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

re examination of uniform commodity taxes under a non linear income tax system and its implication for production efficiency abstract this paper shows that the result of uniform commodity tax under nonlinear income taxation by atkinson and stiglitz 1976 no longer holds if the production side of an economy is taken into the consideration in particular imposing a non uniform commodity tax can pareto improve welfare even under nonlinear income taxation in addition the paper shows that if the government uses a nonlinear income tax system for income redistribution then the introduction of distortions in the public sector can pareto improve welfare contrary to the results in diamond and mirrlees 1971

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

political uncertainty and macroeconomic performance abstract it is often claimed that politically induced economic flucturations are harmful for the society in this paper we show that this conjecture is not necessarily correct and such fluctuations can actually improve society s macroeconomic performance

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

monetary policy signaling and movements in the term structure of interest rates this paper examines how various monetary policy signals such as repo rate changes inflation reports speeches and minutes from monetary policy meetings affect the term structure of interest rates we find that unexpected movements in the short end of the yield curve are mainly driven by unexpected changes in the repo rate however published inflation reports and speeches also have some impact on short rates speeches are found to be a more important determinant for the longer end of the term structure our conclusion is that central bank communication is an essential part of the conduct of monetary policy

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

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

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

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

second best pigouvian taxation a clarification this paper argues that the search for a purely environmental component of a tax on goods or factors of production that impact the environment separate from its redistributive and distortive effects is fraught with difficulties the quest is often impossible because of the interconnectedness between labor supply consumption decisions and the environmental quality the paper differentiates between two conceptualization for the pigouvian tax that have been employed in the literature and argues that each has tried to isolate the environmental component in its own way one conceptualization due to cremer et al j public econ 70 343 364 1998 does so by ruling out direct feedback from changes in environmental quality on the incentive effect of the tax in the second conceptualization due to bovenberg and ploeg s j public econ 55 349 390 1994 incentive effects are ruled out by making consumers valuation of environmental quality independent of the labor supply this is achieved by assuming separability between labor supply and other goods including environmental equality to convey its message the paper studies the properties of optimal polluting and non polluting non labor input taxes in a mirrleesian model with endogenously determined wages

pollution permits and environmental innovation abstract this paper starts with a warning about the negative impact of plain pollution allowance markets on environmental pollution innovation stand alone spot markets enable the government to expropriate an innovation by offering a competing technology pollution permits that puts an arbitrary downward pressure on the licensing price advance allowances reduce expropriation but still create suboptimal incentives for innovation they have the further drawback that permits are inefficiently used when the innovation occurs options to pollute at a given striking price fare better than allowances because they create private incentives to phase out pollution in the case of innovation we characterize the social optimum and show that it can be implemented by issuing options to pollute inter alia finally the paper compares ex ante and ex post government procurement surprisingly ex post licensing by the innovator to the government may yield a higher licensing fee than an ex ante contract

higher price lower costs minimum prices in the eu emissions trading scheme this paper examines the introduction of a price floor in an emissions trading system ets when some emissions are regulated outside of the ets we theoretically characterize the conditions under which a price floor enhances welfare using a numerical simulation model of the european union we find that moderate minimum prices in the eu ets can reduce the costs of eu climate policy by up to thirty percent we also find that due to tax interaction effects the optimal minimum price in the eu ets should be about four times higher than the average marginal abatement cost in non ets sectors this article is protected by copyright all rights reserved

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic

has ecb communication been helpful in predicting interest rate decisions an evaluation of the early years of the economic and monetary union we examine the usefulness of communication by the european central bank for predicting its policy decisions during the early years of the european economic and monetary union using ordered probit models based on the taylor rule we find that statements on the main refinancing rate and future inflation are significantly related to interest rate decisions at the same time an out of sample evaluation shows that communication based models do not outperform models based on macroeconomic data in predicting decisions both types of models have difficulty in predicting changes in the main refinancing rate

