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

consumption vs income taxes when private human capital investments are imperfectly observable abstract this paper considers optimal taxation in an endogenous growth model where private education investments are imperfectly observable consumption taxation is better than labor income taxation for public provision of goods unless educational investment is completely unobservable if subsidies are feasible for observed education investment the consumption tax rate is independent of the degree of observability but the subsidy rate is higher the lower is the observability if subsidies are not feasible the consumption tax rate is lower the more limited is the observability optimal tax rates for goods that provide consumption and education investment simultaneously are below normal rates for observed pure consumption growth and welfare are positively related to independent of the degree of observability without with subsidies

optimal tax rules and public sector efficiency with an externality in an overlapping generations model abstract this paper examines optimal tax rules and public sector efficiency integrating them in a second best world with pollution by using an overlapping generations model the second best world is characterized by the comparative statics of green preferences the main results obtained are as follows first the marginal cost of public funds may be reduced by the externalities regardless of the choice of taxes second optimal environmental and non environmental tax rules are additively and directly affected by the dynamic efficiency of capital accumulation per unit labour decal and indirectly by it through the efficiency of the public sector environmental taxes going beyond pigovian ones may be welfare improving if the decal is improved by the environmental tax even optimal non environmental tax rules should additively and directly counter the dynamics of pollution to consider the income effects of the optimal tax system for the future third the additivity property or the principle of targeting does not hold even in the absence of incentive compatibility constraints the essential reasons for this are clarified as follows distortions that should be countered by taxes that is the income effects of the optimal tax system and the decal in this model break the equality between optimal environmental taxes and the externalities measured by governments finally growing environmental concerns may in fact increase pollution the inverse relationship between environmental and labour income taxes may not hold

international factor movements in the presence of a fixed factor abstract to the basic model of international factor mobility is added a third immobile factor unlike the basic model the factor flows that result from a policy of free mobility are now uniquely determined additionally a large variety of privately optimal national policies is predicted each dependent upon the country s endowment pattern and the fiscal instruments available to it several of the predicted policies e g subsidies paid to migrant factors and simultaneous restrictions on the export of both factors are incompatible with the basic model

measuring the deadweight loss from taxation in a small open economy a general method with an application to sweden the paper develops a simple general equilibrium framework for calculating the marginal deadweight loss from taxation in a small open economy the framework allows a decomposition of the deadweight loss from each tax instrument into the losses stemming from the contraction of the different tax bases the paper describes a method of calibrating the model which exploits the links between the various factor supply elasticities implied by the standard life cycle model it also develops a method of estimating effective tax rates that is consistent with optimising household and firm behaviour to illustrate how the model works it is calibrated to a data set for sweden the quantitative results highlight the importance of accounting for the interaction between the major tax bases when estimating deadweight loss

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

perfectly discriminatory policy towards international capital movements in a dynamic world a large country is able to affect its trading partners accumulation of capital and so it can alter future market conditions capital movements can be regulated by perfectly discriminatory policy to maximize the welfare of the large country by exploiting this link this policy implies that resource allocation is efficient along the optimal path in contrast to the use of perfectly discriminatory policy in a static world it is not always optimal for the large country to fully exploit its market power copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimal taxation with consumption time as a leisure or labor substitute abstract this paper studies the optimal commodity taxation problem when time taken in consumption is a perfect substitute for either labor or leisure it shows that while labor substitutability affects the optimal tax structure leisure substitutability leaves the classical optimal tax results intact in the ramsey tax framework with linear income taxes whether the consumers have the same or different earning abilities labor substitutes tend to be taxed at a higher rate than leisure substitutes with the tax differential being increasing in consumption time this is not necessarily the case when one allows for nonlinear income taxation

the choice between international labour and capital mobility in a dynamic model of north south trade abstract in a dynamic model of trade between two regions producing different products and having dissimilar labour market structures the impact of movements of capital and labour is examined it is shown that mobility of either factor of production benefits the full employment solow type economy in contrast an inflow of capital is detrimental to a labour surplus lewis type economy while labour outflow is beneficial

