a minimum wage can be welfare improving and employment enhancing abstract we examine whether minimum wages can fulfill a useful role as part of an optimal tax transfer scheme the government cannot observe household abilities only their incomes and is constrained to ensure that those working are at least as well off as those not working a minimum wage combined with the institutional features of typical welfare systems allows the incentive constraint to be severed at the ability level associated with the minimum wage if such a scheme can be enforced the government can increase the amount of redistribution from those working to those not working and possibly lower the number of unemployed

a dominance approach to the appraisal of the distribution of well being across countries abstract this paper proposes a dominance approach to study inequality of well being across countries we consider a class of well being indices based on the three attributes used in the hdi human development index indices are required to satisfy preference for egalitarian marginal distributions of income health and education alep substitution of attributes and priority to poor countries in allocating funds to enhance health and education we exhibit sufficient conditions for checking dominance over the defined class of well being indices we apply our method to country data from 2000 to 2005 the deterioration in health conditions in poor countries is why welfare improvements at the world level cannot be ascertained

pigou meets mirrlees on the irrelevance of tax distortions for the second best pigouvian tax this paper extends the mirrlees 1971 model of optimal income redistribution with optimal corrective taxes to internalize consumption externalities using general utility structures and exploring both linear and non linear taxes it is demonstrated that the optimal second best tax on an externality generating good should not be corrected for the marginal cost of public funds since it equals one in the optimal tax system in the optimum distortions of income taxes are equal to marginal redistributional gains if the government does not have access to a non distortionary marginal source of finance the marginal cost of public funds can be either larger or smaller than one depending on subjective preferences for income redistribution the optimal second best corrective tax is then either higher or lower than the pigouvian level the findings in this paper generalize and amend prior results based on representative agent models shedding new light on the weak double dividend hypothesis and on the welfare gains of recycling revenue from environmental taxes

revealed social preferences of dutch political parties we measure the redistributive preferences of dutch political parties using unique detailed information from their election proposals by employing the inverse optimal tax method we calculate the political weights across the income distribution for each political party we find that all dutch political parties give a higher political weight to middle incomes than to the poor moreover the political weights of the rich are close to zero furthermore we detect a strong political status quo bias as the political weights of all political parties hardly deviate from the weights implied by the pre existing tax system we argue that political economy considerations are key in understanding these results

optimal redistribution and monitoring of labor supply this paper extends the mirrlees 1971 model of optimal non linear income taxation with a monitoring technology that allows the government to verify labor supply at a positive but non infinite cost we analyze the joint determination of the non linear monitoring and tax schedules and the conditions under which these can be implemented monitoring of labor supply reduces the distortions created by income taxation and raises optimal marginal tax rates possibly above 100 the optimal intensity of monitoring increases with the marginal tax rate and the labor supply elasticity our simulations demonstrate that monitoring strongly alleviates the trade off between equity and efficiency welfare gains of monitoring are around 2 8 of total output the optimal intensity of monitoring follows a u shaped pattern similar to that of optimal marginal tax rates our paper can explain why large welfare states optimally rely on work dependent tax credits active labor market policies benefit sanctions and work bonuses in welfare programs

taking versus taxing an analysis of conscription in a private information economy most countries currently man their militaries through conscription i e a draft conventional wisdom suggests that by lowering the budgetary cost of the military a draft reduces distortionary taxation especially when military needs are large we find that this intuition is misguided when income taxes are set optimally voluntary enlistments lead to less distortionary taxation than a draft because the tax base left behind by a volunteer army tends to be more productive than that after a draft for reasonable parameter values drafts are more distortionary and less socially desirable when military needs are large

has the world moved forward a robust multidimensional evaluation this paper presents a multidimensional normative framework to evaluate whether the world moved forward between 1980 and 2008 we focus on the robustness of the results when attributing different weights to the different dimensions population weighted international welfare has not worsened over this period however the trend in the underlying inequality is ambiguous once sufficient weight is given to longevity and or income c 2010 elsevier b v all rights reserved

