the winners and losers of tax reform an assessment under financial integration abstract i quantify the macroeconomic and redistributive effects of the unilateral elimination of the capital income tax in a two country heterogeneous agent incomplete markets model with progressive labor income taxes home by implementing the reform induces government responses where labor income is taxed in home and mostly subsidized in foreign in addition post reform price dynamics reduce home s wealth and suppress households ability to do consumption smoothing with negative effects on the majority particularly on the poor in turn foreign accumulates wealth and price movements work particularly in favor of the poor as a result a large majority in home prefers the status quo whereas foreign supports the reform unanimously these findings are robust to alternative scenarios where i the borrowing constraints are relaxed ii both countries jointly eliminate capital income taxes iii foreign interest income is taxed and iv home capital income tax is reduced from 40 to 35

does one soros make a difference a theory of currency crises with large and small traders do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets to address this issue we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals even abstracting from signaling the presence of the large investor does make all other traders more aggressive in their selling relative to the case in which there is no large investors small investors attach the currency when fundamentals are stronger yet the difference can be small or null depending on the relative precision of private information of the small and large investors adding signaling makes the influence of the large trader on small traders behaviour much stronger

taxing capital not a bad idea after all we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic uninsurable income shocks and permanent productivity difierences of households the optimal capital income tax rate is signiflcantly positive at 36 percent the optimal progressive labor income tax is roughly a at tax of 23 percent with a deduction of 7 200 relative to average household income of 42 000 the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system jel e62 h21 h24

the proper scope of government theory and an application to prisons when should a government provide a service in house and when should it contract out provision we develop a model in which the provider can invest in improving the quality of service or reducing cost if contracts are incomplete the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee has however the private contractor s incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on noncontractible quality the model is applied to understanding the costs and benefits of prison privatization

time inconsistent preferences and social security in this paper we examine the role of social security in an economy populated by overlapping generations of individuals with time inconsistent preferences who face mortality risk individual income risk and borrowing constraints we find that unfunded social security lowers the capital stock output and consumption for consumers with time consistent or time inconsistent preferences however it may raise or lower welfare depending on the strength of time inconsistency

equilibrium heterogeneous agent models as measurement tools some monte carlo evidence abstract this paper discusses a series of monte carlo experiments designed to evaluate the empirical properties of heterogeneous agent macroeconomic models in the presence of sampling variability the calibration procedure leads to the welfare analysis being conducted with the wrong parameters the ability of the calibrated model to correctly predict the long run welfare changes induced by a set of policy experiments is assessed the results show that for the policy reforms with sizable welfare effects i e more than 0 2 the model always predicts the right sign of the welfare effects however the welfare effects can be evaluated with the wrong sign when they are small and when the sample size is fairly limited quantitatively the maximum errors made in evaluating a policy change are very small for some reforms in the order of 0 02 percentage points but bigger for others in the order of 0 6 percentage points finally having access to better data in terms of larger samples does lead to substantial increases in the precision of the welfare effects estimates though the rate of convergence can be slow

optimal taxation and debt with uninsurable risks to human capital accumulation we consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt we show that in the presence of such risks it is beneficial to tax both labor and capital and to issue public debt we also assess the quantitative importance of these findings and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion jel d52 h21 h24 h25 h63 j24 human capital is an important component of wealth both at the individual and aggregate level and its role has been investigated in various fields in economics in public finance jones manuelli and rossi 1997 show that the zero capital tax result of chamley 1986 and judd 1985 1 can be strengthened if human capital accumulation is explicitly taken into account specifically they demonstrate that in a deterministic economy with human capital accumulation in the long run not only capital but also labor income taxes should be zero hence the government must accumulate wealth that is public debt be negative to finance its expenditure

incentives for helping on the job theory and evidence recent advances in incentive theory stress the multidimensional nature of agent effort and specifically cases where workers affect one anothers performance through helping efforts this article models helping efforts as determined by the compensation package and task allocation the model is tested with australian evidence on reported helping efforts within work groups the evidence consistently supports the hypothesis that helping efforts are reduced while individual efforts are increased when promotion incentives are strong piece rates and profit sharing appear to have little effect on helping efforts while task variety and helping efforts are positively correlated

