how do market reforms affect china s responsiveness to environmental policy a large percentage of total investment in china is allocated by the central government at below market interest rates in pursuit of non economic objectives this has resulted in low rates of return and a high number of non performing loans threatening the future health of the chinese economy as a result reform of capital markets is a high priority of the chinese government at the same time the country is implementing various environmental policies to deal with serious pollution issues in this paper we ask how reforms of the capital market will affect the functioning of a carbon tax this allows us to assess how china s willingness to join global efforts to reduce carbon emissions is influenced by china s current efforts to reduce investment subsidies we compare the costs of a carbon tax in a reformed economy with the costs of a carbon tax in the current subsidized economy we find that in the subsidized economy the tax interaction effect dampens the effect of a carbon tax resulting in smaller reductions in emissions than what would result in a reformed economy importantly we also find that the effect on economic welfare from a carbon tax is lower in the subsidized economy in fact for lower levels of reductions the carbon tax is actually welfare improving these results have important implications for an economy undergoing economic transition the carbon tax rate required to achieve a certain level of emission reductions will be higher in an economy with capital subsidies however the welfare implications of the tax indicate that the current system with capital subsidies is highly distorting implying that there is a high efficiency cost for the non economic objectives the government is pursuing by maintaining this system of subsidies

are environmental taxes a free lunch issues in modelling the macroeconomic effects of carbon taxes applied analysis of output and employment effects from revenue neutral environmental taxation depends critically on how the supply side of the economy is modelled despite the long history of theoretical and computable general equilibrium supply side models the empirical basis of much of this work has been quite weak until recently however most econometric attempts to capture factor substitution effects have not been based on theoretically consistent structures this paper examines the methodological issues that underlie these problems and compares the results of imposing environmental taxes in two different econometric modelling structures the implications of theories of endogenous technical progress on the simulation properties of such models are discussed and a simple empirically based model that embodies some of these features is presented

efficient environmental taxation under worker firm bargaining we study an economy with free firm entry and unemployment due to firm worker bargaining over each firm s surplus and where firms cause pollution that can be reduced by initial investments an uncompensated increase in the pollution tax reduces pollution but increases unemployment implying a tradeoff between the two when tax revenues are used to subsidize either firms hiring or investments employment may also increase creating a double dividend from the pollution tax a pollution tax increase used to subsidize current employment is always less effective than a hiring subsidy and is totally ineffective when subsidies equal pollution tax revenues for each individual firm we show that the hypothetical pollution tax implementing the first best solution exceeds the pigouvian tax the second best tax exceeds this first best tax when we have a double dividend and is below it when we do not

commuting transport tax reform and the labour market employer paid parking and the relative efficiency of revenue recycling instruments in this paper the welfare effects of a budget neutral increase in taxes on car commuters are studied in a model that takes into account the presence of employer paid parking at the workplace it is found that the presence of employer paid parking substantially increases the welfare effect of such a tax reform independent of the use of the revenues congestion taxes not only correct congestion externalities they also reduce the inefficiency caused by employer paid parking moreover different congestion effects of alternative recycling instruments and the presence of employer paid parking jointly imply that recycling the tax revenues via higher public transport subsidies may yield much more favourable welfare effects than previously believed it can easily outperform recycling the tax revenues via lower labour taxes finally cashing out parking costs to public transport users is found to generate substantial positive welfare effects numerical analysis confirms the theory

should a carbon tax be differentiated across sectors abstract if some but not all countries are cooperating to reduce co2 emissions one could make the following argument a high carbon tax for carbon intensive tradeable sectors in the cooperating countries will reduce the production of goods from these sectors and therefore co2 emissions in the cooperating countries however this will to a large extent be counteracted by increased production of such goods in the countries that have no climate policy and since it is only total co2 emissions from all countries that are relevant for the climate there is no point in a policy that simply relocates co2 emissions from the cooperating countries to the countries that have no climate policy according to this line of reasoning carbon intensive tradeable sectors should thus face a lower carbon tax than other sectors of the economy this paper shows that a carbon tax should not be differentiated across sectors in the economy provided one can use import and export tariffs on all traded goods it is also shown that such a differentiation of carbon taxes is optimal for the cooperating countries if they are prevented from using tariffs on the traded goods however informational or political factors constraining the use of tariffs are likely also to constrain the possibility of differentiating carbon taxes between sectors

second best taxation of emissions and polluting goods abstract this paper studies the problem of the design of an integrated system of second best emission and output taxes in a model where production costs are negatively correlated with their emissions it shows that i the first best pigouvian rule of equating the marginal private benefit of emissions in production to the marginal social damage of emissions must be modified in the second best ii implementation of the modified pigouvian rule requires all firms to face the same marginal emission tax equal to the marginal social damage of emissions plus an adjustment term reflecting optimal tax objectives iii it may not be necessary to directly tax the polluting goods the latter taxes can be subsumed in the emission tax function iv output taxes must be set solely on the basis of optimal tax objectives no pigouvian adjustment is required v if emission taxes are restricted to be proportional and commodity taxes are constrained the modified pigouvian rule will no longer be optimal vi if preferences are weakly separable in emissions and other goods the pigouvian rule remains valid the marginal emission tax is pigouvian and emission and commodity tax instruments can be set separately to address different objectives a proportional emission tax corrects for externalities while commodity taxes are determined solely on the basis of optimal tax considerations

the long run relationship between stock return dispersion and output based on the rational that some industry groups are more closely linked to the business cycle than others we re examined a previous analysis on the long term relationship between stock return dispersion by industry and gross domestic product gdp which evaluated data until 1987 by extending it to 2008 using mean square forecast errors msfe statistics we find that incorporating the return dispersion in vector autoregressive var models enhances their forecasting power for output gdp in the long run this article also determines that the relationship between stock return dispersion by industry and gdp is tenuous in the recent decade from 1999

comment on m hoel emission taxes versus other environmental policies the choice of the appropriate instrument in environmental policy is not only a question of theoretical importance it is also of considerable political relevance while environmental taxes are sometimes used to control pollution quotas and direct controls dominate in practice if this observed bias is only due to the nature of policymaking and not supported by economic reasoning politicians are not well advised to use quotas and direct controls instead of environmental taxes hoel discusses popular arguments that are often used by politicians in favour of direct controls and concludes that the results are typically not clear cut in this comment i would like to focus on the employment effects of revenue raising and nonrevenue raising instruments politicians as well as special interest groups often claim that emission taxes increase the cost of production thereby harming employment clearly in the face of high rates of unemployment in many industrialized countries potentially negative employment effects of environmental regulation raise political resistance to green policy the ongoing debate has put

the double dividend second best worlds and real world environmental policy abstract the recent series of papers by bovemberg goulder parry and others argue that the double dividend is unlikely to exist because of second best problems they argue that the imposition of environmental tax in an economy already distorted by income taxes will further distort the economy by reducing incentives to supply labor our paper argues that this is not likely to be the case because of the restrictive assumptions made by these models and because of the role of the environment as a factor of production

stock returns inflation and real activity in canada this paper finds evidence that as for the united states there exists an inverse relation between real stock returns and inflation i n canada such a relation if nonspurious could signify a nonneutralit y of money the authors causality tests suggest however that inflation does not cause real stock returns instead their empirical results support e f fama s proxy effect hypothesis according to which the observed inverse relation is proxying for fundamental relations between real stock returns and anticipated real activity and between inflation and real activity the authors therefore cannot reject the fisherian hypothesis that variations in anticipated inflation have no effect on real stock returns

how robust is the uniform emissions pricing rule to social equity concerns abstract this paper examines pollution tax differentiation across industries in light of social equity concerns using theoretical and numerical general equilibrium analyses in an optimal tax framework we characterize the drivers for non uniform optimal taxes stemming from the interaction of household heterogeneity with social preferences quantitatively assessing the case of price based co2 emissions control in the u s economy we find that uniform emissions pricing is approximately optimal when social concerns are defined over inequity induced by the environmental tax the deviation from uniform emissions pricing however becomes non negligible when pollution tax rebates deviate much from optimal transfer schemes or when social concerns are defined over both policy induced impacts and inequity unrelated to environmental policy our results are robust to a number of model extensions including the stringency of the environmental target downstream vs upstream taxation pre existing distortionary taxes and parametric uncertainty in firms and households equilibrium tax responses

