reforms of environmental policies in the presence of cross border pollution and public private clean up we construct a two country model where pollution from production is transmitted across borders pollution abatement is undertaken by both private producers and the public sector we characterize nash optimal levels of the policy instruments in the two countries emission taxes and funds allocated for public abatement activities we examine the implications of a number of multilateral policy reforms one of our findings is that the magnitude of the beneficial effect of a reform depends on the scope of the reform if it is restricted to a subset of policy instruments then the efficacy of environmental policy reform can be greatly undermined

redistributing income and relative efficiency i introduction the welfare costs associated with a demo grant reform and with spending on a publicly provided good have been extensively investigated as in browning and johnson 1984 stuart 1984 and ballard 1988 the welfare cost of marginal spending on earnings or wage subsidies has received less attention even though as scholz 1996 reports the income subsidy rate of the earned income tax credit eitc has increased from 10 to 40 in the past 20 years 1 triest 1994 and browning 1995 are two articles that analyze the welfare gains and losses associated with reforms to the eitc triest concludes that the eitc is a relatively efficient way to redistribute income whereas browning suggests considering alternative methods of assisting the working poor this article calculates the welfare gains and losses for marginal reforms to three different policies designed to redistribute income increased spending on an earnings subsidy program as defined by the eitc is compared with the effects of higher spending on means tested cash transfers to low income households a negative income tax nit an nit is used to represent welfare policies because hoffman and siedman 1990 suggest that programs such as aid to families with dependent children afdc have properties similar to an nit reforms to the nit and eitc are compared to the effects of increasing the subsidy rate of a wage subsidy or a negative wage tax as defined by browning 1973 understanding the normative effects of an earnings subsidy are important because the eitc has grown and it is now larger than the food stamp program although the eitc is best known as an earnings subsidy it actually has three phases for a household with one child in 1997 labor income up to 6 500 is subsidized at a rate of 34 households receive the subsidy in the form of a refundable tax credit and the household receives a check from the government if their credit exceeds their tax liability for income between 6 500 and 11 930 households receive the maximum tax credit but for earnings above 11 930 the tax credit diminishes 15 98 cents for every dollar earned according to rosen 1999 over 70 of those receiving a tax credit are in the last two phases of the program for these households the credit takes the form of a cash transfer and for most it is a means tested transfer unlike traditional assistance to the poor the eitc only provides assistance to those employed a priori one might expect a subsidy on labor earnings to be more efficient than an nit at redistributing income to the working poor this view is consistent with the survey results of fuchs et al 1998 who find that economists do not generally support increased funding of programs such as afdc however if the eitc is just an nit for most households it services it is not obvious that the eitc is more efficient at marginally redistributing income to the poor steuerle 1990 envisioned that effort would be made to convert the tax credit system to an hourly wage subsidy more recently browning 1995 suggested that a negative wage tax nwt be considered instead of the eitc an nwt like that proposed by browning 1973 1995 involves subsidizing the difference between a target wage rate and a household s actual wage rate and it does not have a cash transfer or the high positive implicit marginal tax rates mtrs associated with most redistributive programs browning 1973 demonstrates that a wage subsidy is more efficient that an nit but less is known about the relative efficiency of an nwt and the eitc traditional welfare programs such as afdc and food stamps provide most of their benefits to those who receive no labor income whereas wage and income subsidies only aid those employed how does one compare redistributive programs that serve different populations to address this question two different sets of reforms are considered

on the nonexistence of market equilibria in exhaustible resource markets with decreasing costs this paper examines the existence of competitive equilibria in markets for exhaustible resources where there are initial economies of scale in either the extraction of the resource or the utilization of the resource as an input in production in such instances which are fairly common we find that the classic hotelling rule for competitive extraction does not apply since competitive price equilibria generally do not exist this is in marked contrast to static markets where the usual textbook example of firms with u shaped average cost curves is not inconsistent with the existence of competitive equilibria furthermore oligopolistic market equilibria in which resource firms act as nash producers may also fail to exist when there are returns to scale in production

exhaustible resources non convexity and competitive equilibrium theoretical underpinnings of competitive equilibrium in an exhaustible resource market with non convex u shaped costs are proposed the analysis extends to intertemporal production novshek and sonnenschein s approximation of static competitive equilibrium by limits of cournot equilibria a problem with using novshek and sonnenschein s method is that oligopolistic equilibrium even an open loop equilibrium to which limits might be applied does not exist when there is a non convex technology using epsilon equilibrium as the equilibrium concept finesses this problem there are two types of limiting competitive equilibrium a third type of competitive equilibrium that has been prominent in the literature is found to be inconsistent with limiting approximations

