some design lessons from market based greenhouse gas regulation in the restructured australian electricity industry abstract there is growing worldwide interest in the use of market based policy instruments for climate change regulation in the electricity sector these mechanisms would seem to offer some efficiency and flexibility advantages over more traditional regulatory approaches while being highly compatible with competitive market based electricity industries australia has been an early and enthusiastic adopter of both electricity industry restructuring and market based environmental instruments this paper first outlines some of these recent policy developments in particular we describe the objectives design and outcomes to date of electricity industry restructuring the mandatory renewable energy target the nsw greenhouse benchmarks the queensland 13 gas scheme and government accredited green power from this we draw some key design lessons for such market based instruments these include the perils of abstraction in scheme design the vital importance of setting appropriate baselines in baseline and credit schemes the possibility that such measures may interact in ways that reduce their environmental effectiveness market for lemon risks with tradable instruments that have measurement verification or additionality difficulties and the challenges of creating transparent liquid markets for these mechanisms the mixed performance of these australian schemes to date illustrates the need for great care in designing such market based approaches

the impact of fiscal policy on profits i introduction a large number of policy making decisions rely on the key issue of the impact of fiscal policy on the economy therefore it is not surprising that the effect of fiscal policy on macroeconomic aggregates has been extensively studied in the empirical literature 1 several authors starting with blanchard and perotti 2002 have attempted to estimate the effect of government spending shocks on output and other variables in the context of structural var models see perotti 2008 for a survey this interest has been renewed since the 2008 2009 recession given the unprecedented size of fiscal packages worldwide barro and redlick 2009 hall 2009 an important part of this literature focuses on the theoretical and empirical investigation of the fiscal policy transmission channels theories of fiscal policy transmission differ in their implications regarding the response of different macroeconomic variables to government spending shocks for example the neoclassical model predicts a negative impact of government spending on real wages and consumption while this prediction is challenged by new keynesian models to that end an important branch of empirical literature on fiscal multipliers has investigated the transmission channels of fiscal policy by looking mainly at the response of private consumption and real wages 2 this paper deals with an important but relatively under investigated channel of fiscal policy transmission which is the effect of fiscal policy on profits as pointed out by hall 2009 the impact of fiscal shocks on the markup of price over marginal cost is important for understanding the functioning of the fiscal multiplier in the purely neoclassical general equilibrium model a rise in government spending produces a negative wealth effect the labor supply curve shifts outward and real wages and consumption fall this implies that the output multiplier will be well below unity a keynesian type fiscal multiplier implying a large positive output effect and positive responses of private consumption and real wages to increased government spending relies on a negative response of the markup of price over marginal cost to an increase in economic activity the intuition is that a decrease in the price marginal cost markup in response to higher government spending allows a rise in wages or at least a smaller reduction in wages compared with the case when the markup is constant a rise in wages would then imply that households will substitute away from leisure and into consumption therefore if the markup is countercyclical conditional on government spending shocks sizeable output multipliers of fiscal spending are consistent with existing empirical evidence that fiscal shocks are not related to strong decreases in real wages or consumption blanchard and perotti 2002 fatas and mihov 2001 gall david lopez salid and valles 2007 perotti 2005 2008 in general a new keynesian model with sticky prices implies a countercyclical markup ratio as input prices rise in a boom while output prices stay constant however for understanding the fiscal policy transmission the key factor is markup and not price stickiness itself as a countercyclical markup could also be implied by models with flexible prices when the desired markup changes in response to a shock 3 a model which assigns a central role to markups for fiscal policy transmission has been presented by ravn schmitt grohe and uribe 2007 assuming that demand has a price inelastic component that is a function of deep habits a government spending shock that leads to a positive output response increases the share of the price elastic component of demand causing a rise in the overall demand elasticity and a corresponding decline in the optimal markup 4 thus for a sufficient decline in the markup the resulting rise in wages induces households to substitute away from leisure and into consumption thereby more than offsetting the negative wealth effect of government spending predicted by the neoclassical model