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

redistribution and optimal mixed taxation in the presence of consumption externalities abstract the literature on externalities and optimal redistributive taxation in the presence of asymmetric information has so far been confined to the case where externalities are of the atmospheric type one of the main results from this literature has been that the so called additivity property discovered by sandmo sandmo a 1975 optimal taxation in the presence of externalities swedish journal of economics 77 86 98 holds true also in this more general context this paper extends previous analyses by considering a general model where even if there is only one externality generating good the externality is not constrained to be of the atmospheric type the model is sufficiently unrestrictive to admit a variety of interpretations for example it is possible to interpret it as reflecting the case of different types of agents being differently vulnerable to the same externality another possibility is to view agents of different types as not equally effective as externality generating units yet another interpretation can be in terms of positional goods we show that while the additivity property fails in general to hold conditions can be derived which are sufficient to recover it both with respect to the commodity tax structure and with respect to the shape of the income tax schedule moreover stressing one or the other of the aforementioned interpretations delivers different results for the validity of the additivity property

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

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

communication by central bank committee members different strategies same effectiveness the paper assesses the communication strategies of the federal reserve the bank of england and the european central bank and their effectiveness we find that the effectiveness of communication is not independent from the decision making process the paper shows that the federal reserve has been pursuing a highly individualistic communication strategy amid a collegial approach to decision making while the bank of england is using a collegial communication strategy and highly individualistic decision making the european central bank ecb has chosen a collegial approach both in its communication and in its decision making assessing these strategies we find that predictability of policy decisions and the responsiveness of financial markets to communication are equally good for the federal reserve and the ecb this suggests that there may not be a single best approach to designing a central bank communication strategy

talking heads the effects of ecb statements on the euro dollar exchange rate abstract this paper studies the reaction of the conditional mean and volatility of the euro dollar exchange rate to statements by european central bank and national central bank officials we focus on comments on monetary policy and the external value of the euro we find that the bundesbank has dominated the news coverage we conclude that ecb statements have mainly influenced conditional volatility in some cases there are effects of statements on the conditional mean of the euro dollar exchange rate efforts to talk up the euro have generally not been successful there is also evidence of asymmetric reactions to news

the high frequency response of the eur usd exchange rate to ecb communication we investigate the impact of the european central bank s monetary policy communication during the press conference held after the monthly governing council meeting on the eur usd exchange rate in high frequency based on the method of content analysis we construct communication indicators for the introductory statement and find that communication with respect to future price developments is most relevant in response to statements about increasing risks to price stability the eur appreciates on impact to the contrary communication about economic activity and monetary aggregates does not generate significant exchange rate reactions

externalities and optimal taxation this paper reexamines the optimal tax design problem income and commodities in the presence of externalities the nature of the second best and the choice of the tax instruments are motivated by the informational structure in the economy the main results are i environmental levies linear or nonlinear differ in formula from pigouvian taxes by the expressions for the optimal tax on private goods ii externalities do not affect commodity tax formulas linear and nonlinear for private goods iii externalities do not affect the income tax structure if commodity taxes are nonlinear and affect it if commodity taxes are linear and iv a general income tax plus strictly pigouvian taxes are sufficient for efficient taxation if individuals of different types have identical marginal rates of substitution at any given consumption bundle

the educational and professional background of central bankers and its effect on inflation an empirical analysis we assume that central banks can control inflation so that inflation rates reflect the preferences of the central bank council the hypothesis to be tested is that these preferences depend on the central bankers educational and or professional background in a panel data analysis for the euro area and eleven countries since 1973 we explain inflation either by the weights with which the educational and professional characteristics of the 391 council members were represented in the various central bank councils or by the education or profession of the median council members control variables are added using professional background weights we find that former members of the central bank staff and in some specifications former insurance executives commercial bankers other businessmen and public servants prefer significantly lower inflation rates than former union leaders and politicians do in the median voter analysis former central bankers commercial bankers businessmen and public servants are also significantly more inflation averse than economic scholars as for the education of the council members our results are less robust however if the median member of the central bank council has studied business the inflation rate is significantly lower than if she has studied economics taking educational and professional background together central banks seem to attract or produce primarily economists who are monetary conservatives whereas keynesian economists are more prominent in academia jel classification e42 e58

