strategic demand side response to wind power integration this paper explores the effects of allowing large price responsive consumers to provide reserves in a power system with significant penetration of wind energy a bilevel optimization model represents the utility maximization problem of a large consumer subject to a stochastic day ahead co optimization of energy and reserves that a system operator would solve to clear the market while considering wind power uncertainty an examination of the market outcomes from both an illustrative and a large scale study using this model allows analysis of a the effects of the type of behavior of the large consumer i e strategic vs competitive b limits on the amount of reserves it is allowed to provide and c variability and accuracy of characterization of wind power uncertainty

time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

optimal investments in power generation under centralized and decentralized decision making this work presents a novel model for optimization of investments in new power generation under uncertainty the model can calculate optimal investment strategies under both centralized social welfare and decentralized profit objectives the power market is represented with linear supply and demand curves a stochastic dynamic programming algorithm is used to solve the investment problem where uncertainty in demand is represented as a discrete markov chain the stochastic dynamic model allows us to evaluate investment projects in new base and peak load power generation as real options and determine optimal timing of the investments in a case study we use the model to compare optimal investment strategies under centralized and decentralized decision making a number of interesting results follow by varying the assumptions about market structure and price response on the demand side

intratemporal substitution and government spending in this paper we examine the idea that a general model of consumption should allow for the direct effect of government expenditures in a two good permanent income model we show given an assumed preference specification that there is a cointegration restriction implied by an intraperiod first order condition of the model this restriction leads to a linear deterministic cointegration relation between government spending private consumption and their relative price that is supported by the data using this restriction to recover the preference parameters we estimate the intraperiod elasticity of substitution for both government and private consumption to be about 0 9 overall we find consistent empirical evidence in support of our model

nonpecuniary benefits to farming implications for supply response to decoupled payments we develop a household model wherein farmers allocate labor to maximize utility from leisure consumption and nonpecuniary benefits from farming the model shows that farmers with decreasing marginal utility of income respond to higher decoupled payments by decreasing off farm labor and increasing farm labor resulting in greater agricultural output we then estimate the difference between farm and off farm returns to labor using data from three nationally representative farm household surveys the finding of a large on farm off farm wage differential provides compelling evidence of substantial nonpecuniary benefits from farming

modeling charitable giving using a box cox standard tobit model there is a large literature investigating the determinants of charitable giving in particular price and income elasticities we find that many of the most often reported results from this literature rely on a model specification that is inappropriate when applied to recent federal tax file data we develop a standard tobit model with a box cox transformation parameter that nests a number of other specifications the box cox model yields estimates of price elasticities and expected charitable contributions that differ from those obtained using the typical specification additionally we find that the use of sample weights provides potentially important policy insights copyright 1991 by mit press

the higher returns to formal education for entrepreneurs versus employees how valuable is formal education for entrepreneurs income relative to employees and if the income returns to formal education are different for entrepreneurs vis a vis employees what might be a plausible explanation to explore these questions we analyze a large representative us panel we show that entrepreneurs have higher returns to formal education than employees we refer to this as the entrepreneurship returns puzzle we run post hoc analyses to explore a number of potential explanations of this puzzle indirectly our analysis indicates that the higher returns to formal education for entrepreneurs might be due to the fewer organizational constraints they face leading to more personal control over how to use their human capital compared to employees

optimal monetary policy when lump sum taxes are unavailable a reconsideration of the outcomes under commitment and discretion we re examine optimal monetary policy when lump sum taxes are unavailable under commitment we show that with alternative utility functions to that considered in nicolini s related analysis the direction of the incentive to cheat may depend on the initial level of government debt with low debt creating an incentive towards surprise deflation but high debt the reverse under discretion we show that the economy will not necessarily tend to the friedman rule as obstfeld found instead it may tend to the critical debt level at which there is no cheating incentive under commitment and inflation and could well be positive here

models of policy under stochastic replanning this paper considers a policy environment in which policy is not set by a single policymaker but by a sequence of policymaking administrations administration turnover is determined by a simple random process the consequences of administration turnover are traced through for two versions of a linear rational expectations model and numerical simulations of various policy environments are presented this abstract was borrowed from another version of this item

debt restructuring with a public good endogenous government expenditure is introduced into lucas and stokey s 1983 model of optimal wage taxation so long as the government can precommit to taxes or to expenditures a debt maturity structure that keeps the value of the debt invariant to interest rate changes will make the optimal policies time consistent in the absence of partial precommitment debt restructuring cannot enforce time consistency but it can still limit the costs of time inconsistency numerical examples show 1 average debt is smaller than under the precommitment solution 2 the debt structure is much longer than under partial precommitment and 3 restricting the government to one period debt overstates the welfare losses from time inconsistency

taxpayer responses in good times and bad abstract i show that the magnitude of taxpayer responsiveness a key parameter in public finance varies through time using linked administrative data and identifying responses from changes in notches i document a marked decline in responsiveness during the great recession that cannot be explained by increased enforcement i characterize which employee employer pairs are best at reporting tax advantaged incomes workers in industries with above average responsiveness such as construction were disproportionately affected by the recession i show responsiveness also declined for workers who remained matched with the same employers throughout the period