factor income taxation in a horizontal innovation model we consider the optimal factor income taxation in a standard r d model with technical change represented by an increase in the variety of intermediate goods in the model there are externalities both to working and to saving due to market power by firms incomplete appropriability of the benefits of inventions and the cost of economic activity in terms of public expenditures redistributing the tax burden from labor to capital will increase employment but in most cases reduce the rate of growth with conflicting effects on the deadweight loss from the externalities under plausible calibrations of the model the optimal tax rate on capital will be sizable

optimal taxation in life cycle economies abstract we use a very standard life cycle growth model in which individuals have a labor leisure choice in each period of their lives to prove that an optimizing government will almost always find it optimal to tax or subsidize interest income the intuition for our result is straightforward in a life cycle model the individual s optimal consumption work plan is almost never constant and an optimizing government almost always taxes consumption goods and labor earnings at different rates over an individual s lifetime one way to achieve this goal is to use capital and labor income taxes that vary with age if tax rates cannot be conditioned on age a nonzero tax on capital income is also optimal as it can imperfectly mimic age conditioned consumption and labor income tax rates journal of economic literature classification numbers e62 h21

a quantitative analysis of capital income taxation this paper studies the quantitative impact of eliminating capital income taxation on capital accumulation and steady state welfare in a general equilibrium model with overlapping generations of sixty five period lived individuals who face idiosyncratic earnings risk borrowing constraints and life span uncertainty under a wide range of parameter configurations the capital income tax rate that maximizes steady state welfare is positive even though eliminating it completely would raise the steady state capital stock toward the golden rule this is because the tax burden is shifted toward the younger and liquidity constrained years reducing the individuals ability to self insure copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the optimal taxation of asset income when government consumption is endogenous theory estimation and welfare this paper derives the ramsey optimal policy for taxing asset income in a model where government expenditure is a function of net output or the inputs that produce it extending judd 1999 i demonstrate that the canonical result that the optimal tax on capital income is zero in the medium to long term is a special case of a more general model employing a vector error correction model to estimate the relationship between government consumption and net output or the factor inputs that generate it for the united states between 1948q1 to 2015q4 i demonstrate that this special case is empirically implausible and show how a cointegrating vector can be used to determine the optimal tax schedule i simulate a version of the model using the empirical estimates to measure the welfare implications of changing the tax rate on asset income and contrast these results with those generated in a version of the model where government consumption is purely exogenous the shifting pattern of welfare measurements con rms the theoretical results i calculate that the prevailing effective tax rate on net asset income in the us between 1970 and 2014 averaged 0 449 hence abolishing the tax completely does generate welfare improvements though only by the equivalent of between 1 103 and 1 616 percent permanent increase in consumption well under half the implied welfare benefit when the endogeneity of the government consumption is ignored the maximum welfare improvement from shifting part of the burden of tax from capital to labor is the equivalent of a permanent increase in consumption of between only 1 491 and 1 858 and is attained when the tax rate on asset income is lowered to between 0 148 and 0 186 allowing the tax rate to vary over time raises the maximum welfare bene t to 1 865 all the results are very robust to a wide range of elasticities of labor supply

on the distributional effects of reducing capital taxes this article asks whether household heterogeneity and market incompleteness have quantitatively important implications for the welfare effects of tax changes we compare a representative agent economy to an economy in which households face idiosyncratic uninsurable income risk the income process is consistent with empirical estimates and implies a realistic wealth distribution we find that capital tax cuts imply large welfare gains in the representative agent economy however when households are heterogeneous substantial redistribution during transition means that only a minority will support capital tax cuts whereas most households can expect large welfare losses

a welfare comparison of private and public monopoly abstract the cost function of a monopoly is c q k q where is unknown to the regulator we evaluate various ownership and regulation regimes in terms of social welfare determined by both the amount of total surplus and its distribution maximal welfare is achieved by the regulated public firm when its bias is pro consumer and also when it is pro worker and is low enough we compare an unregulated public firm with a private one regulated a la loeb magat baron myerson and characterize the frontier in parameter space where one or the other dominates

