historical reference hume and critical realism the purpose of this paper is to make the case for discussing developments in the history of thought as having the potential to inform modern discussion this is not to deny the importance of context or that new knowledge emerges over time which was not available to earlier thinkers but neither is taken as sufficient reason to deny any possibility of us learning from past thought the case is made by means of discussion of the particular relevance of david hume s thought for critical realism this is particularly controversial in that hume has been identified by critical realists as the inspiration for logical positivism from which critical realism dissents while critical realism is a body of thought of recent development it is argued here that hume has sufficient in common with critical realism to warrant considering the possibility that critical realists might learn from hume the notion that context is significant is used constructively by suggesting that important elements in common between the contexts of hume and of modern discussions reinforce the potential value of considering hume s ideas it is concluded that there is the potential for growth in knowledge from reference between the history of thought and modern discussions in economics and in particular between the nature and origins of hume s thought and the development of critical realism

the good the bad and the regulator an experimental test of two conditional audit schemes conditional audit rules are designed to achieve regulatory compliance with fewer inspections than required by random auditing a regulator places individuals into audit pools that differ in probability of audit or severity of fine and species transition rules between pools future pool assignment is conditional on current audit results we conduct an experiment to compare two specific schemes harrington s past compliance targeting and friesen s optimal targeting against random auditing we find a production possibility frontier between compliance and minimizing inspections optimal targeting generates the lowest inspection rates as predicted but random auditing the highest compliance past compliance targeting is intermediate

realist philosophy of the social sciences and economics a critique this paper deals with critical realism as a contribution to the philosophy of the social sciences in the first section critical realism is introduced differences from other philosophies of sciences espicially positivism and falsificationism are discussed in the second section critical realism is criticised first for failing as a normative philosophy of science second for relying upon an impoverished notion of knowledge acquistion and finally for its unsuitablity as a contribution to social theory

measurement error and state dependent pollution control enforcement abstract a two group model of state dependent enforcement is applied to identical firms which minimize the expected present value of costs and fines measurement error affects the probabilities of transitions between groups and the receipt of fines it is shown that state dependent enforcement can reduce social cost below the level attainable with static enforcement and that differentiation in both monitoring probabilities and standards may be optimal however setting fines for both groups at the maximum is likely to be optimal comparisons between models and alternative model interpretations are offered

differentiated products increasing returns to scale and heterogeneous firms in a cge model of the australian coal sector we use a computable general equilibrium cge model to re evaluate the effects of the introduction of a tax on co2 emissions in australia after incorporating a number of important aspects of australian coal production while other studies for example commonwealth of australia 2008a clarke and waschik 2012 model coal as a single aggregate sector we disaggregate coal into black and brown coals brown coal is non traded while most black coal is exported and brown coal has a higher emission intensity than black coal coal is a differentiated product whose production is characterized by the existence of very large fixed costs and considerable differences in the ratio of capital expenditures to capacity between coal mines so we use balistreri and rutherford 2012 and melitz 2003 to incorporate increasing returns to scale production technology and heterogeneous productivities between monopolistically competitive coal firms we find that while the aggregate effects of achieving a given level of abatement are largely unaffected by disaggregation of coal the effects within the black and brown coal sectors are very different the introduction of increasing returns to scale and heterogeneous firms does have important effects on the aggregate welfare costs of achieving a given level of abatement when monopolistically competitive coal producers face more inelastic demand welfare costs rise firm exit falls and the carbon price needed to achieve a given level of abatement falls

a reconsideration of enforcement leverage when penalties are restricted abstract harrington s 1988 model of state dependent enforcement of pollution standards indicates the potential for significant reductions in monitoring cost however this approach results in firms with identical pollution cost functions polluting at different levels and thereby failing to minimize control cost for a given total pollution reduction derivations indicate that a state independent approach with a modified standard will often yield a lower sum of pollution control and monitoring cost for a given level of pollution control