strategic generation capacity expansion planning with incomplete information to study the competitive behavior among individual generating companies gencos an incomplete information game model is proposed in this paper in which each genco is modeled as an agent each agent makes strategic generation capacity expansion decisions based on its incomplete information on other gencos the formation of this game model falls into a bi level optimization problem the upper level of this problem is the gencos own decision on optimal planning strategies and energy reserve bidding strategies the lower level problem is the iso s market clearing problem that minimizes the cost to supply the load which yields price signals for gencos to calculate their own payoffs a co evolutionary algorithm combined with pattern search is proposed to optimize the search for the nash equilibrium of the competition game with incomplete information the nash equilibrium is obtained if all gencos reach their maximum expected payoff assuming the planning strategies of other gencos remain unchanged the physical withholding of capacity is considered in the energy market and the herfindahl hirschman index is utilized to measure the market concentration the competitive behaviors are analyzed in three policy scenarios based on different market rules for reserve procurement and compensation

tax evasion and inequality this paper attempts to estimate the size and distribution of tax evasion in rich countries we combine random audits the key source used to study tax evasion so far with new micro data leaked from large offshore financial institutions hsbc switzerland swiss leaks and mossack fonseca panama papers matched to population wide wealth records in norway sweden and denmark we find that tax evasion rises sharply with wealth a phenomenon random audits fail to capture on average about 3 of personal taxes are evaded in scandinavia but this figure rises to close to 30 in the top 0 01 of the wealth distribution a group that includes households with more than 45 million in net wealth a simple model of the supply of tax evasion services can explain why evasion rises steeply with wealth taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly highlighting the need to move beyond tax data to capture income and wealth at the top even in countries where tax compliance is generally high we also find that after reducing tax evasion by using tax amnesties tax evaders do not legally avoid taxes more this result suggests that fighting tax evasion can be an effective way to collect more tax revenue from the very wealthy

assessing the impact of incentive regulation for innovation on res integration investing in innovative smart grids sgs technology can reduce overall investments in distribution systems with unpredictable renewable energy sources res regulators should therefore decide what incentives are desirable and design a flexible economic regulatory framework able to encourage distribution system operators dnos to decide for innovation in the sgs an innovative method that can support the regulators in encouraging res exploitation by determining the right incentives to favor investments in innovation in an electrical distribution network is proposed in this paper the method allows stakeholders like regulators distribution companies and developers evaluating the long term economic effects of their decisions the effectiveness of the proposed method based on non dominated sorting genetic algorithm nsga ii and on multi period optimal power flow mp opf is verified on an 84 bus network

the private financial gains to entrepreneurship is it a good use of public money to encourage individuals to become entrepreneurs recent evidence comparing earnings from entrepreneurship versus wage earning shows that after allowing for obvious observable differences most entrepreneurs in most developed countries earn less than similar wage earning employees does this mean that the decision to become an entrepreneur should be discouraged the answer depends in part on whether we believe that entrepreneurs report their income truthfully or not adjusting for what is considered to be underreporting by entrepreneurs lifts entrepreneurial earnings by between 10 and 40 reversing the fortunes of the entrepreneur such that they appear to be earning much more than their counterparts in a wage earning job if this adjustment should prove to be appropriate then there is no obvious reason to increase the incentive for individuals to become entrepreneurs such as with tax breaks or direct start up subsidies in developed countries and there is reason instead to discuss decreasing these subsidies

wind power investment a benders decomposition approach investment in wind power facilities involves a high level of uncertainty to properly model such uncertainty we consider a large number of scenarios and formulate this investment problem as a mathematical program with equilibrium constraints the target of this problem is to maximize the profit from wind power investment in a target year and it is subject to complementarity constraints describing a large number of market clearing conditions since the profit as a function of the investment variables has as sufficiently convex envelope the considered problem can be solved by benders decomposition thus we propose describe and analyze a benders decomposition algorithm to efficiently tackle the wind power investment problem

estimating tax noncompliance with evidence from unaudited tax returns this article estimates the degree of tax noncompliance using evidence from unaudited tax returns measurements of noncompliance are derived from the relationship between reported charitable contributions and reported income from wages and salary as compared to alternative reported income sources such as self employment farm and other small business income assuming that the source of one s income is unrelated to one s charitable inclinations and that the ratio of true income to taxable income does not vary by income source any difference in the relationship between charitable contributions and the source of income can be attributed to relative underreporting by the individual we find that the implied amount of noncompliance is significant and that it varies by source of income as well as between positive and negative values of each type of income tax evasion creates horizontal inequity and if opportunities for evasion are correlated with income complicates the attempt to achieve vertical equity evasion also imposes economic costs because taxpayers expend resources to facilitate evasion and the tax agency expends resources to contain it the equity and efficiency implications of tax evasion and optimal policy to address it depend on its magnitude and nature which for obvious reasons is difficult to ascertain this article contributes to that effort by developing a new method for estimating the extent and nature of tax noncompliance based on evidence from unaudited tax returns this evidence is derived from the relationship between reported charitable contributions and reported taxable income from various sources such as wages and salaries selfemployment nonfarm small business and farm income and is based on the assumptions that the source of one s income is unrelated to one s charitable inclinations and that the ratio of true income to taxable income does not vary by income source we find that the implied amount of noncompliance on non wageand salary income is substantial and that it varies among these sources of income as well as between positive and negative values of each type of income on average reported positive self employment nonfarm small business and farm income must be multiplied by a factor of 1 54 4 54 and 3 87 respectively in order to obtain true income even those individuals who report zero income for a specific income source but file the schedule for that source are estimated to have true positive income finally those households that report negative schedule income may actually have greater true income than those households that report positive income