interactions between investment timing and management effort under asymmetric information costs and benefits of privatized firms abstract in this paper we examine the interactions between investment timing and management effort in the presence of asymmetric information between the owner and the manager where the manager has an informational advantage we find that investment timing is later under asymmetric information than under full information implying a decrease in the value of equity option however in order to minimize any distortion under underinvestment management effort is greater under asymmetric information than under full information we show that there are trade offs in the efficiencies of investment timing and management effort under asymmetric information these results fit well with the findings of past empirical studies concerning the costs and benefits of privatized firms

productive efficiency in public and private firms abstract this paper compares the degree of x inefficiency which emerges as a consequence of the imposition of the optimal incentive contracts in public and private firms using a straightforward principal agent model with two possible states of the world it establishes the rather surprising result that in the good state of the world public ownership always results in a higher degree of productive efficiency

should we refinance unfunded social security within a continuous time overlapping generations model featuring endogenous intensive margin of the labour supply and retirement decision we analyse the issue of passing the burden of payroll revenues onto consumption or capital we find that large long run welfare gains occur when pension benefits are refinanced by consumption taxes however the transition to the new steady state is very painful for a large fraction of existing cohorts on the other hand the capital base is too small to sustain pension benefits but could be made larger if capital taxes are raised yet that would entail significant welfare losses

working in public and private firms abstract we develop a theoretical framework for comparing incentives labor productivity and the allocation of effort in public versus private enterprises we incorporate socializing an activity which yields utility for workers and affects a firm s output into a multitask model of work organization we establish the two following results first the optimal workers compensation policy displays a larger incentive intensity in the private firm than in the public firm second labor productivity in the private firm may be higher or lower than in the public firm both results fit well with the findings of empirical work

on the consequences of eliminating capital tax differentials in the united states structure and equipment capital are eectively taxed at dierent rates recently president obama joined the group of policy makers and economists who propose to eliminate these dierentials this paper analyzes the consequences of such a reform using an incomplete markets model with equipment skill complementarity we nd that the reform increases average welfare by 0 1 importantly we nd that the reform does not involve the usual eciency vs equality trade o it improves both jel classication e62 h21

public service motivation as an argument for government provision a public service motivation psm inclines employees to provide effort out of concern for the impact of that effort on a valued social service though deemed to be important in the literature on public administration this motivation has not been formally considered by economists when a psm exists this paper establishes conditions under which government bureaucracy can better obtain psm motivated effort from employees than a standard profit maximizing firm the model also provides an efficiency rationale for low powered incentives in both bureaucracies and other organizations producing social services 2000 elsevier science s a all rights reserved

welfare and optimum dynamic taxation of consumption and income abstract this paper estimates that the us could attain large welfare gains by implementing an optimal ramsey tax policy that taxes consumption and income it is also found that the welfare implications associated with taxing consumption are quantitatively more important than those associated with dynamically taxing income indeed replacing income taxes with a constant consumption tax leads to a welfare gain that is only slightly lower than that attained by a dynamic policy that taxes consumption and income in computing these welfare gains careful attention is given to the dynamic path of tax rates and the transitional dynamics associated with how the economy responds to a new tax policy

the credit channel transmission mechanism and the nonlinear growth and welfare effects of inflation and taxes with the credit channel effect driven by the central bank s open market operations this paper s model easily gives rise to the nonlinear inflation growth nexus which is evidenced by a number of cross country empirical studies the threshold level of the inflation rate is found to be lower when tax rates are higher the presence of the credit channel effect also provides the rationale for setting positive and smaller than 1 tax rates on consumption labor income and capital income the optimal tax rates rise as the inflation target declines under a fiscal policy rule where labor and capital income taxes move proportionally to each other the optimal capital income tax rate could be higher than the optimal labor income tax rate under a sufficiently large central bank balance sheet the credit channel effect will be so weak that inflation and all kinds of taxes are growth and welfare repressing this provides a rationale for central banks that have implemented quantitative easing policies to shrink their balance sheets jel e58 e62 o42