on the sign of the optimum marginal income tax this paper studies a central aspect of optimal income taxation as modelled in mirrlees original paper on the topic identical leisure consumption preferences qualitatively homogeneous skills in production namely whether given concave utilitarianism alone the optimal marginal income tax will be non negative a well known positive answer to this question in weak inequality form was given in the said paper which however we show requires additive separability of individual utility in the ordinal and cardinal senses our main result here is to derive the required strict positivity of the marginal tax under weak conditions slightly wider than noninferiority of consumption and leisure with preferences otherwise arbitrary

optimal taxation and firm formation abstract this paper analyzes non linear optimal taxation under asymmetric information in a general equilibrium model with endogenous firm formation it first shows under a weak separability assumption on technologies that output and input taxes are not necessary if profits are optimally taxed it then examines the progressivity or lack of it of the optimal profit tax and describes the corresponding effects on the structure of the production sector relative to the first best solution finally the paper investigates conditions under which the provision of public goods can be decentralized

a contribution to the theory of optimal utilitarian income taxation abstract the paper provides a new formulation of the mirrlees seade theorem on the positivity of the optimal marginal income tax under weaker assumptions and in a more general model the formulation of the theorem is independent of whether the model involves finitely many types or a continuous type distribution the formal argument makes the underlying logic transparent relating the mathematics to the economics and showing precisely how each assumption enters the analysis

the optimal linear income tax revisited abstract this paper shows that the mirrlees seade conditions of agent monotonicity and noninferiority of leisure imply the positivity of the optimal marginal income tax rate in sheshinski s model of linear income taxation as well as in the general model the optimal marginal tax rate is bounded above by the rawlsian rate which in turn is bounded by the revenue maximizing rate the optimal marginal tax rate may be arbitrarily close to the rawlsian rate however the optimal marginal tax rate is bounded away from the revenue maximizing rate whenever the individual with the lowest ability works

the quantity and quality of life and the evolution of world inequality gdp per capita is usually used to proxy for the quality of life of individuals living in different countries welfare is also affected by quantity of life however as represented by longevity this paper incorporates longevity into an overall assessment of the evolution of cross country inequality and shows that it is quantitatively important the absence of reduction in cross country inequality up to the 1990s documented in previous work is in stark contrast to the reduction in inequality after incorporating gains in longevity throughout the post world war ii period health contributed to reduce significantly welfare inequality across countries this paper derives valuation formulas for infra marginal changes in longevity and computes a full growth rate that incorporates the gains in health experienced by 96 countries for the period between 1960 and 2000 incorporating longevity gains changes traditional results countries starting with lower income tended to grow faster than countries starting with higher income we estimate an average yearly growth in full income of 4 1 percent for the poorest 50 percent of countries in 1960 of which 1 7 percentage points are due to health as opposed to a growth of 2 6 percent for the richest 50 percent of countries of which only 0 4 percentage points are due to health additionally we decompose changes in life expectancy into changes attributable to 13 broad groups of causes of death and three age groups we show that mortality from infectious respiratory and digestive diseases congenital perinatal and ill defined conditions mostly concentrated before age 20 and between ages 20 and 50 is responsible for most of the reduction in life expectancy inequality at the same time the recent effect of aids together with reductions in mortality after age 50 due to nervous system senses organs heart and circulatory diseases contributed to increase health inequality across countries

multidimensional affluence theory and applications to germany and the us this article suggests multidimensional affluence measures for the top of the distribution in contrast to commonly used top income shares they allow the analysis of the extent intensity and breadth of affluence in several dimensions within a common framework we illustrate this by analysing the role of income and wealth as dimensions of multidimensional well being in germany and the us in 2007 as well as for the us over the period 1989 2007 we find distinct country differences with the country ranking depending on the measure while in germany wealth predominantly contributes to the intensity of affluence income is more important in the us

