tax distortions and global climate policy abstract we consider the efficiency implications of policies to reduce global carbon emissions in a world with pre existing tax distortions we first note that the weak double dividend the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion need not hold in a world with multiple distortions we then present a large scale computable general equilibrium model of the world economy with distortionary taxation we use this model to evaluate a number of policies to reduce carbon emissions we find that the weak double dividend is not obtained in a number of european countries results also demonstrate the point that the interplay between carbon policies and pre existing taxes can differ markedly across countries thus one must be cautious in extrapolating the results from a country specific analysis to other countries

frontiers of climate change economics the economics of climate change is an active field of research the contributions to a special issue are put in context of the literature and it is suggested that second best issues such as carbon leakage and the green paradox need to be complemented with a political economy analysis of why certain instruments are politically infeasible and with intra and intergenerational analyses of the impact of climate policy a case is also made for more empirical work on the gradual and catastrophic damages of global warming

second best carbon taxation in the global economy the green paradox and carbon leakage revisited acceleration of global warming resulting from a future carbon tax is large if the price elasticities of oil demand are large and that of oil supply is small the fall in the world interest rate weakens this weak green paradox effect especially if intertemporal substitution is weak still social damages from greenhouse gases drop if the fall in oil supply and cumulative emissions is strong enough if the current carbon tax is set too low the second best future carbon tax is set below the first best too to mitigate adverse green paradox effects unilateral second best optimal carbon taxes exceed the first best taxes due to an import tariff component the intertemporal terms of trade effects of the future carbon tax increase current and future tariffs and those of the current tax lower the current tariff finally carbon leakage and globally altruistic and unilateral second best optimal carbon taxes if non kyoto oil importers price carbon too low are analysed in a three country model of the global economy

the political economy of opec abstract we develop a conceptual model that captures opec pricing behavior and apply it to explain the large gap observed between domestic fuel prices in opec countries and prices in the rest of the world we model opec as a cartel of nations not firms and assume that politicians use two instruments production quotas and domestic fuel consumption subsidies the cartel of nations model suggests that introduction of alternatives to petroleum products may lead opec to reduce exports and increase domestic fuel consumption the empirical analysis suggests that when opec sets production quotas it places similar weights on consumer and producer surplus but when opec countries set domestic fuel subsidies on average 6 more weight is given to consumer surplus with some of the opec countries pursuing very aggressive domestic cheap fuel policies

economic growth and interfactor interfuel substitution in korea this paper investigates the impact of increases in oil consumption and changes in wage rates on the interfactor interfuel substitution in korea a two stage translog cost function is estimated to incorporate the feedback effect between the interfactor and interfuel substitution empirical results show that the substitutability complementarity relationships among factors and fuels exhibit substantially different patterns before and after 1989

embeddedness social epistemology and breakthrough innovation the case of the development of statins abstract radical breakthrough innovations create not only great industrial possibilities but also great social uncertainties when a breakthrough medical technology is discovered the question arises as to whether to accept the possible risks involved or to defer implementing the innovation until more data is available and specifically until others have taken up the innovation and demonstrated both its efficacy its relative safety and market acceptance specifically when a firm discovers a new candidate substance for a first in its class drug how to evaluate the potential risks becomes a key predicament for management this paper focuses on the role of a firm s social networks and national innovation system context in influencing the social epistemology around potential breakthrough innovations through an examination of the processes of drug development related to the same candidate substance in a japanese firm and an american firm we suggest that in addition to organizational capabilities at the corporate level social capital specifically formed under a certain innovation system plays a key role in leading to the successful introduction of breakthrough innovations

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

the benefits and costs of strong patent protection a contribution to the current debate abstract today s conventional wisdom is that strong patent rights are conducive to economic progress yet not long ago students of the patent system took a more nuanced position arguing that often strong patents were not necessary to induce invention and entailed significant economic costs several empirical studies have supported this position however the current advocacy invokes theories of the positive benefits of patents that were repressed in the earlier more negative analyses this essay reviews these theories and the empirical evidence that might bear on them the authors conclude that there is reason for concern that the present movement towards stronger patent protection may hinder rather than stimulate technological and economic progress

fuel efficiency improvements feedback mechanisms and distributional effects in the oil market we study the interactions between fuel efficiency improvements in the transport sector and the oil market where the efficiency improvements are policy induced in certain regions of the world we are especially interested in feedback mechanisms of fuel efficiency such as the rebound effect carbon leakage and the green paradox but also the distributional effects for oil producers an intertemporal numerical model of the international oil market is introduced where opec core producers have market power we find that the rebound effect has a noticeable effect on the transport sector with the magnitude depending on the oil demand elasticity in the benchmark simulations we calculate that almost half of the energy savings may be lost to a direct rebound effect and an additional 10 to oil price adjustments in addition there is substantial intersectoral leakage to other sectors through lower oil prices in the regions that introduce the policy there is a small green paradox effect in the sense that oil consumption increases initially when the fuel efficiency measures are gradually implemented finally international carbon leakage will be significant if policies are not implemented in all regions we estimate leakage rates of 35 or higher when only major consuming regions implement fuel economy policies non opec producers will to a larger degree than opec producers cut back on its oil supply as a response to fuel efficiency policies due to high production costs

a dynamic analysis of japanese energy policies their impact on fuel switching and conservation abstract in 1973 the japanese economy was highly dependent on imported oil after the 1973 oil price shock vigorous policy action was undertaken by the japanese government in an attempt to reduce japan s energy consumption and in particular its dependence on imported oil this study attempts to determine how flexibly the japanese economy has responded to the dramatic changes in relative and absolute fuel prices which occurred since 1973 and to what extent government energy policies may have reinforced or undermined market signals and facilitated fuel switching and conservation to analyse the price and income elasticities of energy component demand a dynamic approach to energy demand modelling is employed the study reveals that japanese energy users have responded quite flexibly to the two major oil price rises in the 1970s the probable impact of energy policies on this response is however somewhat problematic

no taxation without information deterrence and self enforcement in the value added tax abstract claims that the vat facilitates tax enforcement by generating paper trails on transactions between firms contributed to widespread vat adoption worldwide but there is surprisingly little evidence this paper analyzes the role of third party information for vat enforcement through two randomized experiments among over 400 000 chilean firms announcing additional monitoring has less impact on transactions that are subject to a paper trail indicating the paper trail s preventive deterrence effect this leads to strong enforcement spillovers up the vat chain these findings confirm that when taking evasion into account significant differences emerge between otherwise equivalent forms of taxation jel d83 h25 h26 k34 o17

interfuel substitution in us electricity generation ongoing changes in the us electricity market include restructuring and increased competition with this unfettering of the market the fuel choice in generation is expected to become more flexible and responsive to investigate this hypothesis studies of us electricity fuel choices over the last three decades are summarized and the most recent analysis is provided on a market very different from the one on which earlier studies were done modern data handling techniques allow the consideration of the most comprehensive database including 185 utilities on monthly data for 1993 this paper finds fuel choice to show a considerable amount of price responsiveness the amount of responsiveness is sensitive to the fuel substitution possibilities within the utility and the amount of responsiveness seems to have increased recently for oil and natural gas

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

major oil exporters may profit rather than lose in a carbon constrained world the organization of petroleum exporting countries opec claims compensation for losses in expected oil export revenues due to co2 mitigation measures in developing countries these losses are expected for two primary reasons a reduction in the consumption of oil in importing countries and a reduction in the producer price of oil taxation in an importing country implies a transfer of rents from producers to consumers so far most studies have focused on these two mechanisms and corroborated that revenue losses for opec are to be expected however there are also mechanisms that may be expected to raise the price of oil products in a cost effective regime for dealing with climate change i e a regime in which all or most countries participate and in which the same carbon price is applied on all carbon emitting activities the cost of using unconventional oil or synthetic diesel from coal will increase even more than the cost of using conventional oil given that reserves of conventional oil are expected to dwindle over time heavy oils and coal to liquids might set the long run price for liquid fuels which means that the price of oil would increase beyond the carbon fee i e the rent on conventional oil would increase we use an energy economic optimization model to analyze these three mechanisms we find that the net present value of opec revenue from conventional oil increases slightly at most by 4 percent with a global co2 restriction regime we also consider conditions under which this result does not hold

interfuel competition in the industrial sector of seven oecd countries abstract the purpose of this article is to present an analysis of interfuel substitution in the industrial sector of seven major oecd countries the united states canada japan germany france the united kingdom and italy over the 1960 1993 period translog models are used to provide estimates of price elasticities from annual data for each country results outline the weakness of price elasticities and changes in behaviour over the last 35 years and show evidence of asymmetric effects since the collapse of oil prices in 1986 substitution has stopped industrial energy demand and oil consumption have stagnated interfuel substitution is widely induced by events other than relative price changes energy policy political and institutional constraints changes in economic activity characteristics within individual country sectors

efficient climate policy in the presence of free riders abstract if all countries participate in a climate agreement policies affecting the supply of fossil fuels have identical economic consequences as policies affecting the demand of fossil fuels this is no longer true when there is limited participation in an international agreement in the paper it is assumed that a group of countries commit themselves to cooperating while the remaining countries act independently and in pure self interest the paper compares supply and demand policies in this context and demonstrates that policies which affect only demand or only supply of carbon generally are inferior to policies affecting both demand and supply of carbon the optimal mix of supply and demand policies is derived in the paper with particular emphasis on carbon taxes an important result is that if the marginal environmental costs of total emissions are sufficiently high in the cooperating countries then both production and consumption of carbon should be taxed at a positive rate if on the other hand the marginal environmental costs of total emissions are sufficiently low it may be optimal to subsidize production or consumption in this case production should be subsidized if the cooperating countries are net importers of carbon while consumption should be subsidized if the cooperating countries are net exporters of carbon another important conclusion of the paper is that the cooperating countries should try to induce the non cooperating countries through appropriate transfers to tax consumption and production of carbon at the same rate as in the cooperating countries

china s energy economy technical change factor demand and interfactor interfuel substitution with its rapid economic growth china s primary energy consumption has exceeded domestic energy production since 1994 leading to a substantial expansion in energy imports particularly of oil china s energy demand has an increasingly significant impact on global energy markets in this paper allen partial elasticities of factor and energy substitution and price elasticities of energy demand are calculated for china using a two stage translog cost function approach the results suggest that energy is substitutable with both capital and labor coal is significantly substitutable with electricity and complementary with diesel while gasoline and electricity are substitutable with diesel china s energy intensity is increasing during the study period 1995 2004 and the major driver appears to be due to the increased use of energyintensive technology

is there really a green paradox abstract in the absence of a co2 tax the anticipation of a cheaper renewable backstop increases current emissions of co2 since the date at which renewables are phased in is brought forward and more generally future emissions of co2 will decrease the effect on global warming is unclear green welfare falls if the backstop is relatively expensive and full exhaustion of fossil fuels is optimal but may increase if the backstop is sufficiently cheap relative to the cost of extracting the last drop of fossil fuels plus marginal global warming damages as then it is attractive to leave more fossil fuels unexploited and thus limit co2 emissions we establish these results by analyzing depletion of non renewable fossil fuels followed by a switch to a clean renewable backstop paying attention to timing of the switch and the amount of fossil fuels remaining unexploited we also discuss the potential for limit pricing when the non renewable resource is owned by a monopolist finally we show that if backstops are already used and more backstops become economically viable as the price of fossil fuels rises a lower cost of the backstop will either postpone fossil fuel exhaustion or leave more fossil fuel in situ thus boosting green welfare however if a market economy does not internalize global warming externalities and renewables have not kicked in yet full exhaustion of fossil fuel will occur in finite time and a backstop subsidy always curbs green welfare

major oecd country industrial sector interfuel substitution estimates 1960 1979 abstract a range of static and dynamic translog based expenditure shares models are estimated for non energy producing industrial sectors of the major seven countries of the oecd area sectoral energy volume and fuel efficiency bias variables are shown to be significant over and above individual prices in explaining individual fuel expenditure shares statistically significant own price and cross price elasticities of demand are presented for individual countries with some magnitudes varying considerably across alternative model specifications

interfuel substitution a meta analysis interfuel substitutability has been of longstanding interest to the energy economics and policy community however no quantitative meta analysis has yet been carried out of this literature this paper fills this gap by analyzing a broad sample of studies of interfuel substitution in the industrial sector manufacturing industry or subindustries or macro economy of a variety of developed and developing economies publication bias is controlled for by including the primary study sample size in the meta regression results for the shadow elasticities of substitution between coal oil gas and electricity for forty six primary studies show that at the level of the industrial sector there are easy substitution possibilities between all the fuel pairs with the exception of gas electricity and coal electricity substitution possibilities seem more constrained at the macro level and less constrained in sub industries estimates also vary across countries publication bias does not seem to be present but model and data specification issues very significantly affect the estimates derived by each individual study estimates from cross section regressions are generally largest fixed effects panel estimates intermediate in magnitude and time series estimates are mostly much smaller econometric research suggests that the fixed effects estimates are likely the best among the existing studies though biased downwards

the design of direct taxation and family benefits abstract the subject of this paper is the design of the personal income tax and social security benefits that vary with the size of the family it is concerned with the analytical problems of policy design that arise from constraints on the instruments which may be used from differences in social judgements about the desirability of redistribution and from differences of view about the disincentive effects of taxation the paper considers these issues in the context of the french tax benefit system and the implications of the french system being harmonised towards certain features of the british system

reconsidering the empirical evidence on the grossman helpman model of endogenous protection the emergence of the grossman and helpman 1994 model of endogenous protection as the preeminent model in the political economy of trade literature has been significantly advanced by the finding that its predictions about the cross industry pattern of protection are broadly consistent with the data however in their empirical implementation of the grossman helpman model researchers have assumed the presence of multiple policy instruments and extraneous political factors we argue that incorporating these assumptions into the theory significantly changes its predictions about the cross industry pattern of protection jel classification f1 l emergence du modele de protection endogene de grossman helpman en tant que modele le plus important dans la litterature sur l economie politique du commerce international a ete confirmee de maniere significative quand on a decouvert que ses predictions quant au pattern de protection a travers les industries se trouvaient generalement confirmees par les donnees cependant dans leur verification empirique du modele de grossman helpman les chercheurs ont postule la presence de multiples instruments de politique publique et de certains facteurs politiques on suggere que l ajout de ces postulats change de maniere significative les predictions du modele quant au pattern de protection dans les divers secteurs

why can modern governments tax so much an agency model of firms as fiscal intermediaries we develop an agency model explaining why third party information reporting by firms makes tax enforcement successful while third party reporting would be ineffective with frictionless collusion between firms and employees collusive evasion is impossible to sustain in firms with many employees and accurate business records as any single employee may reveal evasion we embed our agency model into a macro model where the number of employees grows with development showing that the tax take evolves as an s shape driven by changes in third party information we show that our model is consistent with a set of stylized facts on taxation and development

double limit pricing abstract we study oil extraction by a monopolist who faces demand from a climate aware and a climate ignorant region a renewable perfect substitute for oil is available at constant unit cost the climate aware region uses a carbon tax and a renewables subsidy as policy instruments due to heterogeneity in climate policies between regions the oil price path possibly contains two limit pricing phases we specify conditions under which a tightening of climate policies results in lower initial carbon emissions a renewables subsidy and a carbon tax effectively force the monopolist to sell more oil to the climate ignorant region during the stage when demand from the climate aware region has already vanished we calibrate the model and numerically investigate climate damage and welfare effects of the policies of the climate aware region we find that both the carbon tax and a renewables subsidy lower climate damage even though cumulative emissions are fixed

the supply side of co2 with country heterogeneity several recent articles have analyzed climate policy paying explicit attention to the fact that carbon resources are non renewable in most of this body of literature the economy is treated as a single unit and in the context of climate policy it seems reasonable to interpret this as the whole world however carbon taxes and other climate policies differ substantially across countries with such heterogeneity the effects on the emission paths of changes in taxes costs and subsidies might be very different from what is found for a hypothetical world of identical countries

the grey paradox how fossil fuel owners can benefit from carbon taxation abstract this paper considers the distributional impact of optimal carbon taxation on fossil fuel owners a carbon emitting exhaustible resource competes with a dirtier abundant resource and a clean backstop a time dependent carbon tax is set to optimally use these resources under a cap constraint over co 2 atmospheric concentration as the cap is tightened the dirtier resource becomes less competitive compared to the exhaustible resource the competition effect but the timing and duration of extraction of the exhaustible resource is modified the timing effect we provide analytical expressions of these effects and determine conditions over size of reserves pollution contents extraction costs and demand elasticity such that the exhaustible resource owners profits increase as the ceiling is tightened calibrations for the transport and power sectors suggest that the profits of conventional oil and natural gas owners increase compared to a baseline without regulation for plausible carbon ceiling values

monopoly unilateral climate policies and limit pricing abstract we examine the behavior of a fossil fuel monopolist who faces demand from two regions a climate club and the rest of the world row each region is able to produce a perfect substitute for fossil energy at constant marginal costs the climate club uses a carbon tax and a renewables subsidy as policy instruments the row is policy inactive we fully characterize the market equilibrium and show that due to differences in climate policies between the climate club and the row the monopolistic fossil fuel supplier may choose for two limit pricing phases to postpone entry of renewables producers first in the climate club and later in the row as soon as energy demand from the climate club shifts from fossil fuels to renewables the monopolist abruptly increases the fossil price for the row

on the optimal tax base for commodity taxation taxed considerable effort has been devoted to characterizing the manner in which the optimal tax rates differ across the taxable commodities but the literature has rarely addressed the issue of which commodities should be included in the tax base in fact the standard optimal tax model cannot provide a useful answer to this question because it does not contain any of the resource costs normally associated with the collection of taxes an omission that seriously diminishes the policy relevance of the model 2

credible carbon policy the paper sets out the credibility problem in carbon policy provides a number of examples of non credibility in recent energy policy and identifies the costs of failing to address it the time inconsistency of carbon policy arising because of multiple objectives the irreversibility of energy investments and the scope for ex post reneging on ex ante commitments to set policy instruments such as carbon taxes or emission permits at appropriate levels is set in a conceptual framework analogies with monetary policy are drawn and a solution to the time inconsistency problem is proposed through the establishment of an energy carbon agency

too much coal too little oil abstract our main message is that it is optimal to use less coal and more oil once one takes account of coal being a backstop which emits much more co2 than oil the way of achieving this is to have a steeply rising carbon tax during the initial oil only phase a less steeply rising carbon tax during the intermediate phase where oil and coal are used alongside each other and the following coal only phase and a flat carbon tax during the final renewables only phase the laissez faire outcome uses coal forever or starts with oil until it is no longer cost effective to do so and then switches to coal we also analyze the effects on the optimal transition times and carbon tax of a carbon free albeit expensive backstop solar or wind energy subsidizing renewables to just below the cost of coal does not affect the oil only phase the gain in green welfare dominates the welfare cost of the subsidy if the subsidy gap is small and the global warming challenge is acute without a carbon tax a prohibitive coal tax leads to less oil left in situ and substantially delays introduction of renewables but curbs global warming substantially as coal is never used finally we characterize under general conditions what the optimal sequencing oil and coal looks like

climate policy and the optimal extraction of high and low carbon fossil fuels we study how restricting co2 emissions affcts resource prices and depletion over time we use a hotelling style model with two nonrenewable fossil fuels that differ in their carbon content e g coal and natural gas and that are imperfect substitutes in final good production we study both an unexpected constraint and an anticipated constraint both shocks induce intertemporal substitution of resource use when emissions are unexpectedly restricted it is cost effective to use high carbon resources relatively more less intensively on impact if this resource is relatively scarce abundant if the emission constraint is anticipated it is cost effective to use relatively more less of the low carbon input before the constraint becomes binding in order to conserve relatively more less of the high carbon input for the period when climate policy is active in case the high carbon resource is relatively scarce abundant

brown backstops versus the green paradox abstract anticipated climate policies are ineffective when fossil fuel owners respond by shifting supply intertemporally the green paradox this mechanism relies crucially on the exhaustibility of fossil fuels we analyze the effect of anticipated climate policies on emissions in a simple model with two fossil fuels one scarce and dirty e g oil the other abundant and dirtier e g coal we derive conditions for a green orthodox anticipated climate policies may reduce current emissions the model can also be used to analyze spatial carbon leakage calibrations suggest that intertemporal carbon leakage from 0 to 8 is a relatively minor concern

pigouvian taxation with administrative costs abstract this paper examines how the optimal pigouvian tax should be adjusted to reflect adminisrative costs several cases are examined depending on whether the administrative costs are fixed per firm taxed or are a function of the amount of tax collected and on whether such costs are borne by the government or by the taxed firm in some cases the presence of administrative costs leads to an optimal tax greater than the external cost while in other cases it leads to a tax less than the external cost

interfuel substitution in the united states in this paper we use the locally flexible translog functional form to investigate the demand for energy and interfuel substitution in the united states and to provide a comparison of our results with most of the existing empirical energy demand literature motivated by the widespread practice of ignoring theoretical regularity we follow barnett s 2002 suggestions and estimate the model subject to theoretical regularity using methods developed by diewert and wales 1987 and ryan and wales 2000 in an attempt to produce inference consistent with neoclassical microeconomic theory moreover we use the most recent data published by the u s energy information administration eia and in addition to investigating interfuel substitution possibilities in total u s energy demand we follow serletis et al 2009 and also examine interfuel substitution possibilities in energy demand by sector moreover we test for weak separability with the objective of discovering the structure of the functional form in total energy demand as well as energy demand by sector

economic and political foundations of tax structure this paper derives the essential elements of tax systems as the outcome of rational behavior in a model w here government maximizes expected support and where opposition to ta xation depends on the loss in full income the analysis treats the le vel of expenditures as endogenous and integrates the influence of adm inistration costs with that of political and economic factors tax st ructure is shown to be a system of related components in equilibrium a final section compares results to two alternative approaches opti mal taxation and the leviathan model copyright 1988 by american economic association

the evolution of tax structures certain themes recur throughout this paper the traditional account of the evolution of tax structures through the interaction of increasing efficiency and the claims of special interests plays a role but is not the whole story different taxes create tradeoffs between the costs of administration and compliance specification of these costs creates a framework in which long term trends like the growth and centralization of revenues and the increasing dependence on direct taxation can be understood this framework applies to observable collective decisions to alter tax structures uncertainty about ultimate incidence plays a major role in such decisions it also applies to the decentralized context of adjustment and resistance this framework can be used to investigate the extent of redistribution within tax systems and of the requirement of frequent reforms to sustain redistribution against resistance the simultaneous consideration of economic and political aspects of taxation can only improve future research

unilateral co2 reductions and carbon leakage the consequences of international trade in oil and basic materials a recursively dynamic general equilibrium model featuring six world regions with trade in energy and non energy goods is used to simulate the period from 1990 through 2100 in 10 year intervals the simulations explore the effect of unilateral action by the oecd to curb global co2 emissions unilateral cuts create incentives for free riding by non participating regions so that global emissions are reduced by less than the amount that the oecd cuts back its regional emissions carbon leakage occurs through two channels first basic materials production increases in unconstrained regions resulting in increased carbon intensity of gdp second reductions in oecd oil imports cause the world oil price to fall leading to an increased energy intensity in the non participant regions in this paper we use a general equilibrium model to assess the extent to which these two mechanisms reduce the effectiveness of oecd reductions in curbing global co2 concentrations

to build or not to build capital stocks and climate policy abstract we investigate i the impact of emission reduction policy on investment in polluting infrastructure such as coal fired power stations and ii optimal subsidies for clean alternatives with learning spillovers we build a general theoretical model and embed it in a fully calibrated integrated assessment model because emission reduction policy reduces investments in polluting assets short term emission reductions are enhanced our irreversibility effect thus stranded assets in this fuel using sector have distinctive properties we also provide a simple formula for how the optimal subsidy to deployment of a clean sector depends on its rate of learning by doing and on its socially optimal growth so if the sector should grow faster for other reasons its optimal subsidy is increased showing that its optimal growth rate is faster still our acceleration effect our calibrations show that to limit global climate change to 2 c warming investments in coal fired power stations must end very soon considering second best settings we show that carbon taxes achieve stringent policy targets more efficiently but subsidies to the clean sector deliver higher welfare and are more efficient when policy targets are more mild

climate change policy market structure and carbon leakage abstract the 1997 kyoto protocol on climate change obliges the industrialized countries to initiate the international effort of abating anthropogenic greenhouse gas ghg emissions if such an initiative is to be taken the associated competitive effects may lead to significant relocation of developed countries energy intensive production this paper examines this issue i adopt an oligopolistic structure combined with increasing returns to scale production technologies to represent the strategic interaction among the firms producing energy intensive products this representation is then embedded within a multi regional computable general equilibrium model which in turn is used for quantifying these relocational effects the results suggest that significant relocation of energy intensive industries away from the oecd may occur depending on the type of market structure with leakage rates as high as 130 in which case ghg control policies in the industrialized countries actually lead to higher global emissions

firm types price setting strategies and consumption tax incidence abstract we analyze price responses to large restaurant vat rate reductions in two different european countries our results show that responses in the short and medium run were clustered around two focal points of zero pass through and full pass through differences between independent restaurants and chains is the key explanation for this pattern while nearly all independent restaurants effectively ignored the tax reductions and left consumer prices unchanged a substantial fraction of restaurants belonging to chains chose a rapid and complete pass through in the longer run prices converged but primarily through a price reversion among chain restaurants the stark difference in price responses does not appear to arise because of different market characteristics such as location initial price levels meal types and restaurant segment

income redistributions without catastrophes abstract the idea that simple lump sum taxes and transfers may encounters multiplicity and instability of equilibria and counter intuitive utility changes has long been recognized using information about the equilibrium manifold we construct a finite sequence of lump sum taxes and transfers which avoids these problems in addition the equilibrium at each stage of the sequence changes continuously with changes in taxes and transfers the income redistribution policies are constructed to avoid catastrophes singularities in the equilibrium manifold

putting firms into optimal tax theory firms are for the most part absent from the modern theory of optimal taxation their disappearance dates from the foundational models developed by peter a diamond and james a mirrlees 1971 in which firms are simply mechanical vehicles for combining productive inputs into output in cost minimizing proportions in contrast firms play a central role in all modern tax systems mostly for a reason stated by richard m bird 1996 the key to effective taxation is information and the key to information in the modern economy is the corporation in most countries firms remit the majority of tax revenues to the government either with regard to taxes legally owed by businesses or through withholding of taxes legally owed by employees or other businesses even when businesses are not required to remit taxes they are often required to file information reports that can facilitate monitoring of tax liabilities the lack of a theoretical framework that features firms impedes rigorous welfare analysis of a number of important policy issues one such example is the comparative evaluation of a uniform retail sales tax rst versus a value added tax vat in the standard model these two taxes both remitted entirely by businesses are equivalent consumption taxes but most experts consider the vat to be clearly superior on administrative grounds a view echoed in the recent report of the president s advisory panel on federal tax reform 2005 we propose a simple framework in which these and other issues can be analyzed the new framework recognizes that a tax code must be backed up by an administrative and enforcement structure

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

on limiting or encouraging rivalry in technical progress the effect of patent scope decisions abstract this essay is on the effects of the scope of a patent e g how broad its allowed claims on subsequent inventing in a field it is argued that this depends on the topography of technical advance in a field in particular on how inventions are linked to each other and in the extent to which rapid technical advance requires a diversity of actors and minds as contrasted with being facilitated by express coordination of inventive activity technical advance is examined in several different fields with a focus on how patents influenced the pace and quality of development the authors conclude that allowing and enforcing broad patent claims tends to hinder technical progress

carbon leakage the green paradox and perfect future markets policies of lowering carbon demand may aggravate instead of alleviate climate change green paradox in a two period three country general equilibrium model with finite endowment of fossil fuel one country enforces an emissions cap in the first or second periods when that cap is tightened the extent of carbon leakage depends on the interaction of various parameters and elasticities conditions for the green paradox are specified all determinants of carbon leakage resulting from tightening the first period cap work in the opposite direction when the second period cap is tightened tightening the second period cap does not necessarily lead to the green paradox

border adjustment for european emissions trading competitiveness and carbon leakage unilateral or sub global policies to combat climate change are potentially sensitive to free riding and carbon leakage one way of dealing with carbon leakage and competitiveness is the imposition of border adjustment measures for competing imports for example in the form of the obligation to importers of goods to purchase and surrender emissions allowances to the authorities when importing in this paper we explore some implications of border adjustment measures in the eu ets for sectors that might be subject to carbon leakage we examine the implications of two variants of these measures on the competitiveness of these sectors and on the global environment with the help of a multi sector multi region computable general equilibrium cge model of the global economy our calculations suggest that border adjustment might reduce the sectoral rate of leakage of the iron and steel industry rather forcefully but that the reduction would be less for the mineral products sector including cement the reduction of the overall or macro rate of leakage would be modest so from an environmental point of view border tax adjustments would not be a very effective policy measure but might mainly be justified by considerations of sectoral competitiveness

optimal environmental taxation in the presence of other taxes general equilibrium analyses this paper examines the optimal setting of environmental taxes in economies where other distortionary taxes are present we employ analytical and numerical models to explore the degree to which in a second best economy optimal environmental tax rates differ from the rates implied by the pigovian principle according to which the optimal tax rate equals the marginal environmental damages both models indicate contrary to what several analysts have suggested that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the pigovian principle moreover the optimal rate is lower the larger are the distortions posed by ordinary taxes numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre existing taxes this abstract was borrowed from another version of this item

the national system of innovation in historical perspective contrary to some recent work on so called globalisation this paper argues that national and regional systems of innovation remain an essential domain of economic analysis their importance derives from the networks of relationships which are necessary for any firm to innovate whilst external international connections are certainly of growing importance the influence of the national education system industrial relations technical and scientific institutions government policies cul tural traditions and many other national institutions is fundamental the historical examples of germany japan and the former ussr illustrate this point as well as the more recent contrast between east asian and latin american countries introduction the national system of friedrich list according to this author s recollections the first person to use the expression national system of innovation was bengt ake lundvall and he is also the editor of a highly original and thought provoking book 1992 on this subject however as he and his colleagues would be the first to agree and as lundvall himself points out the idea actually goes back at least to friedrich list s conception of the national system of political economy 1841 which might just as well have been called the national system of innovation the main concern of list was with the problem of germany overtaking england and for underdeveloped countries as germany then was in relation to england he advocated not only protection of infant industries but a broad range of policies designed to accelerate or to make possible industrialisation and economic growth most of these policies were concerned with learning about new technology and applying it the racialist and colonialist overtones of the book were in strong contrast to the inter nationalist cosmopolitan approach of the classical free trade economists and list s belief that holland and denmark should join the german bund and acquire german nationality because of their descent and whole character reads somewhat strangely in the european community of today nevertheless despite these unattractive features of his outlook he clearly anticipated many contemporary theories after reviewing the changing ideas of economists about development in the years since the second world war the world bank 1991 concludes that it is intangible investment in knowledge accumulation which is decisive rather than physical capital investment as was at one time believed pages 33 35 the report cites the new growth theory

substitution between biofuels and fossil fuels is there a green paradox we show that i subsidies for renewable energy policies with the intention of encouraging substitution away from fossil fuels may accentuate climate change damages by hastening fossil fuel extraction and that ii the opposite result holds under some specified conditions we focus on the case of subsidies for renewable resources produced under increasing marginal costs and assume that both the renewable resources and the fossil fuels are currently in use such subsidies have a direct effect and an indirect effect working in opposite directions the direct effect is the reduction in demand for fossil fuels at any given price the indirect effect is the reduction in the current equilibrium price for fossil fuels which tends to increase the amount of fossil fuels demanded whether the sum of the two effects will actually result in an earlier or later date of exhaustion of the stock of fossil fuels depends on the curvature of the demand curve for energy and of the supply curve for the renewable substitute

climate policy commitment devices abstract we develop a dynamic resource extraction game that mimics the global multi generation planning problem for climate change and fossil fuel extraction we implement the game under different conditions in the laboratory compared to a baseline condition we find that policy interventions that provide a costly commitment device or reduce climate threshold uncertainty reduce resource extraction we also study two conditions to assess the underlying social preferences and the viability of ecological dictatorship our results suggest that climate change policies that focus on investments that lock the economy into carbon free energy sources provide an important commitment device in the intertemporal cooperation problem

assessment of china s climate commitment and non fossil energy plan towards 2020 using hybrid aim cge model china made a commitment in copenhagen to reduce its carbon dioxide emissions per unit of gdp from 40 to 45 compared with the 2005 level by 2020 and is determined to vigorously develop non fossil fuels this study analyzes the effects and impacts of policies that could help to achieve china s copenhagen commitments with a hybrid static cge model in which the electricity sector is disaggregated into 12 generation technologies four scenarios are developed including the reference scenario a the reference scenario b and two carbon constraint scenarios the results show that carbon intensity in terms of gdp will fall by 30 97 between 2005 and 2020 in the reference scenario a and will be reduced further by 7 97 if china s targeted non fossil energy development plans can be achieved in the reference scenario b however the rest of the 40 45 target must be realized by other measures such as carbon constraint it is also observed that due to carbon intensity constraints gdp loss would be from 0 032 to 0 24 compared to the reference scenario b and co2 emission reductions are due mainly to decreases in coal consumption in the electricity sector and manufacturing sector

optimal taxation and optimal tax systems the theory of optimal taxation has for the pas two decades been the reigning normative approach of taxation this paper argues that in its current state optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy it is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist the coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy the paper first presents the three cornerstone propositions of optimal tax theory and then it discusses the influence of these propositions on recent tax policy developments it concludes by sketching an alternative to optimal taxation called the theory of optimal tax systems which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology the optimal tax systems perspective is shown to shed light on the choice of tax instruments the problem of tax evasion and the appropriate tax treatment of capital income this abstract was borrowed from another version of this item

the economic effects of restrictions on government budget deficits abstract in overlapping generations economies with perfect financial markets and lump sum taxation restrictions on the government budget deficit do not limit the set of achievable allocations for economies in which the tax instruments are distortionary and limited in number this strong form of irrelevance does not hold even if markets are perfect we propose a weaker but natural definition of irrelevance in which only a finite but arbitrarily large number of restrictions near the baseline deficit are considered we show that if the government can use only anonymous consumption taxes there is weak irrelevance of the deficit restrictions if the number of tax instruments is large relative to the number of policy goals journal of economic literature classification numbers d51 d91 e32

fossil fuel flexibility in west european power generation and the impact of system load factors this paper analyzes short run interfuel substitution in west european power generation and the impact of system load factors on fossil fuel choice the problems are studied within a restricted translog cost share model the paper concludes that interfuel substitution in existing power plants is substantial especially that between oil and gas this is consistent with the notion that short run fuel substitution takes place in dual or multi fired plants by switching load between different single fired plants and by some conversions of power plants to be able to burn alternate fuels the empirical investigation also indicates that the system load factor is a notable determinant of fossil fuel choices in west europe and the paper ends with an assessment of the fuel consequences of some load management schemes in the region

will destination based taxes be fully exploited when available an application to the u s commodity tax system abstract we develop a tax competition model that allows for the setting of both an origin based and a destination based commodity tax rate in the presence of avoidance and evasion in the presence of evasion jurisdictions will give cross border shoppers tax preferential treatment thus not fully exploiting the potential of destination based taxation moreover the divergence between origin based and destination based taxes is stronger when the incentives for consumers tax arbitrage opportunities increase the united states is one example of many such systems while sales taxes are due at the point of sale use taxes are due on goods purchased out of state we document that when able to set both rates a majority of jurisdictions levy destination based use taxes at a lower rate than origin based sales taxes in response to changes in state level policies that increase tax avoidance opportunities the results of the empirical model broadly confirm our theory

energy transition under irreversibility a two sector approach in this paper we analyze the optimal energy transition of a two sector economy energy and final goods with exhaustible oil reserves a renewable source of energy and a pollution threat the latter corresponds to a pollution threshold above which a part of the capital is lost following flooding for instance we show that the optimal energy transition path may correspond to a corner regime in which the economy starts using both resources then crosses the pollution threshold and therefore loses a part of its capital at the end the sole adoption of the renewable energy is optimal only in the long run this result is in line with the asymptotic energy transition arguments stating that the transition to clean energy may happen only in the long run we also show that economy reduces the use of energy resource as long as the productivity of capital and energy services is high therefore public policies should promote investments in energy innovation that targets productive sector home appliances and buildings and helps to save both money and energy we extend the present model to allow for additional investment in energy saving technologies our main results show that this additional investment favours the energy transition in the sense that it increases the time within which the economy may experience the catastrophe and the welfare of the society for policy implications economic instruments such as taxes on dirty energy subsidies on clean energy or incentives for energy saving technologies need to be implemented in order to promote the energy transition this is particularly important for developing countries that mostly rely on polluting energy resources and are the most vulnerable to climate change but those economic instruments should be carefully designed in line with the asymptotic energy transition result

production versus revenue efficiency with limited tax capacity theory and evidence from pakistan to fight evasion many developing countries use production inefficient tax policies this includes minimum tax schemes whereby firms are taxed on either profits or turnover depending on which tax liability is larger such schemes create nonstandard kink points which allow for eliciting evasion responses to switches between profit and turnover taxes using a bunching approach using administrative data on corporations in pakistan we estimate that turnover taxes reduce evasion by up to 60 70 percent of corporate income incorporating this in a calibrated optimal tax model we find that switching from profit to turnover taxation increases revenue by 74 percent without reducing aggregate profits

international capital markets oil producers and the green paradox a rapidly rising carbon tax leads to faster extraction of fossil fuels and accelerates global warming we analyze how general equilibrium effects operating through the international capital market affect this green paradox in a two region two period world with identical homothetic preferences and without investment the global interest rate falls and the green paradox weakens with investment or a relatively more impatient oil importing region the green paradox may be strengthened because the future oil demand function shifts downward or because the interest rate rises if the oil importing region is very much more patient than the oil exporting region the green paradox may be reversed but in our calibrated model the effects are tiny with exploration and endogenous initial oil reserves a future carbon tax lowers cumulative oil extraction in partial equilibrium if the boost to current oil extraction is weakened strengthened or reversed in general equilibrium so is the fall in cumulative extraction a partial and general equilibrium welfare analysis of a future carbon tax both for full and partial exhaustion is given the effects of stock dependent extraction costs are separately discussed in an appendix

a positive model of tax reform this paper is devoted to the explanation of tax policy from a behavioural theoretic point of view it for the first time brings together within a unified framework behavioural determinants of government expenditure taxation and tax reform administrative and compliance costs associated with taxation factors generally neglected in models of taxation as well as tax avoidance evasion deadweight losses and the costs that are involved in the tax reform process itself play a crucial role in the model the paper investigates how these factors influence the development of taxation and expenditure and the occurrence of tax reform

contingency in innovation and the role of national systems taxol and taxotere in the usa and france abstract a very rich collection of archival material is used to compare two anticancer drugs commercialised by multinationals collaborating with public sector research one in the usa and one in france the framework of national innovation systems is used to compare the innovative environments for each development different institutional structures research programmes financing industry academic government relationships environmental concern and intellectual property regimes the empirical work was able to bring out the nuances and subtleties of each environment the way in which innovation took place in practice and some striking differences from what stereotypical accounts of innovation in each country would have suggested

simultaneous supplies of dirty energy and capacity constrained clean energy is there a green paradox the effects of two popular second best clean energy policies are analysed using an extended hotelling type resource extraction framework this model features first heterogenous energy sources and second a capacity constrained backstop technology this setup allows for capturing the following two empirical observations first different types of energy sources are used simultaneously despite different production cost second experiences from various european countries show that a further expansion of the use of climate friendly technologies faces substantial technological as well as political constraints we use this framework to analyse if under two policy scenarios a so called green paradox occurs a subsidy for the clean energy as well as an expansion of the capacity of the clean energy are considered the analysis shows that under plausible parameter values both policy measures lead to a weak green paradox however a strong green paradox is only found for the capacity expansion scenario in addition the subsidy is found to be welfare enhancing while the capacity increase is welfare enhancing only if the cost of adding the capacity is sufficiently small we also show the effects of the policies crucially depend on the initial capacity and that under certain scenarios even an extreme green paradox is found

optimal self employment income tax enforcement abstract most models of optimal income tax enforcement assume that income is either random or solely remunerates labor neglecting that auditing strategies may depend on observable inputs this paper outlines a model to optimally monitor self employed entrepreneurs when in addition to reported profits the tax collection agency also observes the number of workers employed or any other input variable at each firm we show that by conditioning the monitoring strategy only on labor input it is optimal for the irs to audit firms in a way that generates some empirical regularities like the missing middle we also show that the optimal direct mechanism can be implemented by an indirect monitoring strategy that is consistent with actual irs practices in particular the irs calculates inputted income as function of labor whenever an entrepreneur reports profits that are lower than inputted income she is randomly monitored finally we formalize a model of optimal presumption taxation in which inputted income is the tax base to compare revenue collection across tax systems