does the stock market predict real activity time series evidence from the g 7 countries this paper extends one aspect of the us stock market study of fama 1990 and schwert 1990 we examine the relationship between industrial production ip growth rates and lagged real stock returns for the g 7 countries using both in sample cointegration and error correction models and the out of sample forecast evaluation procedure of ashley et al 1980 the cointegration tests show a long run equilibrium relationship between the log levels of ip and real stock prices while the error correction models indicate a correlation between ip growth and lagged real stock returns for all countries except italy the out of sample tests show that in several sub periods the us uk japanese and canadian stock markets enhance predictions of future ip 1999 elsevier science b v all rights reserved

environmental policy public finance and the labour market in a second best world abstract environmental and tax policies and the optimal provision of clean and dirty public goods are analysed within the context of a second best framework of optimal taxation households consume both clean and dirty commodities degradation of the natural environment occurs due to the consumption of dirty private and public goods but can be offset when the government engages in abatement activities increased environmental concern implies a higher dirt tax a lower tax on labour less employment more public abatement and a cleaner environment if the elasticity of substitution between private consumption commodities and leisure is large and that between clean and dirty goods is small public consumption may expand while private consumption contracts otherwise public consumption falls

the effect of the stock market on investment a comparative study this paper is concerned with examining whether exogenous events whose only direct effect is to change stock prices can indirectly affect corporate investment through the stock price mechanism it is argued that the actual effect of share price changes depends on institutional considerations which affect the degree of managerial autonomy e g the extent of the use of the takeover mechanism gearing ratios and the role of employees in corporate decision making therefore it would be reasonable to expect the stock market to be less influential in japan or germany when compared with the u s or u k this paper provides some econometric evidence which supports this view in that once one has allowed for other influences on investment share prices provide no additional explanatory power for investment behaviour in japan or germany but they do affect investment in the u k and u s if one believes that the stock market is sometimes swayed by irrational considerations the absence of an influence of share prices on investment in japan or germany may then be regarded as an advantage

macroeconomics news and the stock market evidence from europe abstract the effects of unexpected variations in many macroeconomic variables on aggregate stock price indices are evaluated for great britain west germany and switzerland quarterly data over the recent flexible exchange rate period are used the results indicate that the effects of macroeconomic news are either very small or obscured by a low signal to noise ratio

effects of carbon taxes in an economy with prior tax distortions an intertemporal general equilibrium analysis abstract this paper analyzes the costs of carbon taxes in a model that recognizes interactions between this tax and pre existing taxes first we examine the extent to which costs of a u s carbon tax are reduced when its revenues finance cuts in income taxes such use of revenues significantly reduces but does not eliminate the overall policy costs the positive overall costs reflect the carbon tax s focus on intermediate inputs and its relatively narrow base in comparison with income taxes we also examine the sensitivity of the carbon tax s costs to the level of pre existing taxes for any given use of revenues welfare costs rise significantly with pre existing tax rates indicating that models disregarding pre existing taxes may substantially understate the costs of new environmental tax initiatives

stock returns inflationary expectations and real activity this paper tests the fisher hypothesis that real stock returns are independent of inflationary expectations on data for the finnish economy a significant negative relationship is found when stock returns are regressed on the rate of inflation a possible explanation is that higher inflation may proxy a drop in the money demand induced by a lower growth in real activity which simultaneously implies a drop in expected future profits and thus a drop in stock prices to test this hypothesis actual growth in real activity is included in the regression equation for aggregate stock returns significant negative coefficients are however still obtained for expected as well as unexpected inflation it is further shown that these relations are quite insensitive to the specification of the expectations formation mechanism

optimal gasoline tax in developing oil producing countries the case of mexico this paper uses the methodology of parry and small 2005 to estimate the optimal gasoline tax for a less developed oil producing country the relevance of the estimation relies on the differences between less developed countries ldcs and industrial countries we argue that lawless roads general subsidies on gasoline poor mass transportation systems older vehicle fleets and unregulated city growth make the tax rates in ldcs differ substantially from the rates in the developed world we find that the optimal gasoline tax is 1 90 per gallon at 2011 prices and show that the estimate differences are in line with the factors hypothesized in contrast to the existing literature on industrial countries we show that the relative gasoline tax incidence may be progressive in mexico and more generally in ldcs

