comparing the welfare effects of public and private health care subsidies in the united kingdom we use a calibrated analytical model to compare the welfare costs gross of externalities of increasing subsidies for public and private health care in the uk the model incorporates wait costs for rationed public care burdens that subsidies impose on the tax system and distributional weights for different households welfare costs are significantly higher for expanding public health care over a range of parameter scenarios both policies reduce average wait times but for public health care this is offset by new waiting costs incurred on extra treatments and the burden on the tax system is much larger for expanding public health care

optimal taxation and cross price effects on labor supply estimates of the optimal gas tax abstract this study estimates parameters necessary to calculate the optimal second best gasoline tax most notably the cross price elasticity between gasoline and leisure prior theoretical work indicates the importance of this elasticity but despite this almost none of the prior studies of commodity taxation and none of the studies on second best environmental regulation actually estimate it using household data we find that gasoline is a relative complement to leisure and thus that the optimal gasoline tax is significantly higher than marginal damages the opposite of the result suggested by the bulk of the prior literature indeed even if there were no externalities at all associated with gasoline the optimal tax rate would still be almost equal to the average gas tax rate in the u s following this approach to estimate cross price elasticities with leisure could strongly influence estimates of optimal rates for other important commodity or pollution taxes

financial factors and investment in belgium france germany and the united kingdom a comparison using company panel data we construct company panel data sets for manufacturing firms in belgium france germany and the united kingdom covering the period 1978 1989 these data sets are used to estimate empirical investment equations and to investigate the role played by financial factors in each country a robust finding is that cash flow and profits terms appear to be both statistically and quantitatively more significant in the united kingdom than in the three continental european countries this is consistent with the suggestion that financial constraints on investment may be relatively severe in the more market oriented u k financial system

green taxes can we protect the environment and improve the tax system at the same time on a cursory inspection public economics appears to provide a straightforward and compelling answer of yes to the question posed in the title to this paper as economists have long argued appropriately designed taxes can in principle at least efficiently restrain levels of polluting activities and in addition such taxes will generate revenues so that we can reduce rates on other forms of taxation that distort the functioning of the economy green taxes in short promise a double dividend they can both reduce excessive levels of pollution and increase the efficiency of the overall tax system at least so several economists have argued recently 17 20 but is this really so with the growing recognition of the enormous revenue potential of certain environmental taxes especially carbon taxes to address the problem of global warming public economists have returned to this question with a new round of research efforts directed both to understanding the properties of pollution taxes as revenue sources and to estimating their revenue potential and the magnitude of their effects on the economy and the newly emerging literature is producing some quite astonishing and very troubling findings in this paper i want to review this work and explore its implications when viewed in relation to some other research it appears to suggest that most forms of regulatory activity at least those that increase the costs of the regulated activities may have hitherto unappreciated costs of a stunning magnitude what many of us would have taken to be second order side effects of environmental and other regulatory policies can be of a magnitude that compromises to a significant extent their welfare enhancing properties having reviewed this body of work i wish also to explore some issues in the political economy of green taxes it is helpful to begin by briefly putting the issue in historical perspective

a neglected welfare cost of monopoly and most other product market distortions abstract a neglected effect of monopoly is the distortion in the quantity of resources supplied monopoly not only affects the economy s output mix it also results in factor prices that are below social marginal value products this latter distortion is shown to be quantitatively important when other policies such as taxes on labor earnings also depress factor prices under plausible conditions the welfare cost due to this distortion of monopoly is shown to be between five and fifteen times larger than the more familiar harberger triangle output mix distortion of monopoly it is suggested that the resource supply effects of many other policies are similarly likely to be more important than their commonly evaluated output market effects

firm growth and liquidity constraints a dynamic analysis using a large unbalanced panel data set of portuguese manufacturing firms surviving over the period from 1990 to 2001 the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth we use a gmm system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth the model is estimated for all size classes including micro firms our findings reveal that smaller and younger firms have higher growth cash flow sensitivities than larger and more mature firms this is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms nevertheless the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect besides firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old finally these results have significant policy implications

price leadership and welfare losses in u s manufacturing reply a model of price leadership is used to estimate the welfare losses dueto monopoly in u s manufacturing given that the leaders behave independently an hypothesis confirmed empirically the deadweight lossis estimated at 0 114 percent of gnp based on a sample of 445 four digit industries this estimate lends strong support to arnold c harberger s finding of thirty years ago copyright 1986 by american economic association