an investigation of the gains from commitment in monetary policy this paper proposes a simple framework for analyzing a continuum of monetary policy rules characterized by differing degrees of credibility in which commitment and discretion become special cases of what we call quasi commitment the monetary policy authority is assumed to formulate optimal commitment plans to be tempted to renege on them and to succumb to this temptation with a constant exogenous probability known to the private sector by interpreting this probability as a continuous measure of the lack of credibility of the monetary policy authority we investigate the welfare effect of a marginal increase in credibility our main finding is that in a simple model of the monetary transmission mechanism most of the gains from commitment accrue at relatively low levels of credibility in our benchmark calibration a commitment expected to last for only 6 quarters is enough to bridge 75 of the welfare gap between discretion and commitment this seems to justify the well known concern of monetary policy makers about their credibility even in a world with limited access to commitment technologies

an expenditure based estimate of britain s black economy abstract we estimate the size of britain s black economy defined narrowly as unreported taxable income by using income and expenditure data drawn from the 1982 family expenditure survey our working assumptions are that all income groups report expenditure on food correctly employees in employment report income correctly and that the self employed under report their income we estimate food exependiture equations for all groups and then invert them to arrive at the conclusion that on average true self employment income is 1 55 times as much as reported self employment income this implies that the size of the black economy is about 5 5 percent of gdp

reducing evasion through self reporting evidence from charitable contributions abstract in absence of third party reporting taxpayers are required to self report information with various degrees of detail ranging from uncorroborated claims to comprehensive records with receipts using a quasi experimental design applied to noncash charitable contribution deductions i show that even basic self reporting requirements are effective at reducing evasion but impose large compliance costs on taxpayers i find that simplified reporting requirements reduce reporting costs by 55 per person and substantially increase claimed donations however half of the new donations are due to evasion thus information reporting should only be imposed on total reported donations above a pre specified threshold

generation capacity expansion in energy markets using a two level game theoretic model with a significant number of states in the u s and countries around the world trading electricity in restructured markets a sizeable proportion of capacity expansion in the future will have to take place in market based environments however since a majority of the literature on capacity expansion is focused on regulated market structures there is a critical need for comprehensive capacity expansion models targeting restructured markets in this research we develop a two tier matrix game model and a novel solution algorithm that incorporates risk due to volatilities in profit via cvar intended for use by generators to make multi period multi player generation capacity expansion decisions we demonstrate the applicability of the model using a sample network from power world software and analyze the results

politico economic equilibrium and economic growth abstract we propose a notion of dynamic politico economic equilibrium which builds on two key assumptions policies are determined sequentially and agents are fully rational in their roles as both consumers and voters we examine a simple model of endogenous growth and infinitely lived agents where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings we relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth we show that our equilibria are time consistent and we argue that the choice of equilibrium concept might have important quantitative implications

two stage robust generation expansion planning a mixed integer linear programming model this paper presents a new uncertainty handling framework for optimal generation expansion planning gep amalgamating the notions of single stage and two stage robust optimization ro the proposed multiyear robust gep methodology as a tractable mixed integer linear programming optimization problem copes with the inherent planning uncertainties associated with forecasted electricity load demand as well as estimated investment and operation costs through distribution free bounded intervals producing polyhedral uncertainty sets the optimal generation expansion plan obtained from the proposed ro approach is immunized against worst case planning uncertainties considering the adopted degree of conservatism for each uncertainty set therefore the proposed methodology is capable of controlling the robustness of the optimal investment schedule regarding the enforced planning uncertainties simulation results demonstrate the efficacy and efficiency of the proposed ro framework throughout gep studies

myth and reality of flat tax reform micro estimates of tax evasion response and welfare effects in russia we examine the effects of russia s 2001 flat rate income tax reform on consumption income and tax evasion we use the gap between household expenditures and reported earnings as a proxy for tax e

optimal taxation without state contingent debt in an economy studied by lucas and stokey tax rates inherit the serial correlation structure of government expenditures belying barro s earlier result that taxes should be a random walk for any stochastic process of government expenditures to recover a version of barro s random walk tax smoothing outcome we modify lucas and stokey s economy to permit only risk free debt having only risk free debt confronts the ramsey planner with additional constraints on equilibrium allocations beyond one imposed by lucas and stokey s assumption of complete markets the ramsey outcome blends features of barro s model with lucas and stokey s in our model the contemporaneous effects of exogenous government expenditures on the government deficit and taxes resemble those in lucas and stokey s model but incomplete markets put a near unit root component into government debt and taxes an outcome like barro s however we show that without ad hoc limits on the government s asset holdings outcomes can diverge in importa

a bilevel approach to transmission expansion planning within a market environment we present a bilevel model for transmission expansion planning within a market environment where producers and consumers trade freely electric energy through a pool the target of the transmission planner modeled through the upper level problem is to minimize network investment cost while facilitating energy trading this upper level problem is constrained by a collection of lower level market clearing problems representing pool trading and whose individual objective functions correspond to social welfare using the duality theory the proposed bilevel model is recast as a mixed integer linear programming problem which is solvable using branch and cut solvers detailed results from an illustrative example and a case study are presented and discussed finally some relevant conclusions are drawn