nonconvexity efficiency and equilibrium in exhaustible resource depletion we consider the problem of efficiency and existence of a competitive equilibrium in exhaustible resource markets where extraction costs are nonconvex nonconvexity is shown to imply that 1 efficient extraction ceases to the left of the minimum efficient scale i e where average costs exceed marginal costs and 2 a competitive equilibrium does not exist introduction of a backstop technology which induces a flat portion of the industry demand curve restores both existence and efficiency provided that the backstop price is sufficiently low if firms face even a small amount of uncertainty regarding their rivals stocks a backstop technology is sufficient to restore existence of competitive equilibrium even if the backstop price is very high in this case however the competitive equilibrium is not efficient

in work benefits in the united states the earned income tax credit the earned income tax credit eitc is or soon will be the largest cash or nearcash benefit provided to low income households in the united states the eitc is a credit on the federal income tax available to working poor families with children in i994 the credit equals 26 3 of earned income wages salaries self employment income and farm income for taxpayers with one child up to an earned income of 7 750 hence the maximum benefit is 2 038 for families with one child because benefits increase with earned income up to a certain point the eitc seems to encourage work and therefore is a popular antipoverty programme taxpayers with one child and incomes above 7 750 but below i i ooo receive the maximum benefit taxpayers with one child whose incomes exceed i i ooo are in the phase out range of the credit their 2 038 credit is reduced by i5 98 cents for every dollar of income earned over and above i i ooo taxpayers with two or more children are entitled to a slightly larger credit 2 528 or 30o0 0 of 8 425 which is phased out at a i 7p68 0 rate a small credit of at most 306 was available to childless taxpayers betnween the ages of 25 and 64 for the first time in i 994 unlike most credits and deductions in the federal individual income tax system the eitc is refundable that is if the amount of the credit exceeds what the taxpayer owes he or she receives a payment from the us treasury for the difference the eitc was adopted in i975 and was originally promoted as a way to relieve the burden of the social security payroll tax on low wage working parents 2 the original eitc equaled io 0 of earnings up to a maximum credit of 400 for taxpayers with children and was phased out at a rate of io cents per dollar of earnings or adjusted gross income whichever was higher for incomes between 4 ooo and 8 ooo the eitc has been increased many times since i975 though the largest changes occurred in i990 and i993 in i996 when the i993 legislative changes are fully phased in the credit rate will be 40 0 of earnings for families with two or more children and 34 0 for families

the marginal cost of raising tax revenue and redistributing income we present analytic formulas for calculating marginal welfare costs when taxes are levied against the wages of a heterogeneous population of households and marginal tax revenue finances either the supply of a public good or lump sum transfers the formulas are applied to explain the wide discrepancy between estimates of marginal welfare costs for redistribution previously obtained through computer simulation procedures our calculations reveal that these procedures introduced lump sum transfers that were not specified as part of the reforms to be simulated but explain most of the differences between their estimates we also show that welfare cost estimates are quite sensitive to the elasticity of labor supply with respect to exhaustive public spending

the relationship between the marginal cost of public funds and marginal excess burden a large literature has recently developed which attempts to measure the marginal cost shadow price of public funds the motivation for much of this literature is the recognition that many of the tax instruments used by governments generate substantial amounts of excess burden deadweight loss jerry a hausman 1981 for example estimates that for an average prime aged american male with a wage of ten dollars in 1975 the excess burden generated by the federal income tax was over fifty percent of the revenue raised from taxing that individual one might suspect that such large excess burden estimates would require a change in the way government project costs are calculated in benefit cost analysis if the revenue required to finance a project is raised through distortionary taxation then intuition would suggest that the excess burden generated by the increase in tax rates needed to finance the project should be incorporated into the cost of the project however this analysis is not entirely consistent with the theoretical literature on the optimal provision of public goods which are financed by distortionary taxation when distortionary taxes are used to finance public goods and the level of public good provision does not affect consumption of the taxed goods the standard samuelsonian rule which equates the sum over consumers of the marginal rates of substitution between a private good and a public good with the marginal rate of transformation between the two goods must be modified to account for the marginal effect of increases in tax rates on the revenue raised from the existing taxes 2 the intuition behind this result is that we need to correct for indirect leakages from existing government revenue sources when considering an incremental expenditure if the increase in tax rates needed to finance the project causes a reduction in the revenue raised by the current tax structure then we need to account for this loss in calculating the cost of the project it is important to note that this result concerns the values of uncompensated demand elasticities an example first provided by atkinson and stern 1974 illustrates this point consider a world where the only tax is on labor earnings and incremental expenditure on the public good does not affect the demand for leisure in this case the marginal rate of transformation will overstate the cost of the public good as long as the uncompensated wage elasticity of labor supply is negative this is because an increase in the tax rate causes an increase in labor supply leading to an indirect increase in government revenue from the excess burden perspective described earlier this example is very puzzling it is well known that even if the uncompensated own price elasticity of a good is zero a tax on that good can still result in a large deadweight loss we instead need the compensated elasticity to be zero to ensure that there will be no excess burden however the department of economics university of california davis ca 95616 this paper is based on chapter two of my dissertation at the university of wisconsin madison i wish to thank the members of my dissertation committee martin david robert haveman chair and arthur goldberger for very helpful advice and comments i have also benefited from comments by don fullerton and bruce hamilton an anonymous referee provided unusually helpful comments and corrected an error in the figure 1don fullerton 1989 provides a recent survey and analysis of this literature 2this is shown by anthony atkinson and nicholas h stern 1974 and david e wildasin 1979 the effect of provision of the public good on consumption of the taxed goods must also generally be taken into account