optimal wage redistribution in the presence of adverse selection in the labor market in this paper we highlight a novel role played by the non linear income tax in the presence of adverse selection in the labor market due to asymmetric information between workers and firms relying on the rothschild and stiglitz equilibrium concept we show that an appropriate choice of the tax schedule enables the government to affect the wage distribution by controlling the transmission of information in the labor market this represents an additional channel through which the government can foster the pursuit of its redistributive goals

markets for electricity in europe competition in the electricity industry requires properly functioning wholesale markets this paper discusses the better established electricity markets of europe in the nordic countries england and wales and spain the different market designs can all produce efficient outcomes if not hindered by market power long term contracts provide some defence against market power and give price stability to promote investment competition in electricity retailing may discourage retailers from signing long term contracts in future

screening with convex menus and optimal flow taxation abstract this paper considers a family of screening problems in which the principal is constrained to offer only convex menus applications include i optimal flow taxation when individuals can substitute consumption and leisure inter temporally ii optimal product design for a linear pricing monopolist iii non exclusive cum linearly priced annuity markets a modified version of a myerson 1979 mirrlees 1971 direct mechanism in which standard incentive compatibility constraints are replaced by no convexification constraints can be used to compute optimal allocations in this family of problems in the flow taxation application the optimal tax schedule necessarily features progressive marginal tax rates typically features distortions at the top and can be analyzed by adapting standard ironing techniques

globalization and its challenges rudi was born and grew up in krefeld germany he was an undergraduate at the university of geneva and completed his ph d at the university of chicago in 1971 which is where we met he was a student of robert mundell and both the subject matter the development of the mundell fleming model and the elegance and insights of his early work reflected mundell s influence he taught at the university of rochester and at the university of chicago before accepting an offer from mit in 1975

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

what is social inequality and why does it matter evidence from central and eastern europe as distinct from income or wealth inequality social inequality is currently poorly understood and at best unevenly measured we conceptualize social inequality as the relative position of individuals along a number of dimensions that measure achieved outcomes and innovatively expectations about future outcomes using data from 12 central and eastern european countries we find that cross national patterns of social inequality differ significantly from patterns derived from income inequality measures moreover our measure of social inequality is much better correlated than income inequality with other country differences such as higher levels of economic performance and human development and stronger political institutions

a note on the optimum income tax abstract this paper analyzes the optimum utilitarian income tax with special attention given to the characterization of the lower end of the optimum tax function in the case when the least qualified individuals do not work moreover the positivity of the marginal tax rate throughout is shown to be a consequence of the desirability of redistribution of income or leisure given the self selection constraints and preferences fulfilling agent monotonicity and non inferiority of leisure

the optimal taxation of unskilled labor with job search and social assistance abstract in order to explore the optimal taxation of low skilled labor we extend the standard model of optimal nonlinear income taxation in the presence of quasi linear preferences in leisure by allowing for involuntary unemployment job search and an exogenous welfare benefit in trading off low skilled employment against work effort of higher skilled workers the government balances distortions on the search margin with those on work effort higher welfare benefits typically reduce taxes paid by low skilled workers and raise marginal tax rates throughout the skill distribution

a comparison of optimal tax policies when compensation or responsibility matter this paper examines optimal redistribution in a model with high and low skilled individuals with heterogeneous tastes for labor we compare the extent to which optimal policies based on different normative criteria obey the principles of compensation for differential skills and responsibility for preferences for labor when labor supply is along the extensive margin with heterogeneity in skills and preferences traditional welfarist criteria including utilitarianism present unappealing policy recommendations in some scenarios as they fail to take compensation and responsibility issues into account criteria from the social choice literature perform better in this regard in first and second best more importantly these equality of opportunity criteria push the second best policy away from an earned income tax credit and in the direction of a negative income tax

electricity and markets over the last fifteen years an increasing number of electricity industries have replaced vertical integration with markets as the main method of organising production electrical energy is traded in many european and us markets while the us also has markets for generating capacity us generators can reduce the cost of complying with environmental regulations by trading emissions of sulphur dioxide while europe has just started a carbon dioxide emissions trading scheme this article discusses the way in which these markets put economic principles into practice in particular it shows that several different market designs can provide theoretically equivalent incentives for generators to build capacity and that emissions trading may have unexpected impacts upon electricity prices