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

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

choosing the right instrument the role of public revenues for environmental policy this paper analyses the optimal choice of second best optimal environmental policies using a partial equilibrium model the paper first reconfirms the well known result that the existence of a double dividend in its weak definition favours environmental policy instruments which maximise tax revenues for a given improvement in environmental quality additional revenues can be used to reduce the distortion of existing taxes such as taxes on labour and capital income without uncertainty environmental taxes and auctioned permits are equally appropriate in the presence of uncertainty however the optimal choice of taxes or tradable permits depends on the relative magnitudes of the marginal environmental damage and the marginal benefit from consuming a polluting good in the second part the paper therefore analyses how the revenue capacity affects the optimal choice of environmental policy instruments in the presence of uncertainty the paper shows that the first best choice rule between price and quantity regulation weitzman 1974 remains valid in a second best world with distortionary taxation

the role of acquisition of foreign technology in taiwanese growth this article argues that one source of taiwan s exceptionally rapid growth rate in value added per worker in manufacturing was its ability to tap the accumulated technology of more advanced industrial nations the impact of technology embodied in new equipment is quantified the role of knowledge transfers from purchasers of exports consultants technology licensing agreements returning taiwanese nationals educated abroad and foreign direct investment is documented it is argued that considerable local effort was expended to assimilate successfully the transferred technology copyright 2001 by oxford university press

policy instruments for curbing co2 emissions the case of the netherlands taxes may seem to be the most attractive instrument for curbing the emissions of carbon dioxide this paper however argues that environmental taxes involve a number of serious complications especially in an open economy riddled with market imperfections like the netherlands therefore a wide ranging policy mix is called for as far as households and sheltered sectors are concerned regulation can continue to play a major role within the context of unilateral policies aimed at exposed sectors the combination of subsidies and voluntary agreements may be more cost effective than the tax instrument

stock returns and output growth in emerging and advanced economies abstract this paper studies the correlation between output growth and lagged stock returns in a panel of emerging market economies and advanced economies it finds that the proportion of countries in which this correlation is significant is the same for emerging market economies as it is for advanced economies using yearly data and somewhat lower using quarterly data asset prices therefore seem to contain valuable information to forecast output also in emerging market economies moreover the paper finds that the strength of the correlation between output growth and lagged stock returns is significantly related to a number of stock market characteristics such as a high market capitalization to gdp ratio and less robustly english legal origin and the number of listed domestic companies and initial public offerings

the control of co2 emissions and its economic impact an age model for a german state since it is believed that co2 is responsible for 55 of the greenhouse effect a co2 levy is now under consideration in several countries for an assessment of the macroeconomic implications of an integrated energy and environmental policy we employ an applied general equilibrium model age since all sectors of an economy and all private households contribute to co2 emission our model is a temporary equilibrium model with capacity extension under adjustment costs and with abatement activities for so2 and nox emissions

recycling of carbon energy taxes and the labor market this paper provides a quantitative assessmet of a cost shift from labor to energy by means of a carbon energy tax the analysis utilizes a general equilibrium model for the european community placing the emphasis on the modeling of labor supply the paper highlights the importance of the feedback from an induced increase in labor demand to wage formation it shows that the goals of co2 reduction and improved employment are complementary provided the reduction in labor costs financed by the carbon energy tax is not offset by increased wage claims under this condition reduced co2 is consistent with an increase in gdp