taxing capital along the transition not a bad idea after all this paper quantitatively characterizes optimal tax systems in a model of overlapping generations when transitional cohorts are explicitly taken into account we use the recent study of conesa et al 2009 as an example but extend it by transitional dynamics we furthermore develop a general and coherent way of aggregating welfare effects of different individuals and cohorts in the short and long run our welfare measure includes the case of a utilitarian social welfare function yet is not limited to this perspective we show that the optimality of a high capital income tax rate along the transition crucially depends on the assumption of a utilitarian social welfare function this objective of the policy maker comprises implicit redistributive objectives across and within cohorts based on pure economic efficiency and insurance effects however we find a zero capital income tax rate and a less progressive labor income tax schedule to be optimal such a tax system receives political support from initial cohorts a high capital income tax regime on the other hand doesn t

a welfare analysis of social security in a dynastic framework in this article we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability contrary to previous research our results indicate that steady state welfare increases with social security for most households although by very different amounts this result is mainly due to two factors first the presence of two sided altruism significantly mitigates the crowding out effect of unfunded social security second ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security

payoff complementarities and financial fragility evidence from mutual fund outflows the paper provides empirical evidence that strategic complementarities among investors generate fragility in financial markets analyzing mutual fund data we find that consistent with a theoretical model funds with illiquid assets where complementarities are stronger exhibit stronger sensitivity of outflows to bad past performance than funds with liquid assets we also find that this pattern disappears in funds where the shareholder base is composed mostly of large investors we present further evidence that these results are not attributable to alternative explanations based on the informativeness of past performance or on clientele effects we analyze the implications for funds performance and policies

temptation driven behavior and taxation a quantitative analysis in a life cycle model i introduction a central research question in the dynamic fiscal policy literature during the last 30 years or so is whether under fairly general modeling choices the government should impose a positive tax on capital income in the long run the original answer to this question is negative and is due to the seminal papers by chamley 1986 and judd 1985 who established that in the context of a standard neoclassical growth model with infinitely lived individuals an optimal income tax policy entails taxing capital at confiscatory rates in the short run and setting capital income taxes equal to zero in the long run only labor income should be taxed in the long run since then several modeling choices that cast doubt on the validity of this result were identified in the literature imrohoroglu 1998 showed that the optimal capital income tax rate is strictly positive in an overlapping generations olg setting where individuals face idiosyncratic earnings risk borrowing constraints and life span uncertainty conesa kitao and krueger 2009 extended imrohoroglu 1998 by adding a labor leisure choice they demonstrated that the optimal capital income tax rate is equal to 36 and concluded that this high rate is mainly driven by the life cycle structure of the model in contrast krusell kuruscu and smith 2010 analytically showed that within a class of ramsey tax schemes the optimal capital income tax rate should be negative that is savings should be subsidized when agents have self control problems moreover in the special case where consumers succumb completely to temptation ramsey taxes deliver first best welfare outcomes and in contrast to the chamley judd result the optimum calls for a subsidy to savings however an integrated assessment of the combined effects of the relevant trade offs both along the dimension of differences in preferences and along the dimension of the scope of capital income taxation versus labor income taxation is missing from all previous studies in both social security and capital taxation literature and this paper aims to bridge the gap in the literature and contribute in this aspect to the best of our knowledge this paper is the first study that introduces temptation driven preferences in a quantitative model aiming to tackle the question on the optimal capital income tax before proceeding to specifically articulate this paper s contribution to the literature we consider critical to address a question that lies at the very core of our line of research namely why fiscal policy models with time inconsistent or self control preferences are relevant in the first place initially the literature pioneered by strotz 1956 and phelps and poliak 1968 corroborated evidence coming from both introspection and experiments that agents exhibit preference reversals as time passes different strands within this literature have suggested that these preference reversals could be induced by either time inconsistent preferences see laibson 1997 or self control preferences gul and pesendorfer 2004 time inconsistent preferences typically assume that agents have sequences of different selves each valuing consumption streams in a unique way in contrast gul and pesendorfer 2004 provide a dynamically consistent model suitable for addressing preference reversals that does not necessitate splitting up the consumer in multiple selves that is self control preferences these preferences describe an individual that in every period is tempted to consume his entire endowment when he consumes less than his endowment he incurs a disutility cost that stems from exercising self control that is self control cost optimal behavior trades off the temptation to consume vis a vis the long run self interest of the individual 1 alongside these theoretical underpinnings there is sound empirical and experimental evidence that agents suffer from self control problems