regulatory performance of audit tournaments and compliance observability this paper examines the effectiveness of traditional regulatory schemes and newly emerging social information schemes for achieving compliance our experiment focuses on two stochastic audit schemes for enforcing regulatory compliance in the random audit mechanism firms are randomly chosen for inspection in the tournament audit mechanism the probability of inspection increases with the degree of estimated underreporting to study the effects of social information the experiment varies the observability of identity output and compliance decisions optimal output is theoretically independent of the auditing scheme but equilibrium reporting is higher under the tournament mechanism than random auditing experimental findings are broadly consistent with the theoretical predictions for reporting but deviate modestly for output in particular we find that average output is lower and reporting is higher in the tournament treatment compared to the random audit treatment at the individual level a majority of participants misreported in most periods social observability does not affect output or reporting significantly in either of the audit treatments

enforcement leverage when penalties are restricted in the united states empirical studies of the enforcement of continuous compliance with environmental regulations especially air and water pollution regulations have repeatedly demonstrated the following i for most sources the frequency of surveillance is quite low ii even when violations are discovered fines or other penalties are rarely assessed in most states iii sources are nonetheless thought to be in compliance a large part of the time the evidence for the apparently low level of enforcement activity is found in a number of case studies of state and local enforcement of air and water quality regulations conducted jointly by the environmental protection agency epa and council on environmental quality ceg together with periodic surveys of implementation of air and water quality legislation conducted by the general accounting office gao these surveys show

ambiguity about audit probability tax compliance and taxpayer welfare we show that an increase in uncertainty about the probability of being audited ambiguity increases tax compliance for ambiguity averse taxpayers but reduces compliance for ambiguity lovers because experimental evidence reveals considerable heterogeneity with respect to ambiguity preferences we conclude that fostering uncertainty about the probability of being audited may not be an effective policy for increasing taxpayer compliance moreover because the tax authority can neither categorize nor screen taxpayers on the basis of their preferences for ambiguity it is not likely to be either a useful or a desirable instrument for increasing taxpayer welfare jel h26 d81

michal kalecki and critical realism in this article we identify three key reasons for considering kalecki s work within the context of debates about post keynesian economics and critical realism we then use six criteria to assess whether his work is consistent with a critical realist approach to empirical research and theory development we conclude that kalecki s work fits within the tenets of critical realism and provides insights for those wishing to include formal modelling and econometric techniques within a critical realist framework copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the value added of sectoral disaggregation implications on competitive consequences of climate change policies global impact assessment of unilateral climate policies is commonly based on multi sector multi region computable general equilibrium cge models that are calibrated to consistent accounts of production consumption and bilateral trade flows however global economic databases such as gtap treat energy intensive and trade exposed industries rather in aggregate thereby missing potentially important details on the heterogeneity of these sectors in this paper we elaborate on the availability of data resources and methodological issues in disaggregating energy intensive and tradeexposed sectors that receive larger attention in the public policy debate on unilateral emission regulation non ferrous metals iron and steel and non metallic minerals our sensitivity analysis revolves around three types of unobserved heterogeneity at the sub sectoral level trade elasticities energy consumption and technology specifications drawing on the example of border tax adjustments we find that for all given technology specifications and variation in energy shares the biggest differences emerge from variations in armington elasticities even moderate changes in armington elasticities can alter the magnitude and the sign of the effects at the sectoral level the implications of sub sectoral disaggregation are not as pronounced for macroeconomic indicators and leakage as for sectoral indicators

using competition to stimulate regulatory compliance a tournament based dynamic targeting mechanism abstract this article develops a tournament based dynamic targeting mechanism for achieving regulatory enforcement leverage in contrast to existing models which rely on a representative agent we model a game among a regulated group of agents possibly heterogeneous in their levels of a regulated activity that compete through their compliance decisions to avoid being targeted for future audits the empirical properties of the dynamic tournament are established using economics experiments in particular we test comparative statics highlight the importance of inducing competition through comparisons with a non competitive standards based targeting mechanism and demonstrate enforcement leverage through comparisons with simple random audits the experiments suggest that the dynamic tournament induces incentives consistent with theory and overall we find that introducing competition in the regulatory enforcement arena may have important advantages