agricultural productivity growth in brazil large and small farms excel abstract the long standing debate on the relationship between farm size and productivity has been generally limited by the range of farm sizes evaluated and the definition of productivity in this paper we use data from three brazilian agricultural censuses to address these issues in particular we introduce a wider distribution of farm sizes than presently available from the literature and we employ total factor productivity tfp as our performance measure in doing so we test which farm size class had the highest tfp levels in 1985 and 2006 how factor productivity growth varied within and across farm size classes between those years and which policy or factor had the greatest productivity enhancing effect when examining tfp growth we move beyond the common decomposition into technical and efficiency changes by identifying the complete distribution of farm productivity performances we find that by 2006 a u shaped distribution of productivity over farm sizes had emerged considerable 1985 2006 tfp growth differences are prevalent positive rates for the majority accompany stagnant or negative rates for some public education investments were associated with faster productivity growth regardless of farm size while technical assistance s positive effect and credit s negative effect were associated with larger farm sizes the role of specialization varied by size

the relation between farm size and farm productivity the role of family labor supervision and credit constraints abstract the paper shows that if the performance of hired farmhands is affected by supervision from family members and if the availability of credit is dependent on the amount of land owned then a systematic positive or negative relationship between per acre yields and farm size will prevail a model with no supervision effects on labor productivity would predict that yields are unaffected by farm size the paper also investigates the relation between land utilization and owned holding size when land rental possibilities are limited results are shown to be compatible with various observed patterns in ldcs

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

biofuel subsidies versus the gas tax the carrot or the stick abstract this paper provides an analytical framework to examine the relative efficiencies of a revenue neutral biofuel subsidy and a gas tax in the presence of pre existing distortions and growing substitutability between fuels both policies are set to achieve a targeted reduction in gasoline use at the state level the model is then calibrated for a small open economy such as illinois which is one of the largest producers of biofuels such as ethanol in the u s the main result of the paper shows that raising the biofuel subsidy use reduces overall welfare by more than a higher gas tax both aimed to achieve a targeted reduction in pure gasoline the relative efficiency of the higher gas tax is primarily due to it exacerbating the pre existing distortion in the biofuel market by less than the subsidy moreover for current parameter estimates welfare improving policy combinations for achieving a targeted amount of energy security are higher gas taxes combined with lower biofuel subsidies and a lower tax on income however the preference for a gasoline labor tax swap shrinks as the elasticity of substitution between the two fuels rises

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

agricultural policy and productivity evidence from brazilian censuses brazil s economic strategy has shifted hesitatingly during the last several decades from one of producer protection to trade competitiveness exploiting the variations these shifts have afforded we use a sequence of decennial agricultural censuses to examine brazilian policy implications for agricultural competitiveness and efficiency total factor productivity is decomposed into best technology and efficiency elements each subject to policy influence we find technology growth at 4 5 per annum to have been extraordinarily high particularly in the south but because productivity among average producers has fallen rapidly behind that on the technical frontier total productivity growth has been a much more modest 2 6 per year public agricultural research programs most benefit the country s technological leaders widening the gap between frontier and average producer credit education and road construction policies instead narrow that gap credit and road programs especially enhance efficiency in the south where efficiency losses have been greatest jel classification o2 o3

central bank communication in the financial crisis evidence from a survey of financial market participants in this paper we investigate the relationship between market participants perception of central bank communication and their evaluation of central banks i credibility ii unorthodox measures and iii independence we utilise a survey of more than 550 financial market participants from around the world who answered questions in reference to the bank of england boe the bank of japan boj the european central bank ecb and the federal reserve fed we find that market participants believe that the fed communicates best followed by the boe ecb and boj similar rankings are found on the issues of credibility satisfaction with unconventional monetary policy and level of independence using ordered probit models we show that perception of central bank communication is positively related to i evaluation of central bank credibility ii satisfaction with unorthodox measures and iii perceived level of central bank independence

income taxation endogenous factor prices and production efficiency in an analysis of a two type income tax model with endogenous wages this paper shows that production efficiency is violated in the optimum with i non linear and ii linear income taxation if and only if a distortionary tax schedule is implemented these findings complement earlier results of the literature in passing it is also shown that optima with non linear redistributive income taxation cannot be identified with the redistributive regime if the assumption of endogenous wages is taken seriously

