biofuel investment in tanzania omissions in implementation abstract increasing demand for biofuels as a component of climate change mitigation energy security and a fossil fuel alternative attracts investors to developing countries like tanzania ample unused land is critical for first generation biofuels production and an important feature to attract foreign direct investments that can contribute towards agricultural modernization and poverty reduction initiatives despite the economic justifications the existing institutional and infrastructural capacities dictate the impacts of biofuels market penetrations furthermore exogenous factors like global recessionary pressure depressed oil prices below the level at which biofuel production were profitable in 2007 making tanzania s competitiveness and potential benefits questionable this paper investigates the extent that first generation jatropha based biofuels industry development in tanzania observed during fieldwork in kisarawe and bahi may fulfill policy objectives this paper argues that without strong regulatory frameworks for land investment management and rural development biofuel industrialization could further exacerbate poverty and food insecurity in tanzania the paper concludes with policy recommendations for first generation biofuel development while keeping in mind implications of second generation production since the topic is broad and multifaceted a multidisciplinary approach is used that includes political institutional and agricultural economics to analyze and conceptualize biofuel industry development and food security

optimal commodity taxation and tax reform under unemployment this paper derives the optimal commodity tax formula and the tax reform rule which should be used in a situation of orthodox keynesian unemployment the setting considered is a four good one individual model with fixed real wage implying an excess supply of labor the presentation is very simple and based on intuitive and graphical arguments the emphasis is on comparing our results with the more traditional results derived under full employment

translating legal rights into tenure security lessons from the new commercial pressures on land in ghana abstractsince the confluence of the food and oil price crises of the mid 2000s ghana has become a prime destination for large scale farmland investments while this trend could make valuable contributions to an ailing agricultural sector the alienation of rural land for commercial ends could conversely have far reaching implications for customary land rights through an analysis of the legislation protecting customary land rights and governing such the alienation of those rights and by contrasting this with practice this article highlights some of the fundamental challenges in translating legal rights into tenure security in contemporary ghana it shows that despite the legal recognition of customary land rights in practice customary land users are ultimately responsible for contesting infringements upon these rights with traditional authorities able to capture substantial rents from the alienation process and government institutions offering scant oversight as a result of fragmented responsibilities

is there a role for biofuels in promoting energy self sufficiency and security a cge analysis of biofuel policy in thailand given the rising price of crude oil some developing countries including thailand are looking towards developing their domestic renewable energy resources in particular biofuels however there are concerns about the possible adverse effects such a policy strategy would have on key variables such as sectoral output land allocation and the effects of prices particularly food prices this study develops a computable general equilibrium cge model of the thailand economy that features enhancements of the energy sector and uses it to analyze the government s recent renewable energy development plan this plan aims to increase domestic energy use from renewable sources to replace fossil fuel imports the study simulated specific policies contained in the plan among other things we found that promoting biofuel use causes a rapid increase in the price of biofuel and biofuel feedstock in the short run whereas these prices only increase slightly in the long run due to more elastic supplies the prices of food and other products marginally increase implying that food security is not undermined by the policy on the basis of the findings the study recommends a review of some of the targets because they were found to be rather high and a phasing in of others

migrants and housing investments theory and evidence from nigeria the dominance of housing may reflect limitations in the menu of investment choices available to migrants in the country of origin in many developing countries individuals face relatively few savings opportunities where productive assets such as land farm assets are associated with high risks and or low rates of return housing investments offer unique advantages in that they are durable highly visible and associated with low risk and monitoring requirements however there are some important drawbacks associated with housing investments in particular where resale and rental markets for housing are not well developed migrants housing assets may be relatively illiquid and irreversible in the next section i provide some background on general patterns of investment behavior among migrants here the evidence on housing investments is discussed for a rich set of migrant sending and receiving countries in section iii i develop the conceptual framework for understanding migrants housing investment decisions section iv provides a description of the data sources section v outlines the empirical strategy in section vi i discuss the empirical findings section vii presents conclusions excerpt