designing climate mitigation policy this us paper provides an exhaustive review of critical issues in the design of climate mitigation policy by pulling together key findings and controversies from diverse literatures on mitigation costs damage valuation policy instrument choice technological innovation and international climate policy the authors begin with the broadest issue of how high assessments suggest the near and medium term price on greenhouse gases would need to be both under cost effective stabilization of global climate and under net benefit maximization or pigouvian emissions pricing the remainder of the paper focuses on the appropriate scope of regulation issues in policy instrument choice complementary technology policy and international policy architectures

robust technology policy against emission leakage the case of upstream subsidies asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage which hampers countries welfare in order to limit leakage governments consider supporting domestic trade exposed firms by subsidizing their investments in abatement technology the suppliers of such technologies tend to be less than perfectly competitive particularly when both emissions regulations and advanced technologies are new in this context of twin market failures we consider the relative effects and desirability of subsidies for abatement technology we find a more robust recommendation for upstream subsidies than for downstream subsidies downstream subsidies tend to increase global abatement technology prices reduce pollution abatement abroad and increase emission leakage on the contrary upstream subsidies reduce abatement technology prices and hence also emissions leakage

endogenous audits uncertainty and taxpayer assistance services theory and experiments abstract in recent years there has been a sharp rise in the information available to individual income taxpayers such as through tax preparation software provided by third parties and support available by tax agencies but the effects of this information on tax reporting are not well understood within a setting characterized by an endogenous audit process and taxpayer uncertainty this study uses theory and laboratory experiments to investigate the effects of taxpayer assistance services that better inform taxpayers about their tax liability and the audit process the endogenous audit rule we study is simple yet relative to existing work is more likely to characterize the actual incentives facing taxpayers among our findings and in contrast to the case of purely random audits in theory the effect of providing more accurate information on tax liability is ambiguous and we find support empirically for increased tax underreporting even in a setting where theory predicts the opposite this unanticipated result is mitigated when services provide better information on both liability and the audit process suggesting that audit information may be more salient to participants

on categorical variables and non parametric statistical inference in the pursuit of causal explanations this paper proposes a pragmatic alliance between critical realism and non parametric statistical techniques in pursuit of causal explanations of economic phenomena by retroductive means the alliance depends on clarifying the interpretive requirements for forming categories within nominal or classificatory scales or as ordinal or ranking scales it also depends on establishing the scope of demiregularities as something to be explained and as something that allows a rough and ready extension of experimental conditions the roughness and readiness of demiregularities is matched by the assumptions and conditions of non parametric analysis

pollution taxes and revenue recycling abstract discussions of environmental policy and the tax system have emphasized the value of pollution tax revenues which can be used to reduce other tax distortions in the economy however by raising private marginal production costs environmental taxes also tend to reduce gdp and exacerbate the welfare costs of conventional taxes for environmental taxes in consumption goods industries the net welfare change from these two effects is negative unless this good is a relatively weak substitute for leisure an estimate for the optimal pollution tax with full revenue recycling is 63 to 78 of marginal environmental damages

the enforcement of pollution control laws inspections violations and self reporting targeting is the practice of inspecting firms most likely to violate a regulation this paper provides empirical evidence on the role of targeting in regulatory compliance i propose that self reporting by a firm is used to demonstrate that firms are willing to cooperate the results indicate that there is a one quarter penalty period following a violation inspections are also determined by the economic situation of the surrounding community demonstrating that targeting opens the door to interest group influence inspections that detect violations encourage self reporting showing that firms demonstrate their desire to cooperate with regulators by disclosing violations

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

two studies of women s retirement incomes in australia assessing some outcomes of pluralism in economic research to illustrate the potential use of plural research methods two studies of australian women s retirement incomes are examined the first study employed quantitative microsimulation techniques its outcomes emphasised low lifetime earnings as a cause of women s lower retirement incomes the second study used an inductive approach known as grounded theory and its conclusions emphasised household decision making processes as a cause of both women s low lifetime earnings and lower retirement incomes using runde s criteria for assessing causal explanations a comparison is made of the outcomes of the two studies the conclusion is that rather than being seen as competing accounts the outcomes of the two varying research methods can be viewed as complementary by demonstrating the different insights afforded by contrasting research methods this paper provides some support for pluralism of research methods within the discipline of economics