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

empirical observations of bidding patterns in australia s national electricity market abstract for more than a decade electricity industries have been undergoing reform worldwide however there are various sometimes contradictory conclusions about the performance of these restructured electricity markets market performance depends largely on how each market participant responds to the market design including market rules market operational procedures and information revelation in this paper we identify and examine the strategies adopted by generators in australia s national electricity market based on publicly available data for the period from may 1 2002 to may 31 2003 we try to understand and answer some basic questions like how generators respond collectively or individually to changes in market conditions e g load changes and why they behave in this way the statistics calculated from the data show that wide variations in the frequency of strategic bidding and rebidding exist that generators more frequently use capacity offers as a strategic tool than price offers that large generating units are more likely to use capacity strategies to control market prices and that generators are capable of responding to changes in market conditions

the impact of government debt expenditure and taxes on aggregate investment and productivity growth in this paper we evaluate empirically the impact of fiscal policy on two key determinants of long term growth i e private investment and productivity growth we mostly focus on a panel of 20 oecd economies from 1970 to 2009 although we also present some estimates based on data for 80 developing economies our findings suggest that high public debt adversely affects both aggregate investment spending and productivity growth through distortions related to the size of the public sector we also find weak evidence of some non linear effects on productivity with government debt becoming more detrimental in advanced economies when above 85 90 of gdp

government size and growth a rejoinder in our 2011 survey of the literature in the journal of economic surveys on the effect of government size on economic growth in wealthy countries we find a relatively consistent pattern an increase in government size by 10 percentage points is associated with a 0 5 1 percentage point lower annual growth rate this conclusion is questioned by colombier in this rejoinder we present a rebuttal of colombier s argument based on a detailed scrutiny of his own statistical evidence and regression results furthermore we note that several new papers that have appeared since our original paper was published give support to our main conclusion

tax structure and growth are some taxes better than others using pooled cross sectional data from 23 oecd countries between1965 and 1990 i find evidence that the tax structure affectseconomic growth specifically the proportion of tax revenueraised by taxing personal income has a negative correlation witheconomic growth this result is robust to a rigorous sensitivityanalysis where i control for other plausible growth determinantsin a systematic manner also there is some empirical evidencethat tax progressivity measured in terms of the long run incomeelasticity of tax revenue is associated with low economicgrowth

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

on some effects of international fragmentation of production on comparative advantages trade flows and the income of countries in traditional trade models whether based on technological differences or on relative factor endowments merchandise composition and directions of trade are derived from closed economy conditions but nowadays one of the basic assumptions of traditional trade models i e that production processes are integrated within just one country is being increasingly violated as previously integrated productive activities are segmented and spread over an international network of production sites as a result an increasingly large share of trade flows is made up of intermediate and unfinished goods being transferred from one country to another in order to be processed in this paper we submit that such new configuration of production processes has important effects on at least three dimensions of economic research first we show that international disintegration of production processes leads to a lessening of the power of comparative advantages when it comes to explaining both merchandise composition and directions of trade while it is the concept of absolute advantage to become increasingly relevant second we show that empirical measures of revealed comparative advantages are inherently misleading if they do not account for differences in the stage of processing of traded goods third we estimate a simple model of aggregate demand accounting for international trade in intermediates results of estimation lend support to our prior that participation of a country in the process of international fragmentation of production plays a specific and significant role in determining its year over year change in gdp

optimizing an emission trading scheme for local governments a stackelberg game model and hybrid algorithm this study investigates a policy making problem for a local government to implement an emission trading scheme by considering the interactive production decisions of firms in its administrative region the market based allowance trading price formed freely among the firms in the region is investigated by taking into account regional environmental bearing capacities under the scheme the government sets the emission reduction target of the region and allocates tradable initial allowances to firms and firms plan their production according to their allowances on hand a stackelberg game model is formulated to analyze the decisions of the government and firms aiming to maximize the social welfare of the region and maximize the profit of each firm in view of the non concavity and discreteness of the decision model for the government we propose a hybrid algorithm to solve the game model efficiently this algorithm consists of a polynomial time dynamic programming binary search and genetic algorithm results reveal that i the stackelberg game model greatly supports local governments policy making on the market driven emission allowance trading scheme and that ii the social welfare is a great metric for policy making decisions on environmental regulations the market driven emission trading scheme is an effective mechanism for local governments to induce emission reduction through green technology adoption by firms however governments should set their emission reduction targets appropriately because a tight or easy regulation policy significantly affects the environmental and economic benefits as well as the social welfare