determining the motives for a positive optimal tax on capital previous literature demonstrates that in a computational life cycle model the optimal tax on capital is positive and large given the computational complexities of these overlapping generations models it is helpful to to determine the relative importance of the economic factors driving this result i highlight the impact of changing two common assumptions in a benchmark model that generates a large optimal tax on capital similar to the model in conesa et al 2009 first the utility function is altered such that it implies an agent s frisch labor supply elasticity is constant as opposed to increasing over his lifetime second the government is allowed to tax accidental bequests at a separate rate from ordinary capital income the main nding of this paper is that these two changes cause the optimal tax on capital to drop by almost half furthermore i nd that the welfare costs of adopting the high optimal tax on capital from the benchmark model in the model with the altered assumptions which calls for a lower tax on capital are equivalent to 0 35 percent of total lifetime consumption quantifying the impact of these assumptions in the benchmark model is important because the rst has limited empirical evidence and the second although included for tractability confounds a motive for taxing capital with a motive for taxing accidental bequests jel e62 h21

flat tax reform a quantitative exploration abstract this paper explores quantitatively the general equilibrium implications of a revenue neutral tax reform in which the current income and capital income tax structure in the u s is replaced by a flat tax as proposed by hall and rabushka 1995 the flat tax 2nd ed hoover the central aspects of such reform the impact of tax reform on capital accumulation and labor supply as well as its distributional consequences are analyzed in a dynamic general equilibrium model main results are that i the elimination of the actual taxation of capital income has an important and positive effect on capital accumulation ii mean labor hours are relatively constant across tax systems but aggregate labor in efficiency units increases iii in all circumstances analyzed the distributions of earnings income and especially wealth become more concentrated

privatization in theory and practice privatization george yarrow this paper examines the theoretical and empirical case for private versus public ownership privatization usually leads managers to place greater emphasis on the pursuit of profits however whether this is beneficial to society depends on the trade off between possible market failures due to a lack of competition and deficiencies in government control of public firms the competitive and regulatory environment is more important than the question of ownership per se in competitive markets there is a presumption in favour of private ownership where there is a natural monopoly vigorous regulatory action is required the evidence suggests that privatization has led to improved performance by firms such as the national freight corporation and cable and wireless which operate in a relatively competitive environment the benefits are less clear in the case of firms like bp britoil and british aerospace however the most worrying case is that of british telecom and the projected privatization of british gas where little thought has been given to limiting the abuse of monopoly power rather the regulatory environment has been tailored to the needs of the existing management and to ensuring a successful share flotation privatization is also advanced as a weapon for reducing trade union power encouraging wider share ownership redistributing wealth and improving the public finances however there are other policy instruments better suited to achieving these objectives the existing privatization programme has not led to a marked widening of share ownership and has resulted in windfall gains to a small group of investors at the expense of taxpayers in general

effects of property rights on labor costs of nonprofit firms an application to the day care industry this paper estimates differences in labor costs between nonprofit and for profit firms in the day care industry a theoretical model which draws on the property rights literature as well as recent theo ries of nonprofit labor markets predicts that the magnitude and sign of the nonprofit salary differential will depend on specific characteristics of the samples analyzed empirical results reveal that in th e most competitive segment of the day care industry the nonprofit salary differential is insignificant however in the less competitive government subsidized segment of the industry the nonprofit different ial is significantly positive it ranges from 5 percent to 10 percent copyright 1988 by blackwell publishing ltd