tax compliance and firms strategic interdependence we focus on a relatively neglected area of the tax compliance literature in economics the behaviour of firms we examine the impact of alternative audit rules on receipts from a tax on profits in the context of strategic interdependence of firms the enforcement policy can have an effect on firms behaviour in two dimensions their market decisions as well as their compliance behaviour an appropriate design of the enforcement policy can thus have a double dividend by manipulating firms in both dimensions

downstream regulation of co2 emissions in california s electricity sector this paper examines the implications of alternative forms of cap and trade regulations on the california electricity market specific focus is given to the implementation of a downstream form of regulation known as the first deliverer policy under this policy importers i e first deliverers of electricity into california are responsible for the emissions associated with the power plants from which the power originated even if those plants are physically located outside of california we find that absent strict non economic barriers to changing import patterns such policies are extremely vulnerable to reshuffling of import resources the net impact implies that the first deliverer policies will be only marginally more effective than a conventional source based regulation

incentive generating state dependent penalty system the case of income tax evasion abstract penalty systems can very often be looked upon as corrective measures established in order to eliminate or reduce costly externalities generated by optimizing economic agents hence penalties can be viewed as regulatory measures and their efficient structure should be of interest to economists we propose a dynamic incentive generating penalty system which if instituted may reduce at a given cost the generation of undesirable externalities the special case to which we refer is income tax evasion although our scheme should be applicable to any kind of externalities such as pollution of the environment violation of antirust laws and others which are created by repititive actions of economic agents

an experimental study of compliance and leverage in auditing and regulatory enforcement evidence suggests that a large majority of firms and individuals comply with regulations and tax laws even though the frequency of inspections and audits is often low moreover fines for noncompliance are also typically low when regulatory violations are discovered these observations are not consistent with static compliance models harrington 1988 modified these static models by specifying a dynamic game in which some agents have an incentive to comply even when the cost of compliance each period is greater than the expected penalty this paper reports a laboratory experiment based on the harrington model framework in which subjects move between two inspection groups that differ in the probability of inspection and severity of fine subjects decide to comply or not in the presence of low medium or high compliance costs enforcement leverage arises in the harrington model from movement between the inspection groups based on previous observed compliance and noncompliance our results indicate that consistent with the model violation rates increase when compliance costs become higher and as the probability of switching groups becomes lower behavior does not change as sharply as the model predicts however since violation rates do not jump from 0 to 1 as parameters vary across critical thresholds a simple model of bounded rationality explains these deviations from optimal behavior

avoiding tax avoidance a repeated game theoretic approach abstract we propose an optimal auditing scheme for the tax authorities who face a given tax and penalty functions and a given budget constraint under our proposed strategy individuals can be classified into one of three groups each group is characterized by two parameters i the probability of being audited in that group and ii into which group will an individual move if ii a he reported truthfully ii b he cheated it is then shown that there is a choice of these parameters so that in equilibrium i e when every individual maximizes his payoff given the auditing strategy the percentage of individuals that cheat is arbitrarily small

revenue raising vs other approaches to environmental protection the critical significance of pre existing tax distortions using analytical and numerical general equilibrium models we show that preexisting factor taxes produce a tax interaction effect that increases the costs of pollution taxes and quotas under policies that raise revenue and recycle it through cuts in marginal factor tax rates this effect is partially offset by a revenue recycling effect grandfathered pollution quotas such as those used under the 1990 clean air act amendments to regulate electric utilities so2 emissions do not benefit from this offset preexisting taxes raise this regulation s cost by over 70 more than half of this additional cost could be avoided by auctioning quotas and exploiting the revenue recycling effect

output based allocation of emissions permits for mitigating tax and trade interactions the allocation of tradable emissions permits has important efficiency as well as distributional effects when tax and trade distortions are taken into account we compare different rules for allocating carbon allowances within sectors lumpsum grandfathering output based allocation oba auctioning and among sectors historical emissions or value added shares the output subsidies implicit in oba mitigate tax interactions unlike grand fathering oba with sectoral distributions based on value added is similar to revenue recycling with auctioning oba based on historical emissions supports heavier polluters more effectively counter acting carbon leakage but at higher welfare costs less energy intensive sectors are also sensitive to allocation rules