on the optimal income taxation some further numerical results abstract using numerical calculations we show in the optimal income tax model that a realistic value for the elasticity of substitution between consumption and leisure 0 5 leads to conclusions different from some of those drawn by mirrlees 1971 and atkinson 1973 the marginal tax rates are not so low and the shape of the tax schedule is for a great majority of the population substantially nonlinear a new feature in our calculations is that both results come out without going to maximin as done by atkinson 1973 we study in special cases the locality of the zero limit of the marginal tax rate at the upper end of the ability distribution and we achieve a very definite conclusion this result is really very local we also present an interesting approximation result concerning the relationship between the level of the government revenue and the marginal tax rate for individuals with high ability an important methodological remark analogous to sen s critique on the ethical measures of inequality is made on the interpretation of optimal income tax calculations

optimal marginal and average income taxation under maxi min using the mirrlees optimal income tax model with a maxi min social welfare function we derive conditions for a decreasing marginal tax rate throughout the skill distribution a strictly concave tax function in income and a single peaked average tax schedule with additive preferences and a constant labor supply elasticity marginal tax rates are decreasing below the modal skill level and will also decrease above the mode if aggregate skills are non decreasing with the skill level in this case and with a bounded skill distribution or with a constant hazard rate the tax function is strictly concave in income and the average tax rate single peaked when quasilinear utility functions apply in either consumption or leisure under fairly mild restrictions on the truncated or untruncated distribution function marginal tax rates are decreasing in skill and the average tax profile is single peaked the distribution of skills has the same quantitative influence for either case of quasilinearity these results continue to hold when there is bunching at the bottom due to a binding non negativity constraint we also illustrate how relaxing the assumption of constant elasticity of labor supply generally used in the literature modifies the results

fair income tax fairness is a key concept in redistribution issues in this paper we study how particular requirements of fairness can shed light on the design of the optimal income tax schedule we consider a population of heterogeneous individuals or households who differ in two respects first they have unequal skills and therefore unequal earning abilities second they differ in terms of their preferences about consumption and leisure and as a consequence typically make different labour time choices both kinds of differences generate income inequalities we study how to justify and compute a redistribution income tax in this context redistribution through an income tax usually entails distortions of incentives but the resulting efficiency loss has to be weighed against potential improvements in the fairness of the distribution of resources we address this efficiency equity trade off here by constructing social preferences which obey the standard pareto principle in addition to fairness conditions

incentives to invest in liberalised electricity industries in the north and south differences in the need for suitable institutional arrangements the issue of investment is all too often underplayed in deregulation reforms focused on market rules and de integration measures this presentation criticises first the optimistic approach of the theory of investment incentives through market signals when it is applied to deregulated electricity industries the greater part of the investment in base load and peak equipment should be made profitable by income from very high prices during peak and extreme peak periods that raises a problem of political acceptability the problem is then addressed in the context of the mature electricity industries in the north given the maturity of markets there a number of modifications to the pure market model could be envisaged to strengthen incentives to invest but none of them is perfect the main way is to focus on adaptation of market rules on the supply of power at peaks and extreme peaks by considering capacity adequacy as a public good with three solutions capacity payment reserve obligations centralised procurement by auctioning for peak capacity observation of reforms suggests also the validity of some other solutions based on a limitation of the competition by allowing long term contracts and vertical integration between production and supply finally the question is extended to the specific problem of developing countries characterised by irregular growth it is argued that reforms must be designed in view of the importance of the need for investment through long term coordination and reduction of investment risks indeed experiences of latin american liberalised industries show that they have to include a number of competition based imperfections and to allow ongoing exercise of market power in order to allow prices to rise above competition prices the single buyer model or some variants of it appear to be good alternatives if one wishes to avoid the twists and turns of the competition paradigm the difficulty with this model arises from the institutional conditions necessary to make it efficient and not overcostly c 2005 elsevier ltd all rights reserved