sectoral patterns of technical change towards a taxonomy and a theory abstract the purpose of the paper is to describe and explain sectoral patterns of technical change as revealed by data on about 2000 significant innovations in britain since 1945 most technological knowledge turns out not to be information that is generally applicable and easily reproducible but specific to firms and applications cumulative in development and varied amongst sectors in source and direction innovating firms principally in electronics and chemicals are relatively big and they develop innovations over a wide range of specific product groups within their principal sector but relatively few outside firms principally in mechanical and instrument engineering are relatively small and specialised and they exist in symbiosis with large firms in scale intensive sectors like metal manufacture and vehicles who make a significant contribution to their own process technology in textile firms on the other hand most process innovations come from suppliers these characteristics and variations can be classified in a three part taxonomy based on firms 1 supplier dominated 2 production intensive 3 science based they can be explained by sources of technology requirements of users and possibilities for appropriation this explanation has implications for our understanding of the sources and directions of technical change firms diversification behaviour the dynamic relationship between technology and industrial structure and the formation of technological skills and advantages at the level of the firm the region and the country

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

explaining the distribution of firm growth rates empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of corporate growth rates we present clear cut evidence on this topic using disaggregated data we explain the observed regularities proposing a model in which firms ability to take up new business opportunities increases with the number of opportunities already exploited a theoretical result is presented for the limiting case in which the number of firms and opportunities go to infinity moreover using simulations we show that even in a small industry the agreement with asymptotic results is almost complete

growth acquisition activity and firm size evidence from the united kingdom this paper provides new empirical evidence on the relationship between size growth and acquisition activity of quoted companies in the united kingdom the evidence is based on some two thousand companies and covers the period i960 76 there has been no detailed systematic study for this period the results suggest some revisions to generally accepted views in the area and they have certain implications for industrial and competition policy pursued in the u k and the factors affecting aggregate concentration the paper is arranged as follows section i considers the broader economic context for the study whilst section ii notes some a priori expectations regarding the relationship between size and growth and size and acquisition activity sections iii v present empirical evidence and the last section provides a summary and policy implications of the results

when can carbon abatement policies increase welfare the fundamental role of distorted factor markets abstract this paper employs analytical and numerical models to assess the welfare effects of a revenue neutral carbon tax and nonauctioned carbon emissions permits taking into account preexisting tax distortions in factor markets the presence of preexisting taxes significantly raises the general equilibrium costs of both policies this cost increase is much greater under emissions permits since this policy does not generate revenues to reduce distortionary taxes under our central estimates emissions permits cannot increase welfare unless environmental damages exceed about 18 per ton of carbon in contrast an appropriately scaled carbon tax is welfare improving so long as environmental damages are positive

a theory of financing constraints and firm dynamics there is widespread evidence supporting the conjecture that borrowing constraints have important implications for firm growth and survival in this paper we model a multiperiod borrowing lending relationship with asymmetric information we show that borrowing constraints emerge as a feature of the optimal long term lending contract and that such constraints relax as the value of the borrower s claim to future cash flows increases we also show that the optimal contract has interesting implications for firm dynamics in agreement with the empirical evidence as age and size increase mean and variance of growth decrease and firm survival increases

the non tax wedge abstract this paper argues that there are a large number of non tax phenomena that have the effect of reducing input prices below marginal value products just as do taxes on income it is shown that the presence of the non tax wedge between the marginal value product of labor and the net wage is highly significant for the analysis of the total and marginal welfare costs of taxes similarly the presence of the tax wedge is significant for the analysis of the welfare effects of the non tax phenomena welfare costs are substantially higher when appropriate account is taken of tax and non tax wedges that both distort supply decisions

causes and effects of financing constraints at the firm level this paper focuses on the empirical assessment of determinants and effects of financing constraints at the firm level using a standard model of credit rationing based on asymmetric information firm age and size are found to be factors which should influence the probability of financing constraints improving business conditions strengthen the degree of informational asymmetry a unique panel of firm data for germany including direct information on financing constraints is used for the econometric analysis firms size and improving business conditions are found to have a significant effect furthermore a significant impact on investment and r d expenditures cannot be rejected

do liquidity constraints matter in explaining firm size and growth some evidence from the italian manufacturing industry the paper investigates whether liquidity constraints affect firm size and growth dynamics using a large longitudinal sample of italian manufacturing firms we run standard panel data gibrat regressions suitably expanded to take into account liquidity constraints proxied by cash flow scaled by firm sales moreover we characterize the statistical properties of fi rms size growth age and scaled cashflow distributions pooled data show that i liquidity constraints engender a negative statistically significant effect on growth once one controls for size ii smaller firms grow more and experience more volatile growth patterns after controlling for liquidity constraints iii the stronger liquidity constraints the more size negatively affects firm growth we find that pooled size distributions depart from log normality and growth rates are well approximated by fat tailed tent shaped laplace densities we also study the evolution of growth size distributions over time our exercises suggest that the strong negative impact of liquidity constraints on firm growth which was present in the pooled sample becomes ambiguous when one disaggregates across years finally firms who were young and strongly liquidity constrained at the beginning of the sample period grew persistently more than those who were old and weakly liquidity constrained

working capital and fixed investment new evidence on financing constraints this article presents new tests for finance constraints on investment by emphasizing the often neglected role of working capital as both a use and a source of funds the coefficient of endogenous working capital investment is negative in a fixed investment regression as expected if working capital competes with fixed investment for a limited pool of finance this finding addresses a criticism of previous research on finance constraints that cash flows may simply proxy shifts in investment demand in addition previous studies may have underestimated the impact of finance constraints on growth and investment because firms smooth fixed investment in the short run with working capital

agricultural policies in the presence of distorting taxes this article analyzes how distortionary factor taxes affect the welfare impacts of production subsidies production quotas acreage controls subsidies for acreage reductions and cash transfers to farmers pre existing taxes substantially raise the costs of all these policies these additional costs reflect the welfare losses from financing certain policies by distortionary taxes they also reflect interactions with factor markets caused by changes in the costs of producing agricultural output previous studies ignore the latter types of effect consequently they significantly overstate the costs of production subsidies and understate the costs of production quotas acreage controls and subsidies for acreage reductions

self confirming price dispersion in monetary economies abstract in a monetary economy we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences production costs or search technologies a distribution of money holdings among buyers makes sellers indifferent across a set of posted prices leading to a non degenerate price distribution this price distribution in turn makes buyers indifferent across a range of money balances rationalizing the non degenerate distribution of money holdings we completely characterize the distribution of posted prices and money holdings in any equilibrium equilibria with price dispersion admit higher maximum prices than observed in any single price equilibrium and feature an increasing density of prices in contrast to existing theories price dispersion reduces welfare by creating mismatch between posted prices and money balances inflation exacerbates this welfare loss by shifting the distribution towards higher prices

terrorism insurance subsidies and social welfare a model of the effects of terrorism risk on building construction suggests that subsidy of terrorism insurance can increase social welfare such a subsidy program should cover a fixed level of risk per location

financial constraints and firm dynamics this study analyzes the effect of financial constraints fcs on firm dynamics we measure fcs with an official credit rating which captures availability and cost of external resources we find that fcs undermine average firm growth induce anti correlation in growth patterns and reduce the dependence of growth volatility on size fcs are also associated with higher volatility and asymmetries in growth shock distributions preventing young fast growing firms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow growing firms particularly if old the sub diffusive nature of the growth process of constrained firms is compatible with the distinctive properties of their size distribution

revenue recycling and the welfare effects of road pricing the authors explore the interaction between taxes on work related traffic congestion and preexisting distortionary taxes in the labor market a congestion tax raises the overall costs of commuting to work and discourages labor force participation at the margin when revenues are returned in lump sum transfers the resulting efficiency loss in the labor market can be larger that the pigouvian efficiency gains from internalizing the congestion externality by contrast if congestion tax revenues are used to reduce labor taxes the net impact on the labor supply is positive and the efficiency gain in the labor market can raise the overall welfare gains of the congestion tax by as much as 100 percent recycling congestion tax revenues in public transit subsidies produces a positive but smaller impact on the labor supply in short the authors results indicate that the presence of preexisting tax distortions and the form of revenue recycling can crucially affect the size and possibly even the sign of the welfare effect of road pricing schemes the efficiency gains from recycling congestion tax revenues in other tax reductions can amount to several times the pigouvian welfare gains from congestion reduction

china s electricity market oriented reform from an absolute to a relative monopoly abstract the market oriented reform in electricity industry has become a global trend since 1980s although china s electricity industry has been reformed since 1978 the substantial reform has not been conducted until 1985 before 1985 china s power industry had been absolutely monopolized by the central state owned companies the absolute monopoly has been broken since 1985 when the chinese government opened doors for non central state owned investment entities and foreign investors in power supplies in order to solve the chronic power shortage in 2002 the comprehensive electricity reform plan entitled scheme of the reform for power industry was enacted however implementation of this plan was delayed due to electricity supply shortages even worse a new kind of monopoly has been developed under the background the state advances the private sector retreats in late years in some sense the former absolute monopoly has transformed the current relative monopoly we contend that the relative monopoly has reversed the market oriented reform in china s electric industry if the relative monopoly remains unchanged it will be harmful to public welfare