the trade off between equality and efficiency this paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax transfer system the analysis uses a simulation methodology in which only the labor supply effects are evaluated other behavioral effects are ignored the most striking finding is that marginal cost is quite high even for modest labor supply elasticities for example in the benchmark case with a weighted average economy wide uncompensated wage elasticity of 0 2 and compensated elasticity of 0 31 the disposable money income of upper income quintiles of households is depressed by 9 51 for each dollar increase in the disposable money income of lower income quintiles when income equivalent values that take account of the value of leisure are compared the marginal cost for this case is estimated to be 3 49

does environmental regulation create merger incentives this paper studies merger incentives for polluting cournot firms under a competitive tradable emission permits market we find that when firms are symmetric and marginal costs are constant an horizontal merger is welfare enhancing if efficiency gains are high enough for the merger to take place the presence of a competitive or monopolistic outside market that also trades in the permits market makes profitable a merger that would not happen otherwise when firms are vertically related in an input output chain an horizontal merger in one of the markets increases profits in the other market due to the permits price decrease finally we consider an oligopoly fringe model in which firms differ in their marginal production costs a merger between the dominant oligopolistic firms decreases the permits price and is always profitable such setting is relevant to assess the observed mergers between power generators in several market for permits like the regional greenhouse gas initiative rggi allowing us to derive some policy recommendations

oligopoly equilibria in nonrenewable resource markets abstract most nash cournot oligopoly models of nonrenewable resources apply open loop equilibrium concepts and are based on physical resource depletion this paper studies feedback equilibria and economic depletion assuming affine quadratic functional forms the existence uniqueness and explicit solutions for the equilibria are derived for duopoly and n player oligopoly with multiple resource stocks for the cases of nonquadratic criteria we develop a numeric solution scheme for the nash feedback equilibrium this scheme is an application of a discrete time discrete state controlled markov chain approximation method originally developed for solving deterministic and stochastic dynamic optimization problems in our nash cournot equilibrium the degree of concentration in supply declines over time whereas the previous models with physical depletion and open loop equilibrium concepts predict that a nash cournot resource market will develop in the direction of monopoly supply

merger policy in open economies abstract we extend farrell and shapiro s 1990 analysis of horizontal mergers to the case of an open economy we show how the rules for approving a merger ought to be adapted to account for the fact that the regulator is only concerned with domestic welfare that is ignores the effect of the merger on foreign firms and consumers we also explore the consequences of this externality in a model of a single market which includes consumers and producers of different countries in particular we provide conditions under which a decentralized process of evaluating merger proposals a la farrell shapiro can survive the externality mentioned above

economists views about parameters values and policies survey results in labor and public economics specialists in labor economics and public economics at 40 leading research universities provided opinions of policy proposals quantitative best estimates and 95 percent confidence intervals for economic parameters and answers to values questions regarding income redistribution efficiency versus equity and individual versus social responsibility their positions on policy are more closely related to their values than to their estimates of relevant economic parameters average best estimates of the economic parameters agree well with the relevant literature but individual best estimates are usually widely dispersed the individual 95 percent confidence intervals are much narrower than the substantial cross respondent variation in estimates would warrant