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

optimal welfare and in work benefits with search unemployment and observable abilities this paper explores the optimal interaction between the tax system and social assistance in insuring people against the risks of involuntary unemployment and low ability to that end we introduce search unemployment in a model of optimal non linear income taxation the relationship between welfare benefits and the optimal level of in work benefits is u shaped this explains why in work benefits are called for both in countries that grant low welfare benefits and countries that provide high welfare benefits an earned income tax credit optimally induces all agents to look for work if job search is cheap and effective agents are not very risk averse and the least skilled agents are relatively productive

inequality of wellbeing a multidimensional approach an important aspect of multidimensional wellbeing distributions is the correlation between different dimensions we propose two indices for measuring multidimensional inequality derived from two underlying social evaluation functions these functions aggregate both across dimensions and across individuals the social evaluation functions differ only with respect to the sequencing of aggregation aggregating first across dimensions is more attractive since it allows the inequality index to depend on the correlation between dimensions we illustrate both indices and the impact of correlation sensitivity using russian household data between 1995 and 2005 for four dimensions of wellbeing expenditure health schooling and housing quality

financing education using optimal redistributive taxation abstract in this article the joint use of an income tax and public provision of education as instruments to achieve the government s distributional objectives is considered individuals differ in innate labour productivity and in aptitude to acquire skills through education actual labour productivity depends on both innate skill and the amount of education received using a generalized version of the mirrlees tax problem that incorporates these features qualitative properties of an optimal tax schedule are investigated

optimal income tax under the threat of migration by top income earners we examine how allowing individuals to emigrate to pay lower taxes changes the optimal nonlinear income tax scheme in a mirrleesian economy an individual emigrates if his domestic utility is less than his utility abroad net of migration costs utilities and costs both depending on productivity a simple formula that complements saez s formula obtained in closed economy is derived for the marginal tax rates faced by top income earners it depends on the labour elasticity the tax rate abroad and the migration costs expressed as a fraction of the utility obtained abroad the rawlsian marginal tax rates obtained for the whole population illustrate a curse of the middle skilled simulations are provided for the french economy

optimal taxation in the extensive model abstract we study optimal taxation under extensive preferences the agents utilities are constant for positive actions up to a maximal productivity level utilities may be discontinuous at the origin reflecting fixed costs of participation allowing for general distributions of work opportunity costs and productivity and for income effects we characterize optimal incentive compatible tax schedules we then give sufficient conditions for society to desire redistribution when these conditions hold upward distortions of the financial incentives to work can only occur for low skilled workers such upwards distortions are indeed always present when the fixed participation costs are pecuniary

the world distribution of income falling poverty and convergence period we estimate the world distribution of income by integrating individual income distributions for 138 countries between 1970 and 2000 country distributions are constructed by combining national accounts gdp per capita to anchor the mean with survey data to pin down the dispersion poverty rates and head counts are reported for four specific poverty lines rates in 2000 were between one third and one half of what they were in 1970 for all four lines there were between 250 and 500 million fewer poor in 2000 than in 1970 we estimate eight indexes of income inequality implied by our world distribution of income all of them show reductions in global inequality during the 1980s and 1990s

a reexamination of the optimal nonlinear income tax abstract this paper investigates mirrlees model of optimal income taxation it provides a concrete example of utility and density functions for which the solution to the usual first order model is not implementable i e and example where the first order approach does not work adding second order conditions leads to an extended model and to implementable solutions if these conditions are binding one gets a kink in the optimal net income schedule and bunching of individuals occurs the properties of an optimal nonlinear income tax are reexamined within the extended model

the evolution of world inequality in well being in this paper we use the tools offered by the recent literature on multidimensional inequality measurement to investigate the evolution of the inequality in well being across different countries during 1975 2000 we focus on three important dimensions of life standard of living health and education inequality in the three dimensions shows a different trend during 1975 2000 we propose a flexible measure of well being to quantify the evolution of overall intercountry well being inequality the empirical results are sensitive to different normative choices on the trade offs between the different dimensions especially the concave transformation of income turns out to be decisive for the evolution of world inequality in well being

voting over selfishly optimal nonlinear income tax schedules abstract majority voting over selfishly optimal nonlinear income tax schedules proposed by a continuum of individuals who have quasilinear in consumption preferences is considered roell 2012 has shown that individual preferences over these schedules are single peaked in this article a complete characterization of selfishly optimal schedules is provided each selfishly optimal schedule has a bunching region in a neighborhood of the proposer s skill type coincides with the maxi max schedule below this region and coincides with the maxi min schedule above it using techniques introduced by vincent and mason 1967 the bunching region is identified by solving an unconstrained optimization problem information about the optimal schedules is used to provide a relatively simple proof of single peakedness the condorcet winning tax schedule features marginal tax rates that are negative resp positive on the maxi max resp maxi min part of the schedule except at the endpoints of the skill distribution where they are zero

good and bad growth the human development reports abstract the 1996 human development report undp 1996 is about economic growth and human development in keeping with past reports in the series it emphasizes the diversity of country performance in improving human development indicators at given rates of growth this article reviews what the human development reports have said on this topic looking at how well the main messages have been supported by data and analysis and how compelling they are as a basis for public action

what do normative indices of multidimensional inequality really measure we argue that normative indices of multidimensional inequality do not only measure a distribution s extent of inequity i e the gaps between the better off and the worse off but also its extent of inefficiency i e the non realized mutually beneficial exchanges of goods we provide a decomposition that allows quantifying these two parts of inequality exact formulas of the inequity and inefficiency components are provided for a generic class of social welfare functions the inequity component turns out to be a two stage measure which applies a unidimensional inequality measure to the vector of well being levels we critically discuss two prominent transfer principles viz uniform majorization and correlation increasing majorization in the light of the decomposition a decomposition of inequality in human development illustrates the analysis

the optimal income tax when poverty is a public bad abstract poverty is considered as an aggregate negative externality that may affect people differently depending on their aversion to poverty if society is on average averse to poverty then the optimal income tax schedule displays negative marginal tax rates at least for the less skilled individuals negative marginal tax rates play the role of a pigouvian earnings subsidy and foster the supply of labor of poor individuals the no distortion at the endpoints result which is therefore violated can be restored once the focus is shifted from individual to social distortions

a pareto improving commodity tax reform under a smooth nonlinear income tax abstract this paper analyzes the welfare effects of commodity tax reform in an economy with a nonlinear income tax and linear commodity taxes the main result is that we can find a tax reform program that improves every consumer s utility in the pareto sense unless efficiency loss in the economy is minimized under incentive compatibility the tax reform rule proposed here applies to a broad class of economies with arbitrary smooth income taxes the expenditure function approach makes our analyses clear and simple some intuition is presented on the role of commodity taxation in a mixed tax economy the relationship with previous work in optimal tax and tax reform theory is also discussed we extend our result to the case where the government spends tax revenue to provide a public good

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

competition in the electricity industry in england and wales when the electricity industry was privatized the government made structural changes to encourage competition in generation and in supply to consumers the conventional power stations were only divided between two compa nies however and we show that duopolistic competition in an unregulated spot market might imply undesirably high prices most sales are hedged in the contract market which makes the spot market more competitive and a realistic threat of entry could also force generators to keep their prices down in the event a large amount of entry took place supported by the regional electricity companies franchise monopoly over smaller consumers that monopoly ends in 1998 so that further entry might become very difficult while competition between firms already in the generation market is still limited vertical integration between the major generators and regional electricity companies might make entry even harder and should be blocked until the industry is more competitive