strategic generation investment under uncertainty via benders decomposition we address the generation investment problem faced by a strategic power producer and consider a detailed description of the uncertain parameters involved namely rival producer investment and market offering and demand growth to identify optimal investment decisions we consider a target year and propose a bilevel model whose upper level problem determines investment and offering decisions to maximize expected profit and whose many lower level problems represent market clearing conditions per demand block and scenario since the producer total expected profit is sufficiently convex with respect to investment decisions a benders decomposition approach is proposed that results in a tractable formulation even if hundred of scenarios are used to describe uncertain parameters extensive numerical simulations based on realistic case studies show the good performance of the proposed decomposition approach

estimates of the black economy based on consumer demand approaches we propose a consumer demand system approach to estimating the size of the black economy where alternative hypotheses affecting the empirical results can be tested in a nested framework this approach allows for the estimation of the under reporting of household income from various sources dispensing with the need to use arbitrary criteria to classify households by their main source of income it also avoids potential bias in black economy estimates arising from mistaking preference heterogeneity substitution as income effects we illustrate these arguments by estimating the extent to which self employment income in the uk is underreported using parametric and nonparametric techniques the black economy broadly defined as the economic activities that are hidden from public authorities to avoid taxation has recently received increased attention in the literature due to arguments that the rising tax burden and state regulation is driving economic activity underground tanzi and schuknecht 1997 enste and schneider 1998 the usefulness of attempts to estimate the size of the black economy however is a controversial issue the sceptics emphasise the difficulties associated with the precise definition of black economy activities and point to the widely different estimates of the size of these activities resulting from alternative methods dixon 1999 tanzi 1999 thomas 1999 authors approaching the subject in an optimistic frame of mind emphasise positive aspects of estimating the size of the black economy such as the correct measurement of gdp and other macroeconomic variables e g employment and the design of policy and econometric models bhattacharyya 1999 giles 1999 the controversy on estimation issues however does not subtract from the widespread concern about the undesired consequences of the black economy undeclared economic activities reduce the tax base thereby undermining the financing of public goods and social protection a country trying to curtail the loss of tax revenue by raising tax rates can create a vicious cycle as this reinforces the incentive not to declare economic activities to the public authorities high tax rates have a distorting effect resulting in inefficient allocation of resources due to unequal opportunities and willingness to evade in different sectors of the economy and can undermine the ability of the country to compete internationally distortions in the labour market can also arise because individuals working in the black economy may have difficulty in moving from one job to another furthermore in countries where health pension and other social security payments are not universal individuals working in the black economy and their families are outside the

capacity expansion equilibria in liberalized electricity markets an epec approach this paper presents a novel way to model the generation capacity expansion problem in a liberalized framework via a multi year bilevel equilibrium model in the upper level the competing generation companies maximize their individual profits while the lower level represents the market using a conjectured price response approach which allows us to vary the strategic spot market behavior to see how much the reigning competitive behavior impacts investment decisions the bilevel equilibrium model is formulated as an equilibrium problem with equilibrium constraints transformed into a mixed integer linear program and solved as such using diagonalization in order to verify equilibria we present a case study to apply this new modeling approach and to demonstrate that the proposed equilibrium problem with equilibrium constraints can have multiple solutions whose respective investments can vary

geographic attribution of an electricity system renewable energy target local economic social and environmental tradeoffs the 2014 intergovernmental panel on climate change ipcc report asserts that investment in low carbon electricity production will need to rise by several hundred billion dollars annually before 2030 in order to stabilize greenhouse gas concentrations in the atmosphere by 2100 in recognition of this urgent need to mitigate climate change many governments have already established policies to spur renewable energy investment in the electricity sector one such policy measure is a renewable energy target ret which sets a target percentage of electricity production to be generated from renewable sources by a specified date variations on this policy have been implemented around the world from the eu 20 20 20 to diverse renewable portfolio standards in u s states and municipalities this work analyzes economic environmental and social aspects of a geographic attribution i e isolated regional or country of an ret to gain insights on the associated tradeoffs in the case study of the azores islands portugal the regional geographic attribution of an ret captures the best of all three tradeoffs

evaluation of lmp intervals considering wind uncertainty step changes in the curve of locational marginal prices lmp under load variation have been known characteristics given its present formulation identifying lmp intervals under wind uncertainty is important for market participants to assess and mitigate their risks when price forecast is needed this work proposes a bi level optimization model to calculate the lmp intervals under wind uncertainty without the repetitive monte carlo mc simulation the specific bus lmp maximization or minimization is the upper level problem while the iso s economic dispatch is the lower level problem case studies are presented to demonstrate the proposed methodology

are estimated tax elasticities really just tax evasion elasticities the case of charitable contributions this paper uses data from tax returns that have been subject to intensive audits to confront the quantitative importance of misreporting for the estimated tax responsiveness of charitable contributions it concludes that the tax responsiveness of charitable giving that has been detected using tax return data cannot be ascribed to the tax responsiveness of overstating actual giving in fact overstatement is apparently less price responsive than actual giving implying that the responsiveness of actual giving is higher than is suggested by studying reported contributions copyright 1989 by mit press

generation investment equilibria with strategic producers part ii case studies this paper analyzes numerically the approach reported in the companion paper for identifying generation investment equilibria in an electricity market where the producers behave strategically to this end a two node illustrative example and a large scale case study based on the ieee reliability test system rts are examined and the results obtained are reported and discussed