energy taxation and the double dividend effect in taiwan s energy conservation policy an empirical study using a computable general equilibrium model abstract faced with pressure from greenhouse gas reductions and energy price hikes the taiwan government is in the process of developing an energy tax regime to reflect environmental external costs and effectively curb energy consumption as well as mitigate co2 emissions through an adequate pricing system this study utilizes a cge model to simulate and analyze the economic impacts of the draft energy tax bill and its complementary fiscal measures under the assumption of tax revenue neutrality the use of energy tax revenue generated for the purpose of reducing income tax is the best choice with double dividend effects since it will effectively stimulate domestic consumption and investment and consequently mitigate the negative impacts of the distortionary tax regime the double dividend effect is less significant however when the supplementary measures being used are for government expenditure nevertheless all supplementary measures have effectively reduced energy consumption which means they have delivered at least the first dividend in the sense of co2 emissions control it has been verified in this study that having adequate public finance policy measures is the key to realizing the double dividend effect

environmental levies and distortionary taxation pigou taxation and pollution i note an important distinction between the optimal price of environmental quality in a second best world and the optimal level of environmental quality using an analytical general equilibrium model i show that for reasonable parameter values an increase in tax distortions arising from an increase in required tax revenues leads to a fall in the optimal pigouvian tax rate even while environmental quality improves in general knowledge of the direction of changes in optimal environmental tax rates due to changes in the economy is not sufficient for understanding the impact on environmental quality 2003 elsevier science b v all rights reserved

optimal control of externalities in the presence of income taxation optimal control of externalities a substantial literature examines second best environmental policy focusing particularly on how the pigouvian directive that marginal taxes should equal marginal external harms needs to be modified in light of the preexisting distortion due to labor income taxation additional literature is motivated by the possibility that distributive concerns should amend the internalization prescription it is demonstrated however that simple first best rules unmodified for labor supply distortion or distribution are correct in a natural basic formulation of the problem specifically setting all commodity taxes equal to marginal harms and subsidies equal to marginal benefits can generate a pareto improvement likewise a marginal reform in the direction of the first best can yield a pareto improvement for other reforms a simple efficiency test characterizing when a pareto improvement is possible is offered qualifications and explanations for the substantial departure from results in previous work are also elaborated

how do corporate governance model differences affect foreign direct investment in emerging economies this study examines the impact of national corporate governance models on inward foreign direct investment fdi in emerging economies we consider three potential mechanisms and conduct an empirical test of how family ownership and control in large group affiliated firms in taiwan affect joint venture investment from us and japanese firms during the period 1988 1998 results support the neo institutional perspective of fdi developed in this study the home country corporate governance models are likely to shape foreign firms choice of local partners

optimal dynamic carbon taxes in a climate economy model with distortionary fiscal policy how should carbon be taxed as a part of fiscal policy the literature on optimal carbon pricing often abstracts from other taxes however when governments raise revenues with distortionary taxes carbon levies have fiscal impacts while they raise revenues directly they may shrink the bases of other taxes e g by decreasing employment this article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate economy model with distortionary fiscal policy first this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income this link arises because carbon emissions destroy natural capital they accumulate in the atmosphere and decrease future output consequently this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments second this article characterizes optimal climate policy in sub optimal fiscal settings where income taxes are constrained to remain at their observed levels third this article presents a detailed calibration that builds on the seminal dice approach but adds features essential for a setting with distortionary taxes such as a differentiation between climate change production impacts e g on agriculture and direct utility impacts e g on biodiversity existence value the central quantitative finding is that optimal carbon tax schedules are 8 24 lower when there are distortionary taxes compared to the setting with lump sum taxes considered in the literature

energy taxes in the netherlands what are the dividends in this paper the environmental and economic effects of the introduction of a unilateral energy tax in the netherlands are analysed using an applied general equilibrium age model the effects of a small user energy tax and a general energy tax are compared while taking into account different tax recycling mechanisms the model contains a great level of detail with respect to emissions and environmental indicators greenhouse effect acidification eutrophication and waste which is helpful for assessing environmental quality the results show that the introduction of a small environmental tax reform not only improves the environment but also raises non environmental welfare which is due to an improvement of the efficiency of the tax structure