progressive estate taxation we present a model with altruistic parents and heterogeneous productivity we derive two key properties for optimal estate taxation first the estate tax should be progressive so that parents leaving a higher bequest face a lower net return on bequests second marginal estate taxes should be negative so that all parents face a marginal subsidy on bequests both properties can be implemented with a simple nonlinear tax on bequests levied separately from the income tax these results apply to other intergenerational transfers such as educational investments and are robust to endogenous fertility choices both estate or inheritance taxes can implement the optimal allocation but we show that the inheritance tax has some advantages finally when we impose an ad hoc constraint requiring marginal estate taxes to be nonnegative the optimum features a zero tax up to an exemption level and a progressive tax thereafter

welfare as equity equivalents equity or its counterpart inequity plays a fundamental role in the evaluation of social welfare in different dimensions in this paper we revisit the concept of inequity in the sense of unequal distributions across individuals time and states of the world using a unified framework that generalizes the standard expected discounted utilitarianism approach we propose a general measure of welfare as equity equivalents and a corresponding inequity index we show that allowing for different attitudes toward inequity across different dimensions covers a scope of possible inequity preferences with different interpretations we then prove that the order of aggregation across the different dimensions matters for welfare evaluations finally we show that many of the welfare theoretical approaches recently developed in the literature can be interpreted as special cases of this general framework

congestion management rules and trading strategies in the spanish electricity market abstract this paper analyses the economic incentives embodied in the rules governing the resolution of transmission constraints in the spanish wholesale electricity market and the way these incentives may have influenced on the trading behaviour of both the generators and the demand side the evidence obtained is consistent with them responding to these incentives in particular buyers would respond to the way congestion costs are billed to them by abandoning the daily market in favour of the intraday market as far as possible additionally some strategic generators may have been prompted the system operator to require them to inject electricity into the system to solve network congestions finally these results may contribute to shed light on what should be expected of the reform in the aforementioned rules

optimal income taxation and job choice in this paper we study optimal income taxation when different job types exist for workers of different skills each job type has some feasible range of incomes from which workers choose by varying labor supply workers are more productive than others in the jobs that suit them best the model combines features of the classic optimal tax literature with labor variability along the intensive margin with the extensive margin approach where workers make discrete job choices and or participation decisions we find that first best maximin utility can be achieved in the second best and marginal tax rates below the top can be negative or zero

the comparison of multi dimensioned distributions of economic status the literature on inequality measurement has been largely concerned with single dimensioned indicators this paper explores some of the issues which arise when there are several dimensions to inequality and these are not readily reduced to a single index concentrating particularly on the two dimensioned case we make use of results on multi variate stochastic dominance in portfolio theory extending these and applying them to the measurement of inequality the use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy

education distributive justice and adverse selection we consider a model of education planning in an economy in which agents differ in their costs of acquiring education the agents cost parameter called talent is not observed the principal is endowed with a fixed sum of money with which two types of transfer can be made in cash and in kind the principal can finance transfers in kind called help by means of schooling expenditures which reduce the agent s education cost the principal seeks to maximize a social welfare function which is a ces index of utility levels we study the optimal allocation of individual education effort schooling expenditures help and cash under self selection and budget constraints assuming first that the set of types is finite and that help and effort are sufficiently substitutable we find that individual education investment levels are an increasing function and help is a decreasing function of talent utility levels cannot be equalized because of self selection constraints more aversion for inequality unequivocally leads to more inequality of educational achievements and to more assistance through redistribution this remains true in the limit under strictly egalitarian preferences of the principal the same qualitative properties hold in the general case of a continuum of types bunching at the lower end of the talent scale is a feature of the solution for sufficiently high degrees of inequality aversion

composite indices of physical quality of life basic needs fulfilment and income a principal component representation abstract in the context of international comparisons the multivariate method of principal components is suggested for computing composite indices of economic development that capture per capita income basic needs fulfilment and other possible indicators of well being the method is conceptually appealing easy to apply and seems promising in several directions two illustrative applications are given one develops a composite index based on the three pqli constituents and per capita gnp for 147 countries in the other a composite index of basic needs fulfilment is first computed for 82 countries and then a more inclusive measure that also takes account of per capita gnp is derived