redemption risk and cash hoarding by asset managers abstract open end mutual funds face investor redemptions but the sale of the underlying assets depends on asset managers portfolio decisions if asset managers use cash holdings as a buffer to meet redemptions they can mitigate fire sales of the assets if they hoard cash in response to redemptions they will amplify fire sales we present a global game model of investor runs and identify conditions under which asset managers hoard cash in an empirical investigation of bond mutual funds we find that cash hoarding is the rule rather than the exception and that less liquid bond funds display stronger cash hoarding

altruism incomplete markets and tax reform abstract we compute the welfare effects of different revenue neutral tax reforms that eliminate capital income taxation in two general equilibrium models calibrated to the u s economy in our dynastic model the reform with the largest welfare gain is the one that eliminates all income taxation and increases the consumption tax to 35 75 of the population alive at the time of the reform benefit from it individuals use intervivos transfers and bequests to redistribute the long run benefits in a pure life cycle economy that lacks this redistribution technology we find that the same reform would benefit only 9 of the population

labor dependent capital income taxation abstract capital taxation which is negatively correlated with labor supply is proposed this paper uses a life cycle model of heterogeneous agents that face idiosyncratic productivity shocks and shows that the tax scheme provides a strong work incentive when households possess large assets and high productivity later in the life cycle when they otherwise would work less the system also adds to the saving motive of prime age households and raises aggregate capital the increased economic activities expand the tax base and the revenue neutral reform results in a lower average tax rate the negative cross dependence generates a sizable welfare gain in the long run relative to the tax system that treats labor and capital income separately as a tax base the reform however can hurt the elderly during the transition with a high marginal tax on their capital income

on income and wealth taxation in a life cycle model with extensive labour supply in a stationary life cycle model with extensive labour supply two forms of taxation are studied non linear income taxation and linear wealth taxation in the life cycle model the social weights of the dynasties depend on their permanent incomes not on the observed taxable current income a tax on wealth then can complement income tax as a redistributive tool the derivative of social welfare with respect to the wealth tax rate at the no tax point is computed it is positive whenever permanent income is positively correlated with aggregate life time savings this result is illustrated on a numerical example

optimal government policies in models with heterogeneous agents abstract in this paper we develop a new approach for finding optimal government policies in economies with heterogeneous agents using the calculus of variations we present three classes of equilibrium conditions from government s and individual agent s optimization problems 1 the first order conditions the government s lagrange euler equation and the individual agent s euler equation 2 the stationarity condition on the distribution function and 3 the aggregate market clearing conditions these conditions form a system of functional equations which we solve numerically the solution takes into account simultaneously the effect of the government policy on individual allocations the resulting optimal distribution of agents in the steady state and therefore equilibrium prices we illustrate the methodology on a ramsey problem with heterogeneous agents finding the optimal limiting tax on total income

consumption taxes and precautionary savings financing government spending through lump sum taxes does not distort capital when markets are complete but tends to increase precautionary savings under market incompleteness using flat consumption taxes instead leaves precautionary savings unaffected provided certain conditions on utility are met

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

optimal taxation of capital income with imperfectly competitive product markets abstract we show that the steady state optimal tax on capital income can be negative positive or zero in a neoclassical growth model that allows for imperfectly competitive product markets the sign of the optimal tax rate depends crucially on 1 the degree of monopoly power 2 the extent to which monopoly profits can be taxed 3 the size of the depreciation allowance and 4 the magnitude of government expenditures for an empirically plausible set of parameters we find that the steady state optimal capital tax can range between 10 and 22

on the virtues of privatization when government is benevolent abstract this paper shows that privatizing a public firm can be welfare improving even if the government is a welfare maximizer we consider a setup where the firm s owner a profit maximizing entrepreneur or a benevolent government employs a manager who can invent and implement an innovative production technology wage arrangements are optimal given the verifiable information all parties behave rationally and the information structure is the same in both governance modes nevertheless privatization turns out to be preferable in a wide variety of situations government ownership yields the first best if producing under the old technology is not viable