marginal tax reform externalities and income distribution the paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods it considers three types of policy instruments the indirect taxes the uniform poll transfer and public abatement this extends the framework set up by ahmad and stern 1984 bovenberg and de mooij 1994 and schob 1996 the theoretical model is illustrated for a specific externality namely congestion caused by peak car transport

tomatoes land and hearsay property and history in asante in the time of structural adjustment abstract after a decade of advocating market based solutions to poverty and underdevelopment in sub saharan africa policy analysts have begun to reexamine the actual and potential role of african states and institutions in promoting sustainable development while stressing the importance of flexibility in policies and institutions much of this debate rests on ahistorical approaches to understanding african institutions which portray them as inflexible and fragile beleaguered by economic and political change rather than contributing to it after reviewing some of the assumptions which inform recent debates this essay argues for a more processual approach which takes account of the negotiability and ambiguity of many institutional arrangements drawing on a case study of recent changes in land rights and agricultural practices in a rural community in ghana

a review of recent multi region input output models used for consumption based emission and resource accounting abstract the interest in consumption based emission and resource accounting has grown significantly many studies juxtapose consumer emissions carbon footprint and producer territorial emissions of greenhouse gases in order to demonstrate the effects of trade on the national emission budget to this end a respectable number of studies have been undertaken worldwide in order to estimate emissions embedded in international trade of numerous countries and world regions input output approaches and increasingly multi region input output mrio models are commonly chosen as they provide an appropriate methodological framework for complete carbon footprint estimates at the national and supra national level with increasing processing capabilities of computers and a wider availability of economic accounts environmental accounts and trade data such models are now being implemented on a wide scale after a brief overview of salient single region input output studies i provide an in depth review of the most recent multi region input output models used for the purpose of consumption based environmental accounting the main methodological features and important results are described for around twenty studies covering the years 2007 to 2009 this is followed by a detailed review of studies dealing with uncertainty in mrio analysis an area which has not received a lot of attention so far i conclude that further research is mainly needed in two areas a improvements in data availability and quality and b improvements in the accuracy of mrio modelling

quantifying biodiversity footprints of dutch economic sectors a global supply chain analysis abstract economic sectors contribute to biodiversity loss via environmental pressures such as land use and greenhouse gas ghg emissions directly and via their supply chains this study is the first that systematically quantifies supply chain related environmental pressures and terrestrial biodiversity losses in relation to sectoral production by presenting so called biodiversity footprints for 47 sectors in the dutch economy the supply chains of the food and chemical sectors were investigated in more detail by applying a structural path analysis mean species abundance msa was used as a biodiversity indicator representing the degree of ecosystem naturalness our results revealed that i the largest supply chain related biodiversity losses occur in land intensive and energy intensive sectors ii sectors that produce primary resources such as crops and livestock showed the largest biodiversity footprint per eur of output iii for most sectors in the dutch economy more than 50 of the biodiversity losses related to their supply chains were being caused abroad and iv more than 45 of the supply chain related losses caused by the food and chemical sectors occurred upstream of the direct suppliers our results imply that mitigation of ghg emissions as well as land use related options should be considered in sectoral strategies to protect global biodiversity the results create a clear rational for not only improving sectoral production efficiency but also for taking supply chain responsibility supply chain related biodiversity losses often cannot be directly influenced by the sector or occur in other countries additional strategies may be needed then to reduce global biodiversity losses