economic impacts of reducing nox emissions in norway using a multisector computable general equilibrium model for the norwegian economy the impacts on main macroeconomic indicators of reducing nox emissions are analyzed seven specific technical measures regarding passenger cars trucks ships and industrial processes are studied the measures have somewhat different impacts on the macroeconomy especially the measure pertaining to light and heavy duty trucks leads to an increase in gdp because of higher income from indirect taxes however the sum of value added in the production sectors is reduced the other measures cause a decrease in gdp all in all we find that the costs in terms of reductions in gdp and private consumption incurred from the introduction of additional nox emissions control measures are quite small

on environmental taxation under uncertain environmental damage this paper addresses optimal taxation when therelationship between the consumption of a dirty good and the resulting environmentaldamage is uncertain and treated as a randomvariable by policy makers the main purpose isto analyze how increased uncertainty measuredas a mean preserving increase in the spread ofthis random variable affects the optimalcommodity tax on the dirty consumption good incase the only task of government is to correctthe environmental externality and if thepreferences are characterized by nondecreasingabsolute risk aversion we find that thecommodity tax on the dirty consumption goodincreases in response to additionaluncertainty if on the other hand thegovernment provides a public good and uses alump sum tax in addition to the commodity tax it is possible that the commodity tax decreasesas a response to additional uncertainty evenif the preferences are characterized bynondecreasing absolute risk aversion a similarresult emerges although for different reasons if the lump sum tax is replaced by a laborincome tax

foreign firms and chinese employment this paper examines the effect of foreign direct investment fdi on employment in the chinese manufacturing sector as one of the world s largest recipients of fdi china has arguably benefited from foreign multinational enterprises in various respects however one of the main challenges for china and other developing countries is job creation and the effect of fdi on employment is uncertain the effect depends on the amount of jobs created within foreign firms as well as the effect of fdi on employment in domestic firms we analyse fdi and employment in china using a large sample of manufacturing firms for the period 1998 2004 our results show that fdi has positive effects on employment growth the relatively high employment growth in foreign firms is associated with their firm characteristics and their high survival rate employment growth is also relatively high in private domestic chinese firms there also seems to be a positive indirect effect of fdi on employment in private domestically owned firms presumably caused by spillovers

expected and unexpected changes in nominal and real variables evidence from the capital markets abstract the sources of variation in asset returns and exchange rates are empirically examined with the help of data from five industrialized countries a fourfold classification in real vs nominal and expected vs unexpected changes is used the empirical work is based on the observed time series characteristics of stock returns interest rates exchange rates and rates of inflation unexpected changes in real stock returns and real exchange rates have by far the largest variance movements in risk premia on shares and forward foreign exchange are also substantial fisher and mundell effects are however relatively small

a note on optimal taxation in the presence of externalities abstract i consider the problem of optimal taxation with externalities in a general setup encompassing most of optimal taxation models found in the literature it is demonstrated that when direct taxation of externalities is possible optimal taxes can be expressed as the sum of the optimal pigouvian taxes and the optimal taxes in a related problem without externalities regardless of what other tax instruments are available this result generalizes the so called principle of targeting

carbon taxes with exemptions in an open economy a general equilibrium analysis of the german tax initiative abstract sectoral exemptions from environmental regulation are applied in many countries to avoid adverse adjustment effects in specific industries the problem with exemptions is that they can make environmental policy more costly our paper analyzes the welfare costs of exemptions in environmental policy together with the issue of unilateral carbon taxes in an open economy several countries within the eu have introduced or contemplated unilateral taxes to reduce anthropogenic co2emissions taxes which are unilaterally imposed in an open economy can have significant impacts on production and employment of energy and export intensive industries to save jobs by maintaining international competitiveness most co2taxation schemes include exemptions for energy and export intensive industries as a compromise between environmental objectives and employment in these sectors this paper shows that such compromises are costly as the tax base narrows the dead weight loss increases our calculations illustrate this point in the framework of a static general equilibrium model for west germany calibrated to 1990 data we evaluate the excess costs of exemptions as a means of saving jobs in specific industries relative to an alternative instrument a uniform carbon tax cum wage subsidy which achieves an identical level of national emissions and employment at a fraction of the cost