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

dynamic pricing design for demand response integration in power distribution networks this paper presents optimal pricing design for demand response dr integration in the distribution network in particular we study the energy scheduling problem for a load serving entity lse that serves two types of loads namely inflexible and flexible loads inflexible loads are charged under a regular pricing tariff while flexible loads enjoy a dynamic pricing tariff that ensures cost saving for them moreover flexible loads are assumed to be aggregated by several dr aggregators the interaction between the lse and its customers is formulated as a bilevel optimization problem where the lse is the leader and dr aggregators are the followers the optimal solution of this problem corresponds to the optimal pricing tariff for flexible loads the key advantage of the proposed model is that it can be readily implemented thanks to its compatibility with existing pricing structures in the retail market extensive numerical results show that the proposed approach provides a win win solution for both the lse and its customers

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

efficient committed budget for implementing target audit probability for many inspectees strategic models of auditor inspectee interaction have neglected implementation details in multiple inspectee settings with multiple inspectees the target audit probability derived from the standard analysis can be implemented with sampling plans differing in the budgets committed to support them overly committed audit budgets tie up unneeded resources that could have been allocated for better uses this paper studies the minimum committed budget required to implement a target audit probability when i the audit sample can be contingent on red flags due to signals of inspectees private information e g from self reporting and ii the number of inspectees is large it proposes an audit rule called bounded simple random sampling srs which is shown to require no more committed budget to support than two other rules naturally generalized from the one to one analysis when the number of inspectees is large enough bounded srs is nearly as good as any efficient audit rule which demands the lowest committed budget necessary to implement the target audit probability the results offer insights on how audit sampling plans may be formulated to reduce inefficiency and what budget usage ratios should be expected accordingly

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

public debt and optimal taxes without commitment abstract benhabib and rustichini optimal taxes without commitment j econ theory 77 1997 231 259 study the properties of optimal capital taxes in economies without commitment and no government debt they find that capital taxes may be different from zero at steady state this note shows that once governments have the possibility of issuing debt and smoothing taxes over time optimal steady state capital taxes turn out to be zero

strategic wind power investment this paper considers the problem of identifying the optimal investment of a strategic wind power investor that participates in both the day ahead da and the balancing markets this investor owns a number of wind power units that jointly with the newly built ones allow it to have a dominant position and to exercise market power in the da market behaving as a deviator in the balancing market in which the investor buys sells its production deviations the model is formulated as a stochastic complementarity model that can be recast as a mixed integer linear programming milp model a static approach is proposed focusing on a future target year whose uncertainties pertaining to demands wind power productions and balancing market prices are precisely described the proposed model is illustrated using a simple example and two case studies

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

funding self employment the role of consumer credit this paper investigates whether self employed households use consumer loans in particular installment loans and overdrafts to finance business activities controlling for financial and non financial household variables the authors show that self employed households particularly use personal overdrafts significantly more often than employee households when analyzing the correlation between consumer loan take ups and consumption of self employed in comparison to employee households the authors find first evidence that overdrafts are used by self employed to finance their business as well this indicates that intermingling constitutes a financing strategy when regular business loans may not be accessible this paper is structured as follows section one gives introduction section two reviews previous empirical research results and outlines research agenda section three details the methodology section four presents the results of the empirical analysis section five reviews the limits of the study and makes recommendations for future research finally conclusions are provided in section six

cheating ourselves the economics of tax evasion no government can announce a tax system and then rely on taxpayers sense of duty to remit what is owed some dutiful people will undoubtedly pay what they owe but many others will not over time the ranks of the dutiful will shrink as they see how they are being taken advantage of by the others thus paying taxes must be made a legal responsibility of citizens with penalties attendant on noncompliance but even in the face of those penalties substantial tax evasion exists and always has the history of taxation is replete with episodes of evasion often notable for their inventiveness during the third century many wealthy romans buried their jewelry or stocks of gold coin to evade the luxury tax and homeowners in eighteenth century england temporarily bricked up their fireplaces to escape notice of the hearth tax collector webber and wildavsky 1986 p 141 this essay reviews what is known about the magnitude nature and determinants of tax evasion with an emphasis on the u s income tax alm 1999 andreoni erard and feinstein 1998 and slemrod and yitzhaki 2002 offer more comprehensive recent reviews of the literature it then places this information into a conceptual and policy context

tax evasion and swiss bank deposits bank deposits in jurisdictions with banking secrecy constitute an eective tool to evade taxes on interest income a recent eu reform reduces the scope for this type of tax evasion by introducing a source tax on interest income earned by eu residents in switzerland and several other jurisdictions with banking secrecy in this paper we estimate the impact of the source tax on swiss bank deposits held by eu residents while using that non eu residents were not subject to the tax to apply a natural experiment methodology we nd that the 15 source tax caused swiss bank deposits of eu residents to drop by more than 40 with most of the response occurring in two quarters immediately before and after the source tax was introduced the estimates imply an elasticity of swiss deposits with respect to the net of source tax rate in the range 2 5 3