behind closed doors revealing the ecb s decision rule abstract this paper aims at discovering the decision rule the governing council of the ecb uses to set interest rates we construct a taylor rule for each member of the council and for the euro area as a whole and aggregate the interest rates they produce using several classes of decision making mechanisms chairman dominance bargaining consensus voting and voting with a chairman we test alternative scenarios in which individual members of the council pursue either a national or a federal objective we then compare the interest rate path predicted by each scenario with the observed euro area s interest rate we find that scenarios in which all members of the governing council are assumed to pursue euro area wide objectives are dominated by scenarios in which decisions are made collectively by a council consisting of members pursuing national objectives the best performing scenario is the one in which individual members of the governing council follow national objectives bargain over the interest rate and their weights are based on their country s share of the zone s gdp

systematically biased beliefs about economics robust evidence of judgemental anomalies from the survey of americans and economists on the economy differences between the general public s positive economic views and economists resemble other judgemental anomalies laypeople and experts systematically disagree i analyse this puzzle using data from the survey of americans and economists on the economy the paper first tests and decisively rejects the hypothesis that the differences solely reflect economists self serving bias then it examines whether economists political ideology and party loyalties explain the disagreement if anything this slightly increases their magnitude the effect of economic training clearly falls but remains large after adding education to the set of control variables apparent biases robustness suggests that the anomaly is real

environmental taxes with heterogeneous consumers an application to energy consumption in france abstract this paper constructs a model with four groups of households who have preferences over labor supply consumption of polluting energy related and non polluting non energy goods and emissions it quantifies the model for the french economy and computes its optimal tax equilibria under nine second best tax regimes we find that the redistributive role of environmental taxes requires the polluting goods to be taxed at a rate much below their marginal social damage these goods may even require an outright subsidy if the society values equality a lot secondly if environmental taxes that have an exclusively externality correcting role they benefit all types although the gains are rather modest the gains and losses become more substantial when environmental taxes have a redistributive role as well third setting the environmental tax at its pigouvian level rather than its optimal externality correcting cum redistributive level benefits the high income group at the expense of the low income groups fourth nonlinear taxation of polluting goods and nonlinear commodity taxation in general is a powerful redistributive mechanism fifth introducing environmental taxes in the current french tax system with its suboptimal income taxes results in substantial welfare gains for the highest income group and a sizable loss for the least well off persons

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

optimal central bank transparency should central banks increase their degree of transparency any further we show that there is likely to be an optimal intermediate degree of central bank transparency up to this optimum more transparency is desirable it improves the quality of private sector inflation forecasts but beyond the optimum people might 1 start to attach too much weight to the conditionality of their forecasts and or 2 get confused by the large and increasing amount of information they receive this deteriorates the perceived quality of private sector inflation forecasts as a result inflation is set in a more backward looking manner resulting in higher inflation persistence by using a large scale panel data set on the transparency of central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized our results indicate that while several central banks would benefit from further transparency increases some already have reached the optimal level

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

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

the reaction of asset markets to swiss national bank communication abstract in this paper we analyze high frequency movements in swiss asset markets in reaction to real time communication by the swiss national bank our analysis of central bank communication encompasses monetary policy announcements speeches and interviews we examine the reactions of the currency market the bond market and the stock exchange the evidence suggests that speeches and interviews along with monetary policy announcements engender a significant price reaction this paper sheds light on the relevance of communications other than monetary policy announcements