customer class pricing parallel trade and the optimal number of market segments abstract we consider the optimal market segmentation problem of a monopolist that faces a continuum of customers when it is costly to prevent resale or parallel trade among groups in our framework the monopolist chooses the number k 1 of market segments but also their design and the discriminatory prices all these quantities are chosen to maximize the total profit we solve the profit maximization problem when demands are linear and parallel as a function of the cost of separating markets we show that market segmentation and prices cannot be chosen independently and we also show that it is optimal to create only a few market segments we then turn to the welfare analysis and show that the socially optimal number of market segment is equal to three

optimal differentiation of international environmental taxes in the presence of national labor market distortions we explore the implication of the doubledividend debate for international environmentaltaxes in our scenario small open economies withdifferent labor market distortions follow a commonenvironmental policy and use national environmentaltax revenues to finance labor tax cuts since thedouble dividend hypothesis does not hold a high labortax implies a low environmental tax relative to othercountries the optimal differentiation ofinternational environmental taxes is proven to be afunction of the national labor tax rates and theuncompensated elasticities of labor supply

welfare effects of changing commodity tax rates toward uniformity abstract this paper presents a theory of tax reform that is applicable to a many good economy where i the initial tax structure is arbitrarily given ii no lump sum tax exists and iii the initial tax revenue must be maintained after the reform sufficient conditions are established under which tax changes definitely result in increases in welfare they indicate that in a wide class of situations the uniform tax structure can be a useful intermediate target on the way to optimum

international factor movements commodity trade and commercial policy in a specific factor model two events in the decade of the 1970s had a major impact on world trade and factor movements the collapse of the bretton woods fixed exchange rate system and opec s success in raising petroleum prices the enormous current account surplus accruing to some of the opec members was successfully recycled by the international capital markets to among others the oil importing developing countries in addition the vastly increased tempo of investment in the capital rich labour poor opec members in west asia attracted migration of labour skilled as well as unskilled to these countries from some of the oil importing developing countries the remittances from these workers in turn eased the problem of the labourexporting countries in adjusting to the increased cost of oil imports thus both borrowing from private capital markets and export of labour became very important elements in cushioning the oil shock for a number of countries the post opec movements of labour and financial capital while dramatic are only the more recent instances of a phenomenon of much greater antiquity the seventeenth and eighteenth centuries saw vast migration of people out of europe though these movements were the result of conquests and colonization rather than movements from one sovereign state into another but the nineteenth century particularly the latter half saw migration of the latter kind from europe to countries of north and south america as well as capital investment by residents of europe in these

taxing education in ramsey s tradition abstract assuming a two period model with endogenous choices of labour education and saving it is shown to be second best efficient to deviate from ramsey s rule and to distort qualified labour less than nonqualified labour furthermore if the earnings function displays constant elasticity the choice of education should not be distorted with the necessary qualifications the results extend to the case when taxpayers are heterogeneous and when the planner trades off efficiency against equity

strategic policies towards international factor movement in this paper the authors analyze the optimal policies of two active countries toward international movement of both labor and capital in a two stage noncooperative game they show that a complete buyout of both factors by either country can never be a nash equilibrium although a partial buyout is possible furthermore in equilibrium the large country tends either to remain virtually passive or to play along with the small country whereas the small country adopts more significant policies

energy taxation reasons for discriminating in favor of the production sector abstract if a small open economy wishes to restrict it s greenhouse gas emissions it has to decide whether to impose uniform taxes on all polluters or to resort to a discriminatory policy in practice countries tend to impose higher taxes on households and to tax the industrial sector more leniently this paper identifies conditions under which this is efficient it is shown that an efficiency maximizing tax planner discriminates in favor of the production sector if i there are restrictions on the taxation of lump sum income or if ii labor supply exerts market power

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

international factor mobility and national advantage abstract in this paper we prove rigorously v k ramaswami s proposition that in bilateral trade between two countries sharing the same technology represented by a strictly concave production function with positive marginal productivities of capital and labor the policy active country can gain more by importing monopsonistically the relatively scarce factor than by placing monopolistic restrictions on the export of the relatively abundant one we show that what matters is not the location but the constraints within which maximization takes place hence the monopsonistic results can be replicated by appropriate export arrangements the analysis is extended to consider the welfare implications to the policy passive country

the ramaswami proposition and the choice among labor capital and technology flows abstract this paper examines the choice between labor and capital flows in the context of a one good two country model where the two countries differ in their levels of disembodied technology in contrast to the ramaswami proposition it is shown that a country may prefer an optimal outflow of its abundant factor to an optimal inflow of its scarce factor it is also shown that for sufficiently small differences in technology the labor rich technology inferior country will benefit more from an optimal outflow of labor than from a gift of superior technology

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

a reinterpretation of elasticity formulae in optimum tax theory this paper presents a unified interpretation of three special cases which have been widely discussed in the theory of optimum taxation these are the corlett hague case and two versions of the inverse elasticity rule derived on the assumption that either the compensated or the uncompensated cross elasticities of demand are zero it is demonstrated that all three cases imply that it is the compensated elasticities which determine efficient tax differentiation and that complementarity with the untaxed numeraire emphasized by w j corlett and d c hague 1953 54 plays a role in the interpretation of all three cases copyright 1987 by the review of economic studies limited

choice between international capital and labor mobility for diversified economies abstract this paper ranks two international economic regimes free trade plus free international capital mobility and free trade plus free international labor mobility from the viewpoint of two countries which are under diversified production in a two factor two good general equilibrium model in which production technologies are internationally different it shows that a country s preference toward the two regimes is determined by relative factor endowments relative factor intensities and inter country difference in labor productivity and that under some circumstances both countries unanimously prefer the same regime but under other circumstances they prefer different regimes

atkinson and stiglitz theorem in the presence of a household production sector we show that the celebrated atkinson and stiglitz 1976 result on the uniformity of the commodity tax rates when preferences are weakly separable between goods and leisure does not hold when at least one of the goods is produced within the household the result is restored if preferences are weakly separable in market goods on the one hand and leisure and household goods on the other

international factor movements and the ramaswami argument in a succinct but classic article appearing in economica in 1968 ramaswami put forth an argument supporting the superiority of a policy that attracts foreign factors over a policy that allows a relatively abundant factor to emigrate in each case the active home country is assumed to levy taxes on factor flows so as to capture for itself the discrepancy in return to the same factor at home and abroad the asymmetry reflected by this policy ranking rests on a basic propeity of production functions the convexity of technology plus the ability of the active home country to hire or rent out factors at wages or rentals prevailing in the foreign country briefly put the ramaswami argument proceeds as follows suppose the active home country is capital abundant and has levied on optimal tax on earnings of its own capital operating abroad now consider repatriating this capital and allowing for the first time some inflow of foreign labour in particular suppose the home country allows a level of immigration identical to the labour force previously employed with the home capital that is being repatriated such a transfer of home capital and foreign labour out of the foreign country leaves factor proportions abroad undisturbed and thus does not alter the wage that must be paid to attract the requisite bundle of foreign workers although the home country thus avoids any increase in factor costs in foreign markets it can increase output since the capital labour ratiooriginally employed at home at high home wage rates is greater than the ratio in the freshly acquired bundle from abroad by adopting a uniform capital labour ratio over all factors now employed at home output and thus real income rises there may be even further gains to be had by allowing yet a different optimal level of immigration in the home country which has now banned capital exports 2 essential to the ramaswami argument is the ability of the home country to extract a bundle of factors previously employed abroad without disturbing factor prices in that country indeed jones coelho and easton 1983 have suggested that in the context of the ramaswami discussion the original argument could be pursued to suggest that the home country gains not only from repatriating its own capital but from actually encouraging foreign capital to be employed at home such a capital flow is admittedly uphill the home country would have to pay out more in rentals than such capital can earn at home despite this fact such an import of capital and labour in the same proportions found abroad does not alter foreign factor prices but does via the same ramaswami type argument on the convexity of the technology result in gains at home although ramaswami s own discussion starts with a repatriation of home capital previously invested abroad his argument can be applied directly to the foreign autarky factor endowment bundle if technology exhibits constant returns to scale and if all both factors are indeed internationally

international migration versus foreign investment in the presence of unemployment abstract this paper extends the standard two factor one good model of international factor movements to include unemployment due to a minimum income guarantee within the capital abundant country from this country s perspective we establish important departures from previous full employment results most notably our analysis shows that 1 free factor mobility is worse than no mobility 2 the optimal degree of labour migration is zero and 3 national welfare can always be maximized by an optimal flow of capital the analysis is then extended to examine 1 illegal migration 2 subsidization of employment and 3 alternative views of unemployment

optimal shadow prices for public production abstract the purpose of this paper is mainly expository in showing that within a very simple model famous and previously unrelated results on optimal public sector pricing emerge as special cases of a general optimal pricing formula it also examines the relationships between the elasticity of scale in private production and the optimal shadow prices for public production

optimal financing of the government s budget taxes bonds or money financing of the government s budget in particular we consider taxation bond issuance and money creation as alternative means of financing these issues are not new some of them were extensively explored in the public finance literature some of them were explored in the monetary theory literature what we believe to be new however is that our work integrates the relevant elements from both strands of literature into a unified general equilibrium framework with this approach we are able to jointly determine the optimal combination of tax rates the rate of inflation and the interest rate on government bonds this type of analysis enables us to ask whether the rate of inflation should be positive or negative and to provide simple conditions on compensated demand elasticities which determine the answer it also enables us to reconsider milton friedman s optimum quantity of money rule in a public finance framework without lump sum taxes and to show how this rule should be modified in addition we provide insight into the desirability of a social security scheme by showing that such a program is undesirable when social security payments are financed

the theory of international factor flows the basic model abstract the basic model used to discuss the simultaneous international flow of labor and capital is a one commodity model in which a common technology is shared between countries the ramaswami result wherein an optimal restriction of labor inflows is superior to an optimal restriction on capital outflows for a capital abundant country is extended to reveal that optimality requires inflows of both factors box diagrams and iso welfare contours are used to show how optimal policy rankings are reversed if foreign labor must be paid higher home wages

welfare criteria for tax reforms efficiency aspects there are essentially two types of problems to which the normative theory of taxation addresses itself one of these problems is that of designing de novo i e from scratch a tax system which is optimal in some appropriate welfare sense the other major problem is that of finding conditions under which tax reforms i e changes in an existing tax system are welfareimproving the efficiency aspects of the latter problem are the subject of this paper there has been a considerable interest in the theory of tax reform in the last decade in the earlier part of this decade most studies of tax reforms concerned themselves primarily with the question of changing price distortions e g foster and sonnenschein 1970 bertrand and vanek 1971 kawamata 1974 1977 dixit 1975 hatta 1977 and rader 1976 a common drawback of these studies however is that the kind of tax changes analyzed by them rely on an implicit lump sum tax transfer mechanism for instance some consider the question of whether a reduction in tax rates such as a radial decrease in distortions improves welfare such a reduction will most likely decrease the tax revenues accruing to the government and hence some lump sum tax will have to be introduced therefore it is difficult to draw policy relevant conclusions from these studies more recently there have been several studies e g guesnerie 1977 diewert 1978 dixit 1979 harris 1979 and weymark 1979 which deal

second best pollution taxes and the structure of preferences we characterize optimal taxes on polluting and nonpolluting goods in ramsey and mirrlees second best environments the polluting good tax differs from the pigouvian tax by ramsey terms in the first and by stiglitz mirrlees plus another adjustment term in the second these terms can be positive negative or zero if preferences are weakly separable in public and private goods with the private good subutility weakly separable in labor and produced goods nonpolluting goods are taxed uniformly and the concept of a tax differential between polluting and nonpolluting goods is well defined the differential is then less than the pigouvian tax in the ramsey framework but it can be greater equal to or smaller than the pigouvian tax in the mirrlees second best in mirrlees second best if preferences are separable in labor supply and other goods the second best tax differential is identical to the pigouvian tax

imperfect observability of emissions and second best emission and output taxes abstract this paper studies the second best tax design problem when emissions are publicly unobservable but can be discovered through costly monitoring a representative firm in industry chooses its emissions and declarations to maximize its expected profits the paper shows the pigouvian rule of equating the marginal private benefit of emissions in production to the marginal social damage of emissions is modified to take account of the resource costs of monitoring and enforcement emissions from different sectors must be taxed at different rates every polluting good must face an effective emission tax that is less than the full marginal social damage of emissions emission taxes do not reflect standard optimal tax objectives output taxes have a pigouvian role so that the targeting principle fails

uniform labor income taxation and economic efficiency abstract this paper uses a two period representative agent optimal taxation model to characterize government tax policy when the interest rate is determined in equilibrium and is affected by policy choices it shows that dynamic tax smoothing may not be optimal and the response of the interest rate with respect to policy choices is extremely important in characterizing government s tax policy

tariffs quotas and domestic content protection some political economy considerations in this paper we have focused our attention on the relation between the configuration of protection seeking and of rent seeking interests and the choice of the protection instruments in doing so we have abstracted from the problem of nonequivalence of tariffs and quotas recent writings on product differentiation rodriguez 1979 donnenfeld 1984 have thrown new light on this old issue it may well be that the discussion is of key importance to the understanding of industry s predilection for quantitative restraints we also failed to deal with the question on nonequivalence of restrictive measures under conditions of uncertainty finally we touched only peripherally on the interaction among state it is perhaps more realistic to regard trade barrier formation as a game among nations as in baldwin and clarke 1985 every player seeks at once to protect its import substituting industries and to promote its exports by putting up barriers and by demanding that others lower theirs this approach is more suited however to explain the severity of restraints than it is to explain the nature of restraints which is the problem at hand trade restrictions have a protective and a revenue effect in less developed countries with ineffectual internal revenue collecting systems revenue seeking governments may ally themselves with protection seeking emergent industries and institute high tariffs tariffs and quotas may coexist if the trade restriction seeking alliance includes traders voluntary export restraints the newest of the protective devices may be popular because they circumvent international treaties and short circuit cumbersome procedures associated with changes in tariffs or quotas but they also have the virtue of inviting foreign exporters to act like price setters the harm to the foreign exporters is thereby mitigated in fact exporters may be gainers hence the danger of retaliatory action on the part of foreign governments is lessened domestic content legislation is a unique device in that the same domestic factor benefits from protection and also collects the protection created revenue we show the formal identity between the south african situation in which the maximum black white worker ratio is a binding constraint and regulations requiring that a given percentage of the value of the product be domestically produced we also derive formally the maximum permissible foreign content ratio which is optimal from the point of view of the protected interests in our analysis we have said virtually nothing about the victims of protectionism a discussion of the impact of the various measures on those who bear the cost of protection would doubtless deepen our understanding of the problem we should thus consider the magnitude of the deadweight loss and of the income transfer and the concentration or dispersion of the losers last but not least we should consider the question of awareness thus the cost impact of a tariff is easier to perceive than that of a quota with the cost of a ver or of domestic import content rule the most difficult to calculate of all it may be that the principle of the hiding hand is as important to the new political economy as the benthamite principles were to the old

the two part instrument in a second best world abstract standard pigovian tax theory has been extended in two directions first many polluting activities are difficult to tax because they are not market transactions and so recent papers have shown that the same effects can be achieved by use of a two part instrument 2pi a tax on output or income and a subsidy for clean alternatives to pollution it is a generalization of a deposit refund system drs second a different literature concerns the second best pollution tax in the presence of other tax distortions here we combine the two extensions by looking at the second best 2pi when government needs revenue is the deposit larger and the rebate smaller we find explicit solutions for each tax and subsidy in a general equilibrium model with other tax distortions and we compare these to the rates in a first best model the tax subsidy combination is explained in terms of a tax effect an environmental effect and a revenue effect the model allows for flexible interpretation to show various applications of the 2pi we also discuss important caveats

are efficient linear taxes inequitable abstract i explore the household weights in the bergson samuelson social welfare functions which have a turning point at an efficient linear tax structure the inverse optima a tax structure is defined to be inequitable if every inverse optimum has weights that increase with household productivity over part of the productivity range i find that the inequity of an efficient tax structure depends on the normality of leisure on the number of households and on the natureof household demands an efficient indirect tax structure is not inequitable if the expenditure share of each taxed commodity is constant across households this has welfare implications for the choice of tax instrument to finance a project accepted under benefit cost analysis

how large is the optimal inflation tax abstract i examine the title question in a competitive framework where the transaction demand for money is modeled using a cash in advance constraint and only distortionary taxes are possible empirical evidence and simulations are used to document the plausibility of the assumptions which produce the friedman rule these findings suggest that it is not a good benchmark my results suggest that an optimal monetary policy calls for nominal interest rates that can exceed 6 per year

