from my book capital in the twenty first century and seek to sharpen and refocus the discussion about those trends in particular i clarify the role played by r g in my analysis of wealth inequality i also discuss some of the implications for optimal taxation and the relation between capital income ratios and capital shares

tax competition and tax coordination in an optimum income tax model abstract the paper uses the self selection approach of stiglitz 1982 to study tax competition and tax coordination in a many country optimum income tax model in the model the government can impose a non linear tax schedule on wage income and a source based tax on mobile capital in an uncoordinated equilibrium it turns out that countries can use the capital tax instrument to weaken the self selection constraint the paper presents examples where positive and negative capital taxes are optimal from a single country perspective if the production function is weakly separable between labor and capital it can be shown that the optimal capital tax is zero the paper also shows that contrary to the standard tax competition model the uncoordinated equilibrium can be efficient if the wealth distribution the endowments with capital among individuals is egalitarian a coordination of capital taxes does not affect welfare for non egalitarian wealth distributions a coordinated increase in capital taxes can raise or lower welfare depending on the redistributive impact of a higher capital tax

optimal non linear income taxation for reduction of envy abstract this paper examines the optimal non linear income taxation problem based on equitability an allocation is equitable if no agent envies a proportion of the bundle of any other agent we examine the properties of pareto undominated allocations for various equitability requirements when there is one output the marginal income tax rate can increase only if leisure is a luxury in a multi commodity model with commodity taxes the goods preferred by the low skilled agent and or those with high hicksian elasticities are taxed more heavily when preferences exhibit quasi linearity we can show that the introduction of the equitability constraint increases the marginal income tax rates of the entire population

tax evasion and optimal commodity taxation abstract this paper incorporates tax evasion into ramsey s optimal taxation problem it provides i a precise and intuitive characterization of the tradeoff between optimal tax rates and audit probabilities and ii a modified version of the ramsey equation it also proves that in the presence of tax evasion a the well known requirement of proportional reduction in compensated demands b the traditional result on the optimality of uniform taxation when income is exogenous and c the equivalence of wage and uniform commodity taxes are no longer valid

optimal taxation in a habit formation economy abstract this paper studies habit formation in consumption preferences in a dynamic mirrlees economy we derive optimal labor and savings wedges based on a recursive approach we show that habit formation creates a motive for subsidizing labor supply and savings in particular habit formation invalidates the well known no distortion at the top result we demonstrate that the theoretical findings are quantitatively important in a parametrized life cycle model average labor and savings wedges fall by more than one third compared with the case of time separable preferences

empirical studies of depreciation this paper surveys empirical research on depreciation based on an econometric model of asset prices introduced by hall in 1971 and shows how hall s model provides a vehicle for unifying research on constant quality price indices and depreciation an additional objective of the paper is to illustrate the use of this research in constructing an integrated system of income product and wealth accounts a system of vintage accounts like that originated by christensen and jorgenson in 1973 is the key to successful integration

capital income taxation when inherited wealth is not observable this paper extends the atkinson stiglitz model of direct and indirect taxation to a dynamic setting with two unobservable characteristics productive ability and inherited wealth bequests are motivated by the joy of giving a child s inheritance is a random variable with a probability distribution that depends on his parent s investment in a bequest technology public borrowing is assumed and implies the modified golden rule we study the optimal tax policy when two instruments are available a non linear wage income tax and a proportional tax on capital income we show that the second instrument ought in general to be used but that the tax rate is not necessarily positive however a positive tax rate is more likely when there is a positive correlation between inherited wealth and innate ability

tacit collusion and international commodity taxation the paper employs a model of dynamic price competition to study how international commodity taxation affects the stability of collusive agreements when producers in an international duopoly agree not to export into each other s home market we consider both the choice of international tax principle and the harmonization of tax rates and differentiate between a setting where production costs differ between countries and a setting where exogenous tax rate differentials are the only asymmetry the conclusions derived from this model differ strongly from those obtained under the assumption of competitive product markets

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages

uncertainty and optimally uniform commodity taxes this paper examines the implications of uncertainty for the structure of optimal commodity taxes in the presence of a linear income tax consumers face uncertain income and commit to consumption of some goods before the resolution of uncertainty and to others after preferences are separable between labor and consumption goods we prove that optimal commodity taxes are i uniform within the category of noncommitted goods if their subutility is logarithmic ii uniform within the two categories if both subutilities are logarithmic and iii nonzero across categories with the tax rate on precommitted goods being lower than the tax rate on noncommitted goods starting with atkinson and stiglitz 1976 a number of economists have argued that under certain restrictions on preferences e g logarithmic a linear income tax is a sufficient tool for optimal tax policy see atkinson 1977 deaton 1979 and deaton and stern 1986 recently cremer and gahvari 1995a showed that these results do not carry to an economy in which individuals face wage uncertainty in models with uncertainty taxation is useful for the insurance it provides if consumption takes place both before and after the resolution of uncertainty commodity taxes will have different insurance properties depending on when consumption occurs this property makes differential tax treatment of these two types of goods optimal cremer and gahvari 1995a divided commodities into two categories the consumption levels in one category are committed to before the resolution of uncertainty and those in the other after their study pinpoints a fundamental difference between these categories of goods that calls for their tax treatment to be different however their analysis leaves open the question of the uniformity of tax rates within each category the main aim of the current paper is to address this question we shall examine the type of preferences for which the tax rates within each category have to be uniform in this way we will build a bridge between the results of cremer and gahvari 1995a and the literature on uniform taxation in the presence of a linear

labor and capital income taxation fiscal competition and the distribution of wealth this paper studies optimum income taxation in a small open economy where households differ with respect to their endowments with wealth the government raises taxes on income from labor and wealth and a source tax on capital used in domestic production to avoid taxes households may at some cost shift capital to labor income and vice versa the government can only observe income after shifting has taken place it turns out that the optimal source tax on capital is negative the optimal income tax is characterized by a positive marginal tax rate for the wealthy households which is equal for labor income and income from wealth for the poor households the marginal tax rate on capital income is higher than that on labor income we also study international tax coordination and show that a reduction in the source subsidy on capital raises welfare

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic