commodity tax harmonization and the location of industry we study the positive implications of commodity taxation and tax harmonization under the destination and origin principles when firms are monopolistic competitors facing variable demand elasticity and segmented markets our emphasis is on the international location of firms in the presence of market size asymmetries and trade costs under the destination principle an increase in the tax rate of a country always causes some firms to relocate to the other this effect may be reversed under the origin principle when economic integration is deep enough under tax harmonization the choice of a common tax principle is irrelevant for the market outcomes and for the global tax revenues it affects however the distribution of revenues between small and large countries c 2006 elsevier b v all rights reserved

tax competition and the creation of redundant products there are products that are assembled from kits but that once assembled are identical to other products an example is the roll your own cigarette because the kit requires time to assemble it is more costly than the assembled product in the absence of tax competition the kit is not bought or is redundant i show that tax competition between regions supports strategies that tax the redundant product at a lower tax rate than its assembled counterpart and it is bought a welfare loss is thereby created jel classification h71 bien des produits peuvent etre assembles a partir de trousses une fois assembles ces produits sont identiques a d autres produits un exemple est le fait de rouler ses propres cigarettes parce que la trousse reclame du temps pour l assemblage le produit coute plus cher que le produit deja assemble en l absence de concurrence fiscale on n achete pas la trousse ou elle est redondante on montre que la concurrence fiscale entre regions supporte des strategies qui taxent le produit redondant a un taux plus bas que sa contrepartie assemblee et que ce produit redondant est achete une perte de bien etre s ensuit

optimality properties of alternative systems of taxation of foreign capital income foreign source capital income taxes are examined from the point of view of optimal taxation in the framework of a simple economy with international real capital flows a taxonomy of alternative systems of such taxation is first presented showing how crediting and other tax parameters induce what are called source based residence based and related systems next tax rates are determined that are optimal from a single country s point of view given those of the others the achievability of these rates under the various systems is analyzed finally tax rates that are optimal from an international point of view are considered again achievability of an international optimum under the various systems is considered leading to the main conclusions that i a pure residence based system in all countries can achieve an international fiscal optimum ii it cannot however be sustained as an equilibrium

nash equilibria in models of fiscal competition abstract this paper analyzes nash equilibria in a simple model of an economy with jurisdictions engaging in fiscal competition small number nash equilibria in which tax rates are the strategic variables are shown not to coincide with nash equilibria in which public expenditure levels are the strategic variables

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

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

do bank characteristics influence the effect of monetary policy on bank risk abstract we analyze whether bank characteristics affect the impact of monetary policy on bank risk we find that the insulation effects produced by capital and liquidity were lower for banks operating in countries with particularly low interest rates

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

interest rate restrictions in a natural experiment loan allocation and the change in the usury laws in 1714 this article studies the effects of interest rate restrictions on loan allocation the british government tightened the usury laws in 1714 reducing the maximum permissible interest rate from 6 to 5 a sample of individual loan transactions reveals that average loan size and minimum loan size increased strongly while access to credit worsened for those with little social capital collateralised credits which had accounted for a declining share of total lending returned to their former role of prominence our results suggest that the usury laws distorted credit markets significantly we find no evidence that they offered a form of pareto improving social insurance almost since the beginning of recorded history usury restrictions have been widely used the laws of hammurabi from the 2nd millennium bc regulated interest rates as did the old testament and the catholic church while early rules often outlawed the taking of interest altogether later restrictions stipulated maximum permissible interest rates to the present day many developing and islamic countries and us states impose limits on private loan contracts to stamp out predatory lending by credit sharks only recently italy re introduced a law against usurious credit contracts glaeser and scheinkman 1998 blitz and long 1965 homer and sylla 1996 the effects of usury regulation have remained controversial numerous scholars have argued that they had damaging consequences and that this conclusion applies to both

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

competition in regional environmental policies when plant locations are endogenous abstract a two region model is presented in which an imperfectly competitive firm produces a good with increasing returns at the plant level production of the good causes local pollution the firm decides whether to maintain plants in both regions serve both regions from a single plant or shut down if the disutility of pollution is high enough the two regions will compete by increasing their environmental taxes standards until the polluting firm is driven from the market alternatively if the disutility from pollution is not as great the regions will usually compete by undercutting each other s pollution tax rates

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

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

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

asymmetries in the bank lending channel of monetary policy in the united states abstract we study the presence of asymmetries in the transmission of monetary policy in the united states we find that the bank lending channel is stronger when the federal reserve tightens monetary policy particularly when the monetary policy stance is expansionary

optimal fiscal policy for a state or local government abstract state and local government services are enjoyed by and taxes borne by two groups residents and non residents this paper addresses the question if state and local governments maximize their residents welfare and cannot distinguish between individual residents and non residents but know the aggregate characteristics of the two groups what set of taxes subsidies and public goods should they choose some of the results obtained are i even when all commodities are taxable and equity is ignored the existence of non resident consumption makes uniform taxation non optimal ii in some cases whether a commodity should be taxed or subsidized is independent of its own price elasticity iii central cities may be subsidized by suburban residents and iv the ability of state and local governments to redistribute is inversely proportional to the openness of the economy

tax harmonization and tax competition in the european union lessons from switzerland abstract this paper presents empirical evidence on individual income tax competition in switzerland tax competition has some influence on the spread of people with high income over the cantons and it is partly capitalised in dwelling rents however it neither leads to a collapse of public good supply nor makes redistribution by the fiscal authorities impossible thus if tax competition works well in switzerland there is no reason why it should have disastrous effects in a future european union

debt sustainability in historical perspective the role of fiscal repression this article examines the debt history of two contenders for european hegemony 16th century spain and 18th century britain we analyze their fiscal behavior using measures of overborrowing and fiscal policy functions our results suggest that stringency was not key for britain s success in avoiding default instead fiscal repression allowed the united kingdom to borrow at below market rates thereby outspending its continental rivals jel e4 f41 n23

in a world without borders the impact of taxes on internet commerce the rapid rise in sales over the internet and the fact that most internet buyers pay no sales tax has ignited a considerable debate over taxes and the internet this paper uses new data on the purchase decisions of approximately 25 000 online users to examine the effect of local sales taxes on internet commerce the results suggest that controlling for observable characteristics people living in high sales taxes locations are significantly more likely to buy online the results are quite robust and cannot be explained by unobserved technological sophistication shopping costs or other alternative explanations the magnitudes in the paper suggest that applying existing sales taxes to internet commerce might reduce the number of online buyers by up to 24 percent

does bank ownership affect lending behavior evidence from the euro area abstract we analyze the differences in lending policies across banks characterized by different types of ownership using micro level data on euro area banks during the period 1999 2011 to detect possible variations in bank lending supply responses to changes in monetary policy our results identify a general difference between stakeholder and shareholder banks following a monetary policy contraction stakeholder banks decrease their loan supply to a lesser extent than shareholder banks a detailed analysis of the effect among stakeholder banks reveals that cooperative banks continued to smooth the impact of tighter monetary policy on their lending during the crisis period 2008 2011 whereas savings banks did not stakeholder banks propensity to smooth their lending cycles suggests that their presence in the economy has the potential to reduce credit supply volatility

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

a model of welfare competition with evidence from afdc in this paper we test empirically for strategic behavior among the states using the cash support program aid to families with dependent children afdc to motivate the empirical work we adapt wildasin s model of income redistribution 1991 american economic review 81 757 773 to a model of interjurisdictional welfare competition although welfare competition may be generated from different frameworks we choose wildasin s model to illustrate how welfare benefit interdependence is genereated in the context of welfare migration we estimate a representative reaction function for afdc using both cross sections and pooled cross section data after controlling for other determinants of afdc benefit levels and for spatial error autocorrelation we find evidence showing competition 2000 academic press

strategic interaction among governments in the provision of a global public good abstract how do governments respond to other governments when providing a global public good using data from 2007 to 2014 on medical research funding for infectious and parasitic diseases we examine how governments and foundations in 41 countries respond to funding changes by the us government which accounts for half of funding for these diseases because funding across governments might be positively correlated due to unobserved drivers they have in common we use variation in the representation of research intensive universities on us congressional appropriations committees as an instrument for us funding we find that a 10 increase in us government funding for a disease is associated with a 2 to 3 reduction in funding for that disease by another government in the following year

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

the relativity ability to tax coal in the western states over the past decade state governments have begun to acknowledge an implicit relationship between states in the tax setting process the recent taxation literature suggests that differences in tax burdens do affect economic decisions and that states do compete with each other when designing tax policy moreover there has been a growing interest in the theoretical models of strategic interactions between regions as they compete for tax revenues natural source laden states enjoy an advantage in the collection of own source revenues reserves of coal oil copper or other natural resources with a national market provide states with an opportunity to exploit their advantage through the imposition of severance taxes the purpose of this study is to examine the relationship between the western states in their relative power to tax the extraction of coal in section ii of this paper we examine earlier work on the taxation of western coal section iii contains the details of the coal model we use in section iv we determine the composition of the western coal market and the strategic tax setting behavior of the state governments involved in section v we discuss our empirical results 17 refs 2 tabs

on pareto improving commodity tax changes under fiscal competition this paper shows that when a noncooperative fiscal equilibrium of the mintz tulkens 1986 model of tax competition is inefficient pareto improving changes are positive for the taxes of both regions under concavity of the regions welfare functions it also identifies a class of such equilibria that are always efficient

local fiscal competition an application to sales taxation with multiple federations abstract local sales tax rates influence the location of retail activity this paper develops a theory and empirical identification strategy for studying sales tax competition with multiple federations as exemplified by multiple counties each containing several cities in addition to strategic interactions with nearby cities and a city s own county city tax rates are influenced by the tax rates of neighboring counties cities react heterogeneously to own county sales tax rates depending on distance to the county border using data on the driving time to county borders and a comprehensive cross section of local sales tax rates i exploit variation in proximity to county borders to identify vertical fiscal competition cities located near county borders react more intensely to their county s tax rate in comparison to towns at the interior an increase in the neighboring county tax rate raises city tax rates in nearby counties

social protection and political competition this paper analyses how the level of social protection is determined when its choice depends on political competition first this is done under autarky then the analysis is extended to take account of the existence of an international capital market we show that social protection never increases under international competition and in several circumstances drastically decreases

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

tax evasion fiscal competition and economic integration abstract this paper examines the implications of tax evasion for fiscal competition and tax harmonization policies in an economic union first for symmetric countries it proves that the equilibrium values of the tax and audit rates are less than optimal tax harmonization alone will also lead to a less than optimal audit rate second for asymmetric countries the paper shows that integration may turn an honest country into an evading one it argues that tax harmonization alone may be a bad policy in that it can make both countries worse off it may also cause an otherwise honest country to turn to evasion

transfer pricing rules and corporate tax competition abstract a multinational parent sells a non marketed commodity to a foreign subsidiary that uses the product as an input to produce a product it then sells the subsidiary is controlled by a local managing partner whose compensation consists of a lump sum payment plus a share of the subsidiary s profit the parent chooses an optimal transfer price taking into account incentives for the subsidiary s managing partner and taxes home and host governments impose corporate income taxes on the parent and subsidiary s respective profits subject to a transfer pricing rule e g cost plus price method or comparable profit method a nash equilibrium is derived for effective tax rates chosen by home and host governments we then examine harmonization and suggest that tax rates would be reduced

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

government spending interest rates prices and budget deficits in the united kingdom 1701 1918 abstract the british data from the early 1700s through wwi provide an unmatched opportunity for studying temporary changes in government purchases temporary increases which appeared mainly as wartime spending raised long term interest rates but significantly increased the growth rates of money and prices only during suspensions of the gold standard 1797 1821 and 1914 1918 temporary changes in military spending accounted for the bulk of budget deficits over the sample of more than 200 years i found only two major non war deficits one associated with compensation payments to slaveowners in 1835 1936 and the other with a dispute over the income tax in 1909 1910 interest rates did not react much to these exogenous deficits

state and local tax competition in a spatial model with sales taxes and residential property taxes abstract this paper presents a theoretical model with a uniformly populated line that is divided into local jurisdictions and or states if one level of government imposes sales and residential property taxes and if the spatial extent of each taxing jurisdiction is positive and finite then in nash equilibrium the sales tax rate is less than residential property tax rate housing consumption is suboptimal and the public good is underprovided in each jurisdiction if a very large state or country is divided into local jurisdictions and if both levels of government choose tax rates endogenously then under some assumptions there is an efficient outcome

which border taxes origin and destination regimes with fiscal competition in output and emission taxes abstract this paper posits a two stage game in tax regime and tax rates to study the property of second best emission and output taxes in a two country world with an atmospheric externality it shows that i either the destination destination or the origin origin tax regime may constitute the subgame perfect nash equilibrium of this game ii either regime may pareto dominate the other iii it is possible to have a prisoner s dilemma game where the origin origin regime pareto dominates but the choice of the destination regime is the dominant strategy for each country other results include iv under origin origin regime the output tax is used for fiscal competition the emission tax is set at a rate equal to the national marginal social damage of emissions and public goods are provided suboptimally v under destination destination regime the output tax is ineffective as an instrument for fiscal competition the emission tax is used not only for combating pollution but also for tax competition the tax is set at a rate below the national marginal social damage of emissions emissions are pushed above their closed economy level the provision of public goods are optimal

the deductibility of provincial business taxes in a federation with vertical fiscal externalities should provincial business taxes be deductible under a federal profit tax we show that the optimal deductible which neutralizes the vertical fiscal externality between the federal and provincial government is the change in the federal tax base per dollar of tax revenue collected by the provincial government the optimal payroll tax deductibility rate depends on the extent to which it is shifted to workers and on the difference between the federal tax rates on profits and on labour income two apparently contradictory positions full deductibility of a payroll tax and non deductibility are special cases of our model la deductibilite des taxes provinciales imposees aux entreprises dans une federation ou il y a des externalites fiscales verticales est ce que les taxes provinciales imposees aux entreprises devraient etre deductibles de l impot federal sur les profits les auteurs montrent que l optimum de deductibilite qui neutralise les externalites fiscales verticales entre le federal et les provinces est le changement dans la base d imposition federale par dollar de revenu fiscal collecte par le gouvernement provincial le taux de deductibilite optimal d un impot sur les salaires depend de la portion du fardeau fiscal qui est deportee vers les travailleurs et de la difference entre les taux d imposition du federal sur les profits et sur le revenu du travail deux positions apparemment contradictoires pleine deductibilite d un impot sur les salaires et deductibilite nulle sont des cas speciaux du modele general

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

vertical tax competition in brazil empirical evidence for icms and ipi in the period 1995 2009 abstract the main objective of this study is to quantify the impact caused by changes in federal tax on the tax policy of the brazilian states considering the presence of horizontal tax competition between states using panel data covering 26 brazilian states plus the federal district during the period 1995 2009 two models were estimated representing the average reaction of the states in response to changes in federal tax rates in the first model both levels of government act simultaneously whereas in the second model reaction is sequential with the federal government acting as the leader in defining its effective tax rates the results indicate a positive and significant response of states to increases in the federal tax rate resulting in an over taxation of the common tax base and higher tax rates additional tests show that the first model is the most suitable to represent the problem analysed

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

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

paternalism and tax competition when consumers make mistakes the government may wish to use paternalistic taxation as a corrective measure we analyse the extent to which tax competition undermines the feasibility of paternalistic taxation we show that the paternalistic component of a tax on a harmful good is reduced when there is cross border shopping but it does not disappear altogether in a model with tax competition between two countries only one of which has a paternalistic objective we show that a minimum tax rate requirement can be pareto improving despite the divergence in policy objectives tax harmonization however reduces welfare in the non paternalistic country

nimby taxes matter the case of state hazardous waste disposal taxes this paper links the theoretical and empirical literatures on interjurisdictional tax and regulatory competition focusing on the case of state hazardous waste disposal taxes it begins by demonstrating that local environmental taxes can be inefficient and that the inefficiency depends on the tax elasticity of polluters responses the paper then uses panel data from the toxics release inventory to estimate the magnitude of the tax elasticities and to demonstrate the empirical relevance of the theoretical inefficiency of local taxes 1999 elsevier science s a all rights reserved

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

state capacity and military conflict powerful centralized states controlling a large share of national income only begin to appear in europe after 1500 we build a model that explains their emergence in response to the increasing importance of money for military success when fiscal resources are not crucial for winning wars the threat of external conflict stifles state building as finance becomes critical internally cohesive states invest in state capacity while divided states rationally drop out of the competition causing divergence we emphasize the role of the military revolution a sequence of technological innovations that transformed armed conflict using data from 374 battles we investigate empirically both the importance of money for military success and patterns of state building in early modern europe the evidence is consistent with the predictions of our model

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

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

implementing tax coordination abstract this paper investigates whether tax competition can survive under tax coordination when information is private or nonverifiable we focus on a two jurisdiction model where capital can move across borders and where jurisdictions have different public good requirements but are otherwise identical in this setting coordination may call for a second best allocation supported by differentiated tax rates if however coordination must be achieved via a set of common rules that condition tax rates on jurisdictions choices the second best allocation may not be implementable we show that incentive compatibility requirements will generally affect not only the choice of coordinated rates in states where jurisdictions are different but also the choice of harmonized rates in states where jurisdictions have identical preferences for public consumption

fiscal capacity tax effort and optimal equalization grants in this paper we address the question how should the tax burden in a feder ation be distributed across the different jurisdictions so that the social cost of providing government services is minimized using optimal tax theory we derive formulas for the optimal equalization grants that equalize the social marginal cost of raising revenue across all provinces we show how the optimal equalization grants are related to a measure of tax effort based on the marginal cost of public funds and a measure of fiscal capacity that takes into account the elasticity of the tax base and its substitutability with other tax bases

a three input model of the spatial effects of a central city wage tax abstract this paper considers the short run and long run spatial effects on wages employment and business capital as functions of location of a localized increase in wage tax rates the model is most applicable to a central city that has a higher wage tax rate than the surrounding suburbs the inclusion of land as a third input in production significantly reduces the long run effects of a central city wage tax on employment near the central city boundary as compared with a model in which labor and capital are the only two inputs the short run effects are significantly less than the long run effects

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

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

commodity tax competition under destination and origin principles abstract this paper studies the effect of switching from the destination to the origin principle of taxation on non cooperative commodity tax equilibrium when taxes are constrained to be uniform across commodities the switch has no effect when differentiated taxes are allowed the effects of the switch depend on whether countries are small or large in both cases the switch imposes the requirement that taxes must be uniform across commodities within each country in the second case there are two further effects of the switch i negative spillover effects from tax policy are introduced ii incentives to manipulate the terms of trade are changed the switch does not necessarily lead to a fall in all tax rates

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

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

destination based vs origin based commodity taxation in large open economies with unemployment we construct a perfectly competitive model of two symmetric countries producing tradable commodities and a public consumption good destination or origin based taxes are levied on the consumption of the tradable goods in both countries a fixed wage leads to involuntary unemployment we derive the nash equilibrium consumption taxes under the two taxation principles with endogenous world prices and compare them to i the cooperative rates and ii the rates when world prices are fixed we demonstrate that with endogenous world prices the induced terms of trade effects cancel out under the destination principle but they prevail under the origin principle of taxation nash equilibrium destination based taxes are inefficiently low when the exporting sector in each country is non labour intensive the nash equilibrium origin based taxes can be either higher or lower than the corresponding cooperative rates

an optimal taxation approach to fiscal federalism in a federal system of government each unit of government decides independently how much of each type of public good to provide and what types of taxes and which tax rates to use in funding the public goods in this paper we explore what types of problems can arise from this decentralized form of decision making in particular we describe systematically the types of externalities that one unit of government can create for nonresidents through both its public goods decisions and its taxation decisions the paper also explores briefly what the central government might do to lessen the costs of decentralized decision making

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

federalism partial prohibition and cross border sales evidence from recreational marijuana abstract marijuana is partially prohibited though banned federally it is available to 1 in 4 u s adults under state statutes we measure the size of the interstate trade generated by state level differences in legal status with a natural experiment oregon allowed stores to sell marijuana for recreational use on october 1 2015 next to washington where stores had been selling recreational marijuana since july 2014 using administrative data covering the universe of washington s sales and a differences in discontinuities approach we find retailers along the oregon border experienced a 36 decline in sales immediately after oregon s market opened we investigate the home location of recent online reviewers of marijuana retailers and find similar cross border patterns by the end of washington s 2018 fiscal year our results imply that washington had earned between 44 million and 75 million in tax revenue from cross border shoppers these cross border incentives may create a race to legalize

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

how tame will leviathan become in institutional competition competition among governments in the provision of public goods this article critically examines thehypothesis of brennan and buchanan that competition amonggovernments in the provision of publicgoods can serve as a substitute forconstitutional constraints on governments since leviathan type governments withfree choice of tax instruments will be ableto escape competitive pressure by shiftingtaxes to immobile factors one could thinkof a rule of competition which prohibitstaxes on immobile factors indeed such arule leads to a nash equilibriumwhere the tax burden lies on the mobilefactor however net income of the citizensmay or may not increase as a result fromsuch a rule depending on a number ofvariables presented in this article acomplete substitution of constitutionalconstraints by the rule of competition may depending on the same variables evendecrease net income moreover somepotential for increases in net income maybe forgone since capital allocation andthe supply of public goods will usually beinefficient in equilibrium finally applying the rule in a real worldenvironment will be difficult and may evenlead to further serious inefficiencies forthese reasons such a rule will hardly everbe introduced hence competition amonggovernments cannot be viewed as a propersubstitute for constitutional constraints whoever is afraid of leviathan shouldthus not rely on competition amonggovernments alone

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

tax competition tax exporting and higher government choice of tax instruments for local governments abstract this paper presents a theoretical model with tax exporting due to external ownership of a fraction of the land in each local jurisdiction there are n local jurisdictions in a metropolitan area n 1 and many metropolitan areas in a world economy the paper examines the usage of business property taxes and source based wage taxes by local jurisdictions first in the presence of and then in the absence of residence based lump sum taxes and how this depends on and n the paper then examines the choice of a world national or state government as to whether to allow local metropolitan or sub metropolitan governments to use business property taxes wage taxes or both assuming that the local governments choose the actual tax rates

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

the elementary economics of social dilemmas a social dilemma is in essence a prisoners dilemma in a continuous strategy space i discuss a number of social dilemmas that have caught my attention offer an elementary diagrammatic synthesis of them and discuss some of the economic insights that the diagrams capture including incentives for pre commitment finally i model pre commitment via delegation and link results to the literature on the evolution of preferences l economie elementaire des dilemmes sociaux un dilemme social est essentiellement un dilemme du prisonnier dans un espace continu de strategie l auteur discute d un certain nombre de dilemmes sociaux qui ont retenu son attention il en propose une synthese graphique elementaire et discute certaines des suggestions economiques qui decoulent de ces diagrammes comme par exemple les incitations a se pre engager finalement l auteur construit un modele de pre engagement par delegation et relie ses resultats a la litterature sur l evolution des references

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