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

on the choice between international capital and labor mobility abstract this paper examines the choice of international factor mobility it proves in a two country two factor one commodity model that the policy setter when it maximizes its own welfare by following the ramaswami policy of monopsonistic import of its scarce factor impoverishes the passive country furthermore the paper studies the choice of mobility in a two commodity model and shows that the optimality of the monopsonistic import policy extends to a situation with trade in goods lastly it addresses the welfare effects in the passive country in the two commodity model

perspectives on buy outs and the ramaswami effect abstract in a simple two factor one commodity model in which foreign labor can be hired at low foreign wage rates and technology is common to both countries optimal strategy at home involves hiring almost all factors abroad at their autarky prices a buy out strategy this paper shows that when technologies differ partial or times complete buy out of factors from the technologically superior country may still be optimal alternatively a partial buy out may be appropriate when there exists a third internationally immobile productive factor

should day care be subsidized in the presence of distortionary taxes on labor can subsidies on childcare flnanced by a further increase in taxes raise welfare by encouraging women with small children to work we approach this question in two difierent ways first we consider a set of stylized models where we prove analytically that under some conditions the ramsey optimal policy consists in making childcare expenses tax deductible then we construct a calibrated stochastic dynamic life cycle model of household decision making designed to capture some facts about labor supply in germany we flnd that the welfare gains associated with subsidizing childcare are considerable and that the maximum gains are realized when childcare is subsidized to an even greater extent than what tax deductibility implies

optimal taxation with home production abstract optimal taxes for europe and the u s are derived in a realistically calibrated model in which agents buy consumption goods and services and use home capital and labor to produce household services the optimal tax rate on services is substantially lower than the tax rate on goods specifically the planner cannot tax home production directly and instead lowers the tax rate on market services to increase the relative price of home production the optimal tax rate on the return to home capital is strictly positive and the welfare gains from switching to optimal taxes are large

on the strategic choice between capital and labor mobility abstract this paper analyzes the strategies of two governments when choosing between capital and labor mobility for each type of factor mobility the nash equilibria under both income taxes and quotas on factor flows are derived from each country s point of view an income tax dominates a quota the paper also shows that in a strategic environment ramaswami s result that a country prefers the restricted inflow of a scarce factor to the restricted outflow of an abundant factor continues to hold for some initial factor endowments but the opposite result may obtain for other factor endowments

on the choice between capital and labour mobility trade theorists since the pioneering work of kemp 1966 have considered the question of national advantage from international factor mobility by considering only one factor to be so mobile kemp analyzed elegantly the question of optimal policies in 2 x 2 x 2 model and showed that since monopoly power could exist in both the goods and factor markets in consequence of international capital mobility the optimal policy intervention would generally involve two policy instruments tariffs cum subsidies on goods and duties cum subsidies on international capital flows jones 1967 subsequently extended kemp s argument to the secondbest context by examining the optimal level of one of these instruments when the other was arbitrarily set at zero elsewhere in this issue brecher 1983 shows in an elegant and original contribution that the jones policy problem is in fact a third best rather than a second best problem as generally believed and that if only one of the tariff and capital mobility taxes cumsubsidies can be used it is generally possible to improve welfare further by admitting an altogether different domestic policy instrument namely a production or consumption tax cum subsidy as the case may be the research of bhagwati was supported by the german marshall fund grant no l 34015 the problem analyzed in the paper was posed in bhagwati 1979 and an early ingenious and neglected analysis in ramaswami 1968 was noted by bhagwati we have profited greatly from these contributions also from reading webb 1970 ramaswami 1970 and a recent paper of calvo and wellisz 1983 on this problem this result is in consonance with the results of bhagwati ramaswami and srinivasan 1969 for the case without international capital mobility but the consonance is intuitive only after the result was established for the case with international capital mobility