should civil servants be restricted in wage bargaining a mixed duopoly approach abstract should civil servants employees in the public sector be allowed to bargain collectively to answer this question we construct a model of unionized mixed duopoly and examine the regulatory framework of public institutions especially focusing on a wage regulation imposed on the public firm the wage regulation turns out to yield critical welfare implications as it gives rise to two opposing strategic effects the wage regulation intensifies downstream market competition while it loosens upstream market competition the overall welfare effect is ambiguous depending crucially on the degree of product differentiation between the firms we also show that in contrast to the popular belief granting the right to bargain collectively to civil servants would not necessarily help them because they tend to demand excessively high wages when they are allowed to bargain collectively finally we briefly discuss a new perspective on the role of profit motives in public institutions when the wages are determined endogenously

dividend and capital gains taxation under incomplete markets motivated by the jobs and growth tax relief reconciliation act jgtrra of 2003 the effects of capital income tax cuts are investigated in an economy with heterogeneous households and a representative mature firm dividend tax cuts contrary to capital gains tax cuts lead to a decrease in investment and capital this is because they increase the market value of existing capital and households require a higher return to hold this additional wealth in line with empirical evidence the model predicts substantial increases in dividends and stock prices overall the tax cuts lead to a welfare reduction equivalent to a consumption drop of 0 5

the timing of redistribution we investigate whether late redistribution programs that can be targeted toward low income families but that may distort savings decisions can dominate early redistribution programs that cannot be targeted as a result of information constraints we use simple two period overlapping generations models with heterogeneous agents under six policy regimes a model calibrated to the u s economy benchmark two early redistribution lump sum regimes two targeted late redistribution regimes and finally a model without taxes and redistribution redistribution programs are financed by a labor tax on the young generation and a capital tax on the old generation we argue that if the programs are small in size late redistribution can dominate early redistribution in terms of welfare but not in terms of real output better targeting of low income households cannot completely offset savings distortions in addition we find that the optimal transfer and tax policy implies a capital tax of 100 and transfers exclusively to the young generation

optimal redistributive capital taxation in a neoclassical growth model abstract this paper provides a counterexample to the simplest version of the redistribution models considered by judd 1985 in which the government chooses an optimal distortionary tax on capitalists to finance a lump sum payment to workers i show that the steady state optimal tax on capital income is generally non zero when the capitalists utility is logarithmic and the government faces a balanced budget constraint with log utility agents optimal decisions depend solely on the current rate of return not any future rates of return or tax rates this feature of the economy effectively deprives the government of a useful policy instrument because promises about future tax rates can no longer influence current allocations when combined with a lack of other suitable policy instruments such as government bonds the result is an inability to decentralize the allocations that are consistent with a zero limiting capital tax i show that the standard approach to solving the dynamic optimal tax problem yields the wrong answer in this knife edge case because it fails to properly enforce the constraints associated with the competitive equilibrium specifically the standard approach lets in an additional policy instrument through the back door

wealth distribution and optimal inheritance taxation in life cycle economies with intergenerational transfers we introduce intergenerational transfers into a general equilihrium life cycle model in order to explain observed levels of wealth heterogeneity in our overlapping generations model heterogenous agents face uncertain lifetime and leave both accidental and voluntary bequests to their cinldren furthermore agents face stochastic employment opportunities the model is calibrated with regard to the characteristics of the us economy our resuits indicate that hequests onl account for a sniall proportion of ohserved wealth heterogeneitv the introduction of an inheritance tax increases both welfare are measured by the average value of the newborn and equality of the wealth distribution preliminary versions of this paper have been presented at conference on intergenerational transfers taxes and the distribution of wealth in uppsala 1999 and the econoinetric societv european meetirig in santiago dc compostela 1999 we would like to thank michael kaganovieli john laitner james smith frank stafford and carl cristian von weizsacker for comments on earlier versions of the paper all remaining errors are ours

the relative efficiency of public and private firms in a regulated environment the case of u s electric utilities abstract the relative efficiency of privately owned and publicly owned electric utilities is investigated using theoretical and econometric models that allow for the effects of both ownership type and regulation the estimation results indicate that the two types of firms are equally cost inefficient in the united states the average effect of inefficiency is to increase the cost of production by 2 4 percent holding output constant inefficiency increases the average quantities demanded of capital and labor and decreases the average quantity demanded of fuel