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

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

survey evidence on diffusion of interest and information among investors abstract questionnaire surveys of institutional and individual investors were undertaken to learn about patterns of communications it was found that direct interpersonal communications are very important in investor decisions questions elicited what fraction of investors were unsystematic and allowed themselves to be influenced by word of mouth communications or other salient stimuli randomly sampled investors were studied as well as investors in stocks whose price had recently increased dramatically contagion or epidemic models of financial markets are proposed in which interest in individual stocks is spread by word of mouth the survey evidence is interpreted as supporting such models

intergenerational effects of a green tax reform for a more sustainable social security system abstract green tax reforms are popular in some circles not only because of their direct effect on reducing pollution but also because their revenue capacity may allow to reduce other more distortionary taxes despite their potential benefits the political implementation of green tax reforms is not straightforward changes in environmental taxes have different intergenerational effects which need to be taken into account when considering their political support among a country s population in this paper we analyze the economic and intergenerational welfare effects of introducing a green tax reform to ameliorate the spanish social security system we consider two types of energy taxes an energy consumption tax and an energy input tax we find that both types of reforms are favored by young individuals but rejected by older generations the number of generations supporting the reform depends crucially on the disutility that individuals derive from pollution suggesting that an increase in environmental awareness may be needed for green tax reforms to be politically viable

on the marginal cost of public funds and the optimal provision of public goods abstract this paper argues that in models with heterogeneous agents the concept of the marginal cost of public funds mcpf will only be useful if it is compared with an analogous concept for the benefit side the mcpf does not assume a unique value and is not particularly illuminating in and out of itself also gone is the benchmark status of mcpf 1 turning to the provision of public goods using a mechanism design approach the paper constructs a two stage proof for kaplow s kaplow l 1996 the optimal supply of public goods and the distortionary cost of taxation national tax journal 49 513 533 proposition concerning the irrelevance of labor supply and distributional concerns in public good provision this highlights the two fundamental ingredients for his result first the provision of public goods per se when it satisfies the samuelson s rule is only potentially pareto improving second the actual pareto improvement will materialize when or if one reforms the income tax structure if the reform is not forthcoming the decision on public goods provision must rely on redistributional concerns finally the paper generalizes broadway and keen s boadway r keen m 1993 public goods self selection and optimal income taxation international economic review 34 463 478 result to a model with many types of agents many private goods and without making any assumptions regarding which self selection constraints are or are not binding

environmental tax design with endogenous earning abilities with applications to france abstract this paper studies environmental taxation in a mirrlees setting with two novel features first energy a polluting good is used both as a factor of production and a final consumption good second the wage is determined endogenously while labor of different individual types remain homogeneous the model is calibrated for the french economy we show that i the optimal tax is less than the marginal social damage of emissions and turns into an outright subsidy when the inequality aversion index is high ii the optimal tax on energy as an input is always equal to its marginal social damage iii the social welfare gain due to lowering the current energy taxes to their optimal levels with the general income tax being set optimally in both cases is between 17 and 32 euro per household this hurts the rich and benefits the poor

open mouth operations abstract this paper explains how central bank statements rather than open market operations can be used to implement monetary policy in the extreme policy instruments can be held constant and yet interest rates will evolve along the path desired by the central bank we show how the recent implementation of monetary policy in new zealand works in this way using announcement data from new zealand we find that open mouth operations lead to large changes in interest rates across all maturities and these changes cannot be explained by open market operations implications are drawn for monetary policy in other jurisdictions

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

redistribution and pollution taxes with non linear engel curves abstract this paper analyses optimal corrective taxation and optimal income redistribution the pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages moreover under general utility functions optimal pollution taxes should be set below the pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods however if engel curves are linear optimal pollution taxes should follow the first best rule for the pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods the often used quasi linear ces and stone geary utility functions all have linear engel curves if engel curves are linear and if pollution taxes are not optimised pareto improving green tax reforms exist that move the pollution tax closer to the pigouvian tax simulations demonstrate that optimal corrective taxes should be pigouvian if the demand for polluting goods is derived from a les demand system but deviate from the pigouvian taxes if demand for polluting goods demand is derived from a piglog demand system

inverse productivity land quality labor markets and measurement error abstract this paper examines the role that land quality and imperfect markets play in generating the inverse productivity relationship in the international crop research institute for the semi arid tropics icrisat data differences in land quality largely explain the inverse productivity ip relationship in the random effects profit regression but not in labor demand regressions controlling for labor and land market failures and differences in soil quality eliminates the ip relationship for male labor but not female labor in the random effects estimates the inverse relationship is much stronger in fixed effects than random effects estimates suggesting that the farm size variable may be subject to measurement error a view supported by the results of instrumental variables estimation