alternative programs for income redistribution the nit and the nwt economists have devoted considerable attention to the analysis of the advantages and disadvantages of the negative income tax nit as a mechanism for income redistribution surprisingly little attention has been given to any significantly different alternative to the nit most analyses simply compare one variant of the nit to another but recently several writers have suggested that a form of wage subsidy offers significant advantages over the nit 1 this paper is an attempt to provide a more complete comparision of these two forms of transfer programs with an emphasis on the aggregate labor market consequences needless to say no attempt is made to consider all repercussions of these policies instead emphasis is focused on labor supply effects and related conditions for economic efficiency section i is an analysis of the effects of implementing a nit when no other transfer programs are present section ii is a similar analysis for a form of wage subsidy which will be referred to as the negative wage tax or nwt section iii uses the analysis of the preceding sections to provide a comparison of the nit and nwt on two counts their incidence and welfare cost

horizontal mergers with free entry abstract we consider the impact of horizontal mergers in the presence of free entry and exit in contrast to much of the previous literature on mergers our model yields predictions that seem intuitively reasonable with only moderate cost synergies mergers of a small number of industry participants are beneficial even under quantity competition there is no free rider problem in that insiders always benefit more than outsiders and quantity setting and price setting games yield similar predictions about profitability we also derive two welfare results that hold under quantity competition with homogeneous goods if the initial no merger equilibrium is symmetric then with free entry 1 a horizontal merger has no impact on the equilibrium price and 2 all privately beneficial mergers are socially beneficial

are big mergers welfare enhancing when there is environmental externality abstract previous studies find that horizontal merger deals that consolidate a majority of firms in the market are likely to reduce welfare this study provides an in depth analysis of the relationship between the size of a merger and welfare in industries with environmental externality in an international framework we show that in a market where more than 50 of firms have merged a further increase in the size of the merger could increase or decrease welfare depending on two previously unexplored factors i a given threshold of size of a merger and ii the pollution intensity of firms furthermore we show that the relationship between welfare and size of merger can be affected by an exogenous change in emission tax at home and in a foreign country

marginal welfare costs of taxation with human and physical capital i introduction marginal welfare cost of taxation is the amount by which the social cost of an additional tax dollar differs from 1 because of distortionary taxation browning and johnson 1984 stuart 1984 browning 1987 ballard 1988 and allgood and snow 1998 use static models of the u s economy in which labor supplies adjust but the stocks of human and physical capital are fixed to calculate estimates of this welfare cost relevant to cost benefit analysis the studies by lucas 1990 and perroni 1995 incorporate human and physical capital into calculations of excess burden for the purpose of comparing alternative tax systems but do not address the welfare costs of marginal tax and spending reforms ballard et al 1985 and judd 1987 provide estimates of welfare cost using models that allow the stock of physical capital to change in response to marginal reforms but the stock of human capital is exogenous in these studies however judd 2001 argues that there is ample evidence indicating that human capital investment decisions have a significant effect on the cost of altering the tax system which suggests that these decisions could also have an important influence on marginal welfare cost in this article we present estimates of welfare costs for marginal reforms to government tax and spending policies when labor supply saving and education decisions are all endogenous we focus our analysis on marginal reforms because as skinner and slemrod 1985 observe most policy reforms enacted do not involve replacing one tax or spending system with another but instead typically entail marginal adjustments in tax laws and government appropriations using a perfect foresight overlapping generations model with a three period life cycle we derive analytical expressions for the changes in labor supply saving and education and use them to calculate marginal welfare cost as shown by auerbach et al 1983 in overlapping generations models steady state welfare comparisons of alternative tax policies are biased unless households are compensated for intergenerational redistribution along the transition path to arrive at our steady state estimates of welfare costs we adapt the compensation method introduced by gravelle 1991 for analyzing fundamental tax reforms to the context of incremental tax and spending reforms in a static one consumer model triest 1990 has shown that marginal welfare cost mwc is positive solely because of tax leakage the decline in tax revenue caused by reductions in the tax base we extend this insight to an intertemporal context that incorporates tax leakage arising from changes in both human and physical capital investment we evaluate three sets of reforms first a revenue neutral reduction in the tax on capital income funded by a higher tax on labor income second spending on a public good financed by either a higher tax on labor or interest income third a per capita lump sum transfer or demogrant also funded by either a higher tax on labor or interest income we find that marginal welfare costs are uniformly lower in the dynamic model where investment decisions are endogenous than in the static model where investment decisions are fixed and that the majority of the difference between the dynamic and static estimates is attributable to human capital decisions the principal reason is that a reallocation of time between labor hours and human capital investment has opposing and potentially offsetting effects on effective labor supply as a result labor supply responds less elastically in the dynamic model and changes in labor supply are the main source of tax leakage because wage taxation is the main source of tax revenue we also find that shifting marginal financing from capital to labor results in a lower welfare cost the reason being that such a change encourages saving which increases wage rates and stimulates labor supply leading to a reduction in marginal welfare costs