integrating sustainable chain management with triple bottom line accounting abstract triple bottom line accounting is widely advanced as a way in which firms can realise broader societal objectives in addition to increasing shareholder value in our analysis of the australian economy we integrate financial input output tables that describe the interdependencies between economic sectors with national social and environmental accounts to construct numerate triple bottom line accounts for 135 discrete sectors the accounts are portrayed against the numeraire of one dollar of gdp thus for a sector of the economy financial aspects of performance can be expressed for example as dollars of export earnings per dollar of gdp social aspects such as employment can be portrayed as minutes of employment generated per dollar greenhouse issues can be portrayed as kilograms of carbon dioxide emitted per dollar since these indicators of triple bottom line performance are referenced against financial units and are consistent with the system of national accounts they can be applied to financial accounts of a firm a service or a product and allow a robust triple bottom line account to be developed across a range of scales the critical advantage of this approach is that it includes both the direct or immediate effects as well as the indirect or diffuse effects associated with a large and distant chain of supply paths the incorporation of most indirect or upstream effects therefore expands the range of issues and effects within the analytical boundary and also includes imports and exports both products and firms can then be assessed properly in sustainable chain management scm terms thus a firm that uses a key intermediate input that requires a large amount of water for example cannot hide the environmental implications since they are revealed in the analysis of the full production chain this revelation can also underpin progress when firms acknowledge both the direct and indirect effects and improve their selection of key inputs on a wider range of criteria rather than on price alone our analysis is well developed at the economic sector level for australia and is also being applied to number of government institutions firms and individual products before the full benefits of numerate triple bottom line accounting can be applied to the equity issues of globalisation trade interdependencies between groups of typical countries will have to be analysed using these whole economy approaches this will allow country specific intensities to be applied to important items in the international production chain

ghana s bioenergy policy is 20 biofuel integration achievable by 2030 abstract in dealing with the climate change externality of the fossil fuel dominated transport sector bio fuels are widely seen as a solution through its bioenergy policy ghana seeks to improve oil supply security save foreign exchange create jobs and reduce emissions from the transport sector by integrating 20 biofuels into the transport fuel mix by 2030 this paper systematically analyses the transport fuel demand in ghana to determine the biofuel supply target in 2020 and 2030 and evaluates the resource input requirements for integration of biofuels into the transport fuel mix it provides a detailed picture of bio fuel prospects in ghana in the 2030 horizon the research concludes that though significant yield improvement is required to meet the target the target is achievable

towards more accurate and policy relevant footprint analyses tracing fine scale socio environmental impacts of production to consumption the consumption of internationally traded goods causes multiple socio environmental impacts current methods linking production impacts to final consumption typically trace the origin of products back to the country level lacking fine scale spatial resolution this hampers accurate calculation of trade and consumption footprints masking and distorting the causal links between consumers choices and their environmental impacts especially in countries with large spatial variability in socio environmental conditions and production impacts here we present the sei pcs model spatially explicit information on production to consumption systems which allows for fine scale sub national assessments of the origin of and socio environmental impacts embedded in traded commodities the method connects detailed production data at sub national scales e g municipalities or provinces information on domestic flows of goods and in international trade the model permits the downscaling of country to country trade analyses based on either physical allocation from bilateral trade matrices or mrio models the importance of producing more spatially explicit trade analyses is illustrated by identifying the municipalities of brazil from which different countries source the brazilian soy they consume applications for improving consumption accounting and policy assessment are discussed including quantification of externalities of consumption consumer labeling trade leakages sustainable resource supply and traceability

detecting unsustainable pressures exerted on biodiversity by a company application to the food portfolio of a retailer companies are called by institutional organizations to assess their impacts on biodiversity and to take actions to achieve collectively conservation objectives this paper presents a method to assess whether the pressures exerted by a business and its value chain on biodiversity are compatible with biodiversity conservation the absolute environmental sustainability assessment framework is used to compare relevant life cycle assessment midpoint and endpoint indicators to the ecological budgets assigned to the company this approach is illustrated based on the case study of a mass market retailer with a focus on the pressures exerted by its food portfolio at the agricultural production step the results indicate that several pressures driving biodiversity loss are not sustainable the study also highlights the prominent weight of a few product categories in the ecological burden these findings have implications for mass market retailers as well as their food value chains and open research perspectives to make such an approach fully operational

the profits of power land rights and agricultural investment in ghana we examine the impact of ambiguous and contested land rights on investment and productivity in agriculture in akwapim ghana we show that individuals who hold powerful positions in a local political hierarchy have more secure tenure rights and that as a consequence they invest more in land fertility and have substantially higher output the intensity of investments on different plots cultivated by a given individual corresponds to that individual s security of tenure over those specific plots and in turn to the individual s position in the political hierarchy relevant to those specific plots

facilitating the financing of bioenergy projects in sub saharan africa abstract the purpose of this paper is to identify and develop potential solutions on how to facilitate the financing of bioenergy projects in sub saharan africa we focus on four main areas that have been identified from empirical research in achieving this objective these are i financing ii markets iii trade and iv policy the sources utilised consist of primary and secondary data compilation and analysis of particular relevance are the results of a market survey undertaken on funding opportunities where the perspectives of both project developers as well as project financiers are taken into account results indicate that the four areas cannot be treated autonomously as they not only overlap but impact each other there are a number of difficulties for biofuel ventures not least the nature of the projects themselves but also around the financing and political landscape of these enterprises common solutions which cross cut the four areas are the need to raise awareness and the skillsets in areas including financing opportunities markets policy technical aspects among a range of stakeholders involved in biofuel ventures there is also a necessity to create a supporting framework for the emerging carbon trading related activities in africa

biofuel development in ghana policies of expansion and drivers of failure in the jatropha sector abstract biofuel development was mainly promoted in several parts of africa as an energy security or rural development strategy jatropha was the biofuel feedstock that received the most interest across africa from investors however jatropha expansion gave rise to a number of contested issues which produced conflicts winners and losers access to land was at the heart of several of these conflicts though some success stories of individual jatropha projects have been documented the overwhelming majority of these projects in africa have either collapsed or faced significant difficulties understanding the reasons behind the failure of the jatropha sector is an important gap in the academic literature while the lessons learnt from failed projects could inform future policies and practices this literature review synthesizes the key drivers of failure of the jatropha sector in ghana as identified in the literature and complemented through site visits and expert interviews it identifies a number of reasons behind the failure of individual jatropha projects such as poor business planning institutional barriers limited community participation unfair compensation practices obstacles posed by civil society and unconstructive involvement of chiefs the findings indicate the systemic nature of these problems as they often worked synergistically to catalyse the collapse of many jatropha projects in ghana re vitalising the biofuel and especially the jatropha industry is virtually impossible given the current challenges this would require a renewed political interest in ghana particularly to deal with the deficits of the land administration institutions

the rise of large farms in land abundant countries do they have a future increased levels and volatility of food prices has led to a surge of interest in large scale agriculture and land acquisition this creates challenges for policy makers aiming to establish a policy environment conducive to an agrarian structure to contribute to broad based development in the long term based on a historical review of episodes of growth of large farms and their impact this paper identifies factors underlying the dominance of owner operated farm structures and ways in which these may change with development the amount of land that could potentially be available for expansion and the level of productivity in exploiting available land resources are used to establish a country level typology the authors highlight that an assessment of the advantages of large operations together with information on endowments can provide input into strategy formulation at the country level a review of recent cases of land acquisition reinforces the importance of the policy framework in determining outcomes it suggests that transparency and contract enforcement recognition of local land rights and ways in which they can be exercised attention to employment effects and technical viability and mechanisms to re allocate land from unsuccessful ventures to more productive entrepreneurs are key areas warranting the attention of policy makers

energy security for india biofuels energy efficiency and food productivity abstract the emergence of biofuel as a renewable energy source offers opportunities for significant climate change mitigation and greater energy independence to many countries at the same time biofuel represents the possibility of substitution between energy and food for developing countries like india which imports over 75 of its crude oil fossil fuels pose two risks global warming pollution and long term risk that oil prices will undermine real living standards this paper examines india s options for managing energy price risk in three ways biofuel development energy efficiency promotion and food productivity improvements our salient results suggest that biodiesel shows promise as a transport fuel substitute that can be produced in ways that fully utilize marginal agricultural resources and hence promote rural livelihoods first generation bioethanol by contrast appears to have a limited ability to offset the impacts of oil price hikes combining the biodiesel expansion policy with energy efficiency improvements and food productivity increases proved to be a more effective strategy to enhance both energy and food security help mitigate climate change and cushion the economy against oil price shocks

structural path analysis and multiplier decomposition within a social accounting matrix framework the main purpose of this paper is to apply structural path analysis to a social accounting matrix sam framework because the sam is a comprehensive essentially general equilibrium data system the whole network through which influence is transmitted can be identified and specified through structural path analysis the latter provides an alternative and much more detailed way to decompose multipliers as compared with the traditional treatment of stone 1978 and pyatt and round 1979 this paper consists of five sections the first one reviews the sam framework as a basis for multiplier analysis and multiplier decomposition in particular the additive decomposition in terms of transfer open loop and closed loop effects is succinctly presented section ii applies this conventional decomposition to a sam of south korea to illustrate with eleven specific cases the effects of an exogenous injection on the endogenous accounts of the sam i e the incomes of the factors household groups and production activities section iii is devoted to the presentation of the elements of structural analysis and more particularly the transmission of economic influence within a structure finally section iv applies structural path analysis to the south korean sam and compares and contrasts the multiplier decomposition which it yields with the alternative decomposition discussed in section ii the comparison is the more significant in that the two decomposition methods are applied to the same eleven selected cases spanning a variety of sectors i e poles of origin for the injection and sectors poles of destination the empirical analysis in section iv suggests that structural path analysis applied to a sam is a potentially operationally useful technique within which a whole series of policy issues can be addressed the final section is devoted to a brief summary and conclusions

multi actor governance of sustainable biofuels in developing countries the case of mozambique this paper describes and analyses the multi actor governance process that made mozambique the first african nation state to develop a national policy framework for sustainable biofuels the paper draws on findings from action research conducted in mozambique between december 2008 and july 2012 we analyse interactions between the changing governance context the course of the multi actor governance process and the choices in relation to governance framework characteristics and content for four successive stages of governance framework development this provides the basis for reflection on the competences required for effective multi actor sustainability governance and a discussion about the role of the nation state in sustainability governance of global economies such as biofuels the governance framework for sustainable biofuels has contributed to a more transparent and secure investment climate for biofuels in mozambique key factors for success were 1 the presence of different types of competences during the various stages of the governance framework development 2 closing the gap between licences to sell and licences to produce across different governance levels and 3 balancing between the short and long term objectives for biofuel production in mozambique and requirements of global biofuel markets developing country nation states can provide an essential contribution to these success factors for global governance of sustainable biofuels

a political economy theory of fiscal policy and unemployment this paper presents a political economy theory of fiscal policy and unemployment the underlying economic model is one in which unemployment can arise but can be mitigated by tax cuts and public spending increases such policies are fiscally costly but can be financed by issuing government debt policy decisions are made by a legislature consisting of representatives from different political districts the theory provides a positive account of the simultaneous determination of fiscal policy and unemployment the most important implication of the theory is that debt and unemployment levels should be positively correlated some evidence in support of this prediction is provided using data from a panel of developed countries

building for the future investment land reform and the contingencies of ownership in contemporary ghana summary case studies of individual investments in tree crops and houses illustrate recent changes in social and economic differentiation among families and communities in asante region ghana and their implications for recent debates over state led land reform versus community led land reform seeking efficiency neoliberal land reforms transfer land from state to private ownership as well as tenure reforms designed to strengthen owners rights by treating communities as owners reforms benefit the poor as well as the well to do in ghana and other west african countries privatization may also work in the opposite direction reinforcing inequalities within communities and encouraging claims to land based on origin and indigeneity