more on the time consistency of monetary policy abstract we introduce costs of unexpected inflation in a general equilibrium monetary model by changing the timing of the constraints faced by consumers we show that in this environment monetary policy is still time inconsistent but the nature of the inconsistency is very different from the standard result found in the literature in particular we find that the government may find optimal to deviate by choosing inflation rates lower than expected by making a brief review of the monetary literature we argue that the model of this paper is more attractive than the ones proposed before to study the time consistency of optimal monetary policy

charitable giving in the german welfare state fiscal incentives and crowding out there are two ways that government activities influence private charitable giving 1 government spending on the provision of public goods may cause crowding out of private charitable contributions and 2 tax incentives may boost private charitable giving from a sample of german income tax returns we estimate the elasticity of charitable giving relative to tax incentives income and government spending using censored quantile regression analysis we derive results for different points of the underlying distribution of charitable giving evaluating overall treasury efficiency the tax deductibility of charitable donations fosters enough private giving to offset foregone tax revenues

measuring income tax evasion using bank credit evidence from greece we document that in semiformal economies banks lend to tax evading individuals based on the bank s assessment of the individual s true income this observation leads to a novel approach to estimate tax evasion we use microdata on household credit from a greek bank and replicate the bank underwriting model to infer the banks estimate of individuals true income we estimate that 43 45 of self employed income goes unreported and thus untaxed for 2009 this implies 28 2 billion of unreported income implying forgone tax revenues of over 11 billion or 30 of the deficit our method innovation allows for estimating the industry distribution of tax evasion in settings where uncovering the incidence of hidden cash transactions is difficult using other methods primary tax evading industries are professional services medicine law engineering education and media we conclude with evidence that contemplates the importance of institutions paper trail and political willpower for the persistence of tax evasion jel codes g21 h22 h24 h26 p37

an empirical test for tax evasion this paper develops a methodology that uses microeconomic data from individual tax returns to test for the presence of tax evasion the test is then applied to a large sample of taxpayers drawn from the u s treasury tax file for 1977 the frequency of evasion indicated by the test is significantly greater than zero and within the wide range that other evidence suggests is the extent of evasion the associations between evasion and characteristics of the taxpayer such as marginal tax rate income age and marital status are also investigated and compared to the findings of earlier studies

barriers to investment in polarized societies i present a tractable dynamic model of political economy where disagreements about the composition of public spending result in implementation of short sighted policies the relative price of investment to consumption is excessively large in equilibrium due to over taxation investment rates are too low which slows down growth along the transition in the long run this results in output consumption and welfare being inefficiently low the larger is the degree of polarization the greater is the inefficiency political stability mitigates the effects of polarization by making the incumbent internalize the dynamic inefficiencies introduced by the choice of growth retarding policies

a game theoretic model for generation expansion planning problem formulation and numerical comparisons this paper presents an application of noncooperative game theory to generation expansion planning gep in a competitive electricity industry the authors apply the cournot model of oligopoly behavior to formulate a gep model that may characterize expansion planning in a competitive regime particularly in pool dominated generation supply industries numerical experiments are conducted on a test system to analyze generation investment and market participation decisions of candidate expansion units that vary in costs and forced outage rates the numerical results point to 1 greater industry expansion and system reliability under cournot competition than under centralized expansion planning and 2 higher probabilistic measures of reliability from multi player expansion than from expansion by a traditional monopolist with an equivalent reserve margin requirement furthermore the authors summarize analytical results involving a simplified version of the gep game

exercise of market power on ramp rate in wind integrated power systems with an increasing penetration of wind power there is likely to be an increasing need for fast ramping generating units these generators ensure that no load is lost if supply drops due to the uncertainties in wind power generation however it is observed in practice that in a presence of network constraints fast ramping generating units are prone to act strategically and exercise market power by withholding their ramp rates in this paper we model this gaming behavior on ramp rates we assume a market operator who collects bids in form of marginal costs quantities and ramp rates he runs a ramp constrained economic dispatch given the generators bids forecasted demand and contingencies following the game theoretic concepts we set up a multi level optimization problem the lower level problem is the ramp constrained economic dispatch and the higher level represents the profit maximization problems solved by strategic generators the whole problem is formulated as an equilibrium problem with equilibrium constraints epec the outcome of the epec problem is a set of nash equilibria to tackle the multiple nash equilibria problem the concept of the extremal nash equilibria is defined and formulated we model the concept of extremal nash equilibria as a single stage mixed integer linear programming problem milp and demonstrate the application of this mathematical framework on an illustrative case and on a more realistic case study with tractable results

keeping it off the books an empirical investigation of firms that engage in tax evasion this article uses a unique dataset that contains detailed information on firms from around the world to investigate factors that affect under reporting behaviour the empirical strategy employed exploits the nature of the dependent variable which is interval coded and uses interval regression which provides an asymptotically efficient estimator provided that the classical linear model assumptions hold these assumptions are investigated using standard diagnostic tests that have been modified for the interval regression model evidence is presented that shows that the firms in all regions engage in under reporting regression results indicate that government corruption has the single largest causal effect on under reporting resulting in the percentage of sales not reported to the tax authority being 51 3 higher taxes have the second single largest causal effect on under reporting resulting in the percentage of sales not reported to the tax authority being 18 0 higher followed by access to financing