teach a man to fish education vs optimal taxation in models of redistribution differences in human capital are often the relevant source of heterogeneity among individuals presumably the distribution of human capital can be manipulated through education spending this paper examines the use of education as a redistributive tool when there is a non linear tax system in place the results show that taxation whether under full or asymmetric information substantially reduces the redistributive role of education spending in maximizing social welfare this points to a conflict between the equalization of utility and human capital outcomes dans les modeles de redistribution des differences dans le capital humain sont souvent la source pertinente d heterogeneite entre individus censement la distribution de capital humain peut etre manipulee par le truchement des depenses en education ce texte examine l utilisation de l education en tant qu instrument de redistribution quand un regime de fiscalite non lineaire est en place les resultats montrent que la fiscalite en regime de d information complete ou asymetrique reduit substantiellement le role de redistribution des depenses en education pour maximiser le bien etre social voila qui souligne un conflit entre l egalisation de l utilite et les resultats en termes de capital humain

redistribution and education subsidies are siamese twins abstract we develop models of optimal linear and non linear income taxation with endogenous human capital formation to explore optimal education subsidies optimal subsidies on education ensure efficiency in human capital accumulation and thus play an important role in alleviating the tax distortions on learning induced by redistributive policies if the government cannot verify all investments in human capital education policy offsets some but not all tax induced distortions on learning non pecuniary educational costs benefits may increase decrease subsidies on education especially if they are complementary to work effort

a note on the continuity of incentive schedules abstract this note develops a simple geometric argument suggesting that for every tax schedule in mirrlees 1971 seminal model of optimal income taxation there exists a continuous and nondecreasing schedule that achieves the same welfare distribution granted the original schedule leaves every agent with at least one optimal choice if the original schedule is also upper semi continuous then continuity of the schedule can be obtained without affecting any agent s set of optimal choices alternatively these results can be interpreted in terms of a principal s incentive schedule for a single agent with unknown ability and preferences the results are derived under more general conditions than those in mirrlees 1971

is it fair to make work pay the design of the income transfer program for the lower incomes is a hot issue in current public policy debate should we stick to a generous welfare state with a sizeable basic income but high marginal tax rates for the lower incomes and thus little incentives to work or should we make work pay by subsidizing the work of low earners but possibly at the cost of a smaller safety net we think it is difficult to answer this question without making clear what individuals are held responsible for and what not first we present a new fair allocation coined a pareto efficient and shared resources equivalent pese allocation which compensates for different productive skills but not for different tastes for working we also characterize a fair social ordering which rationalizes the pese allocation second we illustrate the optimal second best allocation in a discrete stiglitz 1982 1987 economy the question whether we should have subsidies for the low earners or not crucially depends on whether the low skilled have a strictly positive or zero skill third we simulate fair taxes for a sample of belgian singles our simulation results suggest that making work pay policies can be optimal according to our fairness criterion but only in the unreasonable case in which none of the unemployed are ever willing to work

inequality among world citizens 1820 1992 this paper investigates the distribution of well being among world citizens during the last two centuries the estimates show that inequality of world distribution of income worsened from the beginning of the 19th century to world war ii and after that seems to have stabilized or to have grown more slowly in the early 19th century most inequality was due to differences within countries later it was due to differences between countries inequality in longevity also increased during the 19th century but then was reversed in the second half of the 20th century perhaps mitigating the failure of income inequality to improve in the last decades jel d31 f0 n0 o0

taxing externalities under financing constraints we consider an economy where production generates externalities which can be reduced by additional firm level expenditures this requires firms to raise outside financing leading to deadweight loss due to a standard agency problem vis a vis outside investors policy is constrained as firms are privately informed about their marginal cost of avoiding externalities we first derive the optimal linear pollution tax which is strictly lower than the pigouvian tax for two reasons first higher firm outside financing creates additional deadweight loss second through redistributing resources in the economy a higher tax reduces average productive efficiency we analyze various instruments that achieve a more efficient allocation in particular nonlinear pollution taxes which can no longer be implemented through a tradable permit scheme alone and grants tied to loans which are frequently observed in practice