contradictory land use plans and policies in laos tenure security and the threat of exclusion summary contradicting policies and overlapping property arrangements are common in many countries opening doors for diverse interpretations by different actors this requires better knowledge on how competing interests and actors interact and what determines the practical competition outcomes as demand for land intensifies and international actors get increasingly involved in regulating natural resources land use planning in laos provides a case in point as it aims at strengthening tenure security intensifying agriculture and sparing forest areas while other policies simultaneously promote agricultural development and agri business investment that reconfigure land use and land access through national provincial district village and household interviews we examine how different land and forest related policies interact and whether ongoing land use planning processes and land rights formalization increase tenure security we show how government policies supported by international donors and introduced to strengthen tenure rights for the rural population actually reduce villagers legally permitted agricultural areas even if district level land use regulations do not currently exclude local communities from their land land use plans lay the groundwork for potentially excluding villagers from large land areas we find that plural contradictory regulations and policies combined with existing power inequalities result in a filter mechanism that reduces the practical impact of legal instruments and safeguards aimed at strengthening the least powerful actors rights our results add to other authors arguments that political and legal changes are mediated by power relations cultural norms and economic incentives by highlighting that the duel edged rights sword may actually end up paving the way for greater state control over future benefits derived from community areas classified as forest lands this is especially relevant when preparing redd which we show is likely to weaken rather than strengthen tenure security for rural populations

creating property rights land banks in ghana insecure property rights over land have multiple ramifications for agriculture and the organization of rural economic activity besley and ghatak 2009 the risk that land will be expropriated deters investment insecure property rights reduce the ability of borrowers to pledge land as collateral and thus tighten credit constraints ill defined property right over land can inhibit land transactions rentals or sales and potential gains from trade are lost scarce resources like labor may be devoted to protecting one s insecure rights over plots field 2007 in ghana land rights are typically gained by virtue of membership in a corporate group e g extended family but a robust market is emerging for land purchases and rentals particularly in urban and periurban areas informal land markets in ghana are beset with a number of problems including land conflicts protracted litigation and adjudication failures documentation bottlenecks and uncertainty land legislation in ghana is perceived as incoherent conflicting and often outdated an unwieldy public land sector dominates the documentation of land rights revenue collection and distribution land conflicts are becoming more frequent judicial processes are overburdened authority is overcentralized and corrupt conflict over multiple claims to particular plots occasionally becomes violent goldstein and udry 2008 document the large investment disincentive effects of insecure tenure in agriculture in ghana almost 80 of ghana s land is held by customary landowners mainly families clans and traditional authorities kasanga and kotey 2001 these owners often do not record transactions indeed many are clothed in secrecy as land transactions gradually move away from their familial corporate base to short term rental for commercial purposes multiple simultaneous transactions on the same plot have be

biofuels development in sub saharan africa are the policies conducive this paper analyses national regional and international biofuels policies and strategies to assess whether these policies promote or undermine the development of biofuels sector in africa despite having a huge comparative advantage in land labour and good climatic conditions favourable for the growing of energy crops few countries in sub saharan africa have included biofuels strategies in their energy or national development policies further results show that while developed countries commit huge financial resources for research technology development and the provision of tax incentives to both producers and consumers there is little government support for promoting biofuels in africa although the consequences of biofuels on food supply remain uncertain the mandatory blending of biofuels with fossil fuels by industrialized countries will create demand for land in africa for the growing of energy crops for biofuels this paper urgently calls upon national governments in sub saharan africa to develop appropriate strategies and regulatory frameworks to harness the potential economic opportunities from biofuels sector development while protecting the environment and rural communities from the adverse effects of land alienation from the mainstream agriculture towards the growing of energy crops for biofuels at the expense of traditional food crops

contemporary processes of large scale land acquisition in sub saharan africa legal deficiency or elite capture of the rule of law summary growth of emerging economies policy commitments to biofuels and volatility in commodity prices have contributed to a marked increase in the pace and scale of foreign direct investment in land based enterprises in the global south this paper explores the relationship between policy and practice associated with customary rights protections in the context of large scale land acquisitions through a document review and case study analyses from ghana mozambique tanzania and zambia findings point to the difficulty of safeguarding customary rights even in countries providing best practice legal protections and point to the fundamental role of human agency in shaping outcomes

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