finding equilibria in the pool based electricity market with strategic wind power producers and network constraints this paper proposes a model to find the equilibria in the short term electricity market with large scale wind power penetration the behavior of each strategic player is modeled through a two stage mathematical problem with equilibrium constraints mpec where the upper level problem maximizes the profit of the strategic player and the lower level problem describes the clearing processes of the day ahead and real time markets while considering the network constraints the joint solution of all the mpecs constitutes an equilibrium problem with equilibrium constraints epec the uncertain wind power production and demand are represented by a set of plausible scenarios by using the duality theory and karush kuhn tucker condition each mpec is transferred into a mixed integer linear programing problem the nash equilibria of the electricity market are obtained by solving the epec using game theory and the diagonalization algorithm case studies are performed to show the effectiveness of the proposed model

predictive analytics and the targeting of audits the literature on audit strategies has focused on random audits or on audits conditioned only on income declaration in contrast tax authorities employ the tools of predictive analytics to identify taxpayers for audit with a range of variables used for conditioning the paper explores the compliance and revenue consequences of the use of predictive analytics in an agent based model that draws upon a behavioral approach to tax compliance the taxpayers in the model form subjective beliefs about the probability of audit from social interaction and are guided by a social custom that is developed from meeting other taxpayers the belief and social custom feed into the occupational choice between employment and two forms of self employment it is shown that the use of predictive analytics yields a significant increase in revenue over a random audit strategy

does credit card information reporting improve small business tax compliance we investigate the response of small businesses operating as sole proprietorships to form 1099 k an information report introduced in 2011 which provides the internal revenue service with information about electronic sales e g credit card sales the overall impact of the policy appears to be relatively small however theory and distributional analysis isolates a subset of taxpayers expected to be especially sensitive to reporting who report receipts equal to or slightly exceeding the receipts reported on 1099 k among this set of taxpayers information reporting induced more complete tax reporting 30 of sensitive taxpayers filed a return declaring business income for the first time and among those that were already filing we estimate an increase in reported receipts by up to 24 these taxpayers largely offset increased reported receipts with increased reported expenses which do not face information reporting diminishing the impact on reported net taxable income

strategic generation investment using a complementarity approach this paper provides a methodology to assist a strategic producer in making informed decisions on generation investment a single target year is considered with demand variations modeled through blocks the strategic behavior of the producer is represented through a bilevel model the upper level considers both investment decisions and strategic production actions and the lower level corresponds to market clearing prices are obtained as dual variables of power balance equations rival uncertainties on offering and investment are characterized through scenarios the resulting model is a large scale mixed integer lp problem solvable using currently available branch and cut techniques results pertaining to an illustrative example and a case study are reported and discussed

transmission expansion in an oligopoly considering generation investment equilibrium abstract transmission expansion planning tep is a sophisticated decision making problem especially in an oligopolistic electricity market in which a number of strategic price maker producers compete together a transmission system planner who is in charge of making tep decisions requires considering the future generation investment actions however in such an oligopolistic market each producer makes its own strategic generation investment decisions this motivates the transmission system planner to consider the generation investment decision making problem of all producers within its tep model the strategic generation investment problem of each producer can be represented by a complementarity bi level model the joint consideration of all bi level models one per producer characterizes the generation investment equilibrium that identifies the future evolution of generation investment in the market this paper proposes a tri level tep decision making model to be solved by the transmission system planner whose objective is to maximize the social welfare of the market minus the expansion costs and whose constraints are the transmission expansion limits as well as the generation investment equilibrium problem this model is then recast as a mixed integer linear programming problem and solved numerical results from an illustrative example and a case study based on the ieee 14 bus test system demonstrate the usefulness of the proposed approach

energy investment planning at a private company a mathematical programming based model and its application in turkey we consider a mid sized private electricity generating company that plans to enter the market that is partially regulated there is a cap and trade system in operation in the industry there are nine possible power plant types that the company considers to invest on through a planning horizon some of these plants may include a carbon capture and storage technology we develop a stochastic mixed integer linear program for this problem where the objective is to maximize the expected net present value of the profit obtained we include restrictions on the maximum and minimum possible amount of investment for every type of investment option we also enforce market share conditions such that the percentage of the total investments of the company over the total installed capacity of the country stay between upper and lower bounds moreover in order to distribute the investment risk the percentage of each type of power plant investment is restricted by some upper bound we tested the model for a hypothetical company operating in turkey the results show that the model is suitable to be used for determining the investment strategy of the company

risk constrained multi stage wind power investment when deciding on wind power investments three major issues arise the production variability and uncertainty of wind facilities the eventual future decline in wind power investment costs and the significant financial risk involved in such investment decisions recognizing the above important issues this paper proposes a risk constrained multi stage stochastic programming model to make optimal investment decisions on wind power facilities along a multi stage horizon the proposed model is illustrated using a clarifying example and a case study

generation capacity expansion in liberalized electricity markets a stochastic mpec approach this paper proposes a bilevel model to assist a generation company in making its long term generation capacity investment decisions considering uncertainty regarding the investments of the other generation companies the bilevel formulation allows for the uncoupling of investment and generation decisions as investment decisions of the single investing generation company are taken in the upper level with the objective to maximize expected profits and generation decisions by all companies are considered in the lower level the lower level represents the oligopolistic market equilibrium via a conjectured price response formulation which can capture various degrees of strategic market behavior like perfect competition the cournot oligopoly and intermediate cases

minimum wage and tax evasion theory and evidence the paper investigates the role of the minimum wage in a competitive economy in which there is underreporting of earnings by employed labour the minimum wage induces higher compliance by some lowproductivity workers and transforms a nominally neutral scal system into a regressive one a spike in the wage distribution at the minimum wage level appears and a positive correlation between the size of the spike and the size of the informal economy is predicted and documented using cross country data for europe a further result is that employees whose o cially declared earnings appear to be boosted by a minimum wage hike actually experience a decline in their true income this prediction nds support in an empirical test using the massive increase in the minimum wage that took place in hungary in 2001 as a quasi natural experiment

fiscal policy under loose commitment due to time inconsistency or political turnover policymakers promises are not always fulfilled we analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised in this loose commitment setting the properties of labor and capital income taxes are significantly different than under the full commitment and no commitment assumptions because of the occasional reoptimizations the average capital income tax is positive even in the long run also the autocorrelation of taxes is lower their volatility with respect to output increases and the correlation between capital income taxes and output changes sign our method can be used to analyze the plausibility and the importance of commitment in a wide class of dynamic problems

a signaling explanation for charity this article examines a novel but plausible motive for charitable giving charitable donations which are observable can signal wealth or income the signaling equilibrium of charitable donations has attractive properties donations increase proportionally with population size governmental funding for public goods affects private charity only through an income effect crowding out need not be complete income redistribution is generically nonneutral increasing the spread between the poorest and richest person in a community tends to increase private donations our theory are based on the assumption that people are willing to make charitable donations even if they will not increase provision of the public good the data on charitable giving support the hypothesis that donors donate at least partly for signaling purposes rather than only to aid the recipient or to obtain satisfactions unrelated to status though charitable organizations usually report donations within categories thus not allowing perfect revelation for analytical tractability we shall consider an equilibrium with perfect revelation and a continuum of types as characterized in george j mailath 1987 and norman j ireland 1994

a tri level model of centralized transmission and decentralized generation expansion planning for an electricity market part ii we study a tri level integrated transmission and generation expansion planning problem in a deregulated power market environment the collection of bi level sub problems in the lower two levels is an equilibrium problem with equilibrium constraints epec that can be approached by either the diagonalization method dm or a complementarity problem cp reformulation this paper is a continuation of its part i in which a hybrid iterative algorithm is proposed to solve the tri level problem by iteratively applying the cp reformulation of the tri level problem to propose solutions and evaluating them in the epec sub problem by dm it focuses on the numerical results obtained by the hybrid algorithm for a 6 bus system a modified ieee 30 bus system and an ieee 118 bus system in the numerical instances the approximate nash equilibrium point for the sub problem can be verified by examining local concavity

compliance with endogenous audit probabilities in this paper we study the effect of endogenous audit probabilities on reporting behavior in a face to face compliance situation such as at customs in an experimental setting in which underreporting has a higher expected payoff than truthful reporting we find an increase in compliance of about 80 percent if subjects have reason to believe that their behavior towards an officer influences their endogenous audit probability higher compliance is driven by considerations about how their own appearance and performance affect their audit probability rather than by the social and psychological effects of face to face contact

transmission congestion and competition on power generation expansion generation expansion planning involves decisions on location and capacity of new generation which may lead to adding or relieving congestion in transmission lines and to increasing or reducing competition in deregulated markets generation expansion may encounter congestion in the transmission network by constrained single line flows as well as flowgate transfer capabilities in this paper a model to study the interaction between competition and transmission congestion on power generation expansion is proposed the generation expansion problem is modeled as a cournot competition game network transmission constraints are included in the optimal generation expansion problem to comply with power flow limits results from a five bus power network and the ieee 24 bus system are presented and discussed

lack of commitment and the level of debt the tendency of countries to accumulate public debt has been rationalized in models of political disagreement and lack of commitment we analyze in a benchmark model how the evolution of public debt is affected by lack of commitment per se while commitment introduces indeterminacy in the level of debt lack of commitment creates incentives for debt to converge to specific levels one of the levels that debt often converges to implies no debt accumulation at all in a simple example we prove analytically that debt converges to zero and we analyze numerically more complex models we also show in an imperfect credibility setting that a small deviation from full commitment is enough to obtain these results

generation investment equilibria with strategic producers part i formulation the first of this two paper series proposes a methodology to characterize generation investment equilibria in a pool based network constrained electricity market where the producers behave strategically to this end the investment problem of each strategic producer is represented using a bilevel model whose upper level problem determines the optimal investment and the supply offering curves to maximize its profit and whose several lower level problems represent different market clearing scenarios this model is transformed into a mathematical program with equilibrium constraint mpec through replacing the lower level problems by their optimality conditions the joint consideration of all producer mpecs one per producer constitutes an equilibrium problem with equilibrium constraints epec to identify the solutions of this epec each mpec problem is replaced by its karush kuhn tucker kkt conditions which are in turn linearized the resulting mixed integer linear system of equalities and inequalities allows determining the epec equilibria through an auxiliary milp problem