what have we learned about policy and growth from cross country regressions economists have been seeking to comprehend why some countries are rich and others poor for well over 200 years a better understanding of the national policies associated with long run growth would both contribute to our ability to explain cross country differences in per capita incomes and provide a basis for making policy recommendations that could lead to improvements in human welfare recently economists have used cross country regressions to search for empirical linkages between longrun growth and indicators of national policies e g roger kormendi and philip meguire 1985 robert j barro 1991 the large cross country growth literature has identified various fiscal monetary trade exchange rate and financial policy indicators that are significantly correlated with longrun growth yet levine and david renelt 1992 show that many of these findings are fragile to small alterations in the conditioning information set that is small changes in the right hand side variables produce different conclusions regarding the relationship between individual policies and growth in this paper we take stock of what the profession has learned from cross country regression studies of policy and long run growth i limitations

a multimarket decision making framework for genco considering emission trading scheme in a multimarket environment a genco produces electricity subject to a number of factors including physical and environmental constraints together with trading strategies in the electricity market em fuel market fm and carbon market cm to assist a genco to maximize its profits from em fm and cm this paper proposes a dynamic decision making model with two consecutive stages fuzzy differential evolution algorithm is used to solve this decision making problem taking transactions in the three interactive markets into account the proposed model has been tested for a genco consisting of seven thermal units and a wind farm a rational tradeoff between the profit making and emission reduction has been demonstrated by the genco using the proposed model indicating a well alignment with the intended goal of the introducing emission trading scheme ets

organizing emissions trading the barrier of domestic permit allocation abstract this paper uses a barrier model of politics to analyse the issue of permit allocation as a major political obstacle to organizing inter national greenhouse gas emissions trading it is argued that permit allocation constitutes a barrier because among other things various types of emitters have conflicting interests in trying to lobby for as much allocated permits as possible and because international differences in domestic permit allocation procedures are perceived to potentially distort inter firm competitiveness relations permit allocation is circumvented by applying intergovernmental or project based emissions trading the project approach is preferable in particular because it avoids the trading of hot air

tax structure and growth how robust is the empirical evidence this paper examines the link between the composition of tax revenues and the level of income per capita in the long run the tax and growth ranking suggested by some recent empirical studies is not robust under different assumptions about heterogeneity across countries of the long run and short run coefficients in the underlying econometric model evidence for significant taxstructure effects depends on long run parameter homogeneity restrictions underlying pooled mean group estimation which are found to be invalid

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

macroeconomic effects of corporate tax policy abstract prior studies on the relation between corporate taxes and future macroeconomic growth present contradictory evidence we argue this mixed evidence is at least partly due to the use of statutory corporate tax rates which ignore the complexity of tax exemptions tax deductions tax enforcement and firms tax planning we propose an alternative tax rate measure that aggregates cash effective tax rates of listed firms which reflect not only statutory tax rates but also other features of the tax code enforcement and firms tax planning we find a strong robust negative relation between country level effective tax rates and future macroeconomic growth

the impact of taxes on growth and distribution in developed capitalist countries a cross national study has the scope of public planning in contemporary capitalist economies promoted or hindered economic growth and income distribution we explore this question by assessing the impact of various mechanisms for raising government revenues on investment growth and income distribution in 22 developed market economy countries the article considers whether growth and distribution are affected differently by governments relative reliance on personal and corporate income taxes social security contributions property taxes and sales and value added taxes or by the relative progressivity of tax mechanisms our findings lend support to the assertion that fiscal instruments especially personal income taxes can be used successfully to achieve greater income equality on the other hand these findings run counter to the conventional notion that an automatic trade off exists between an active public sector and a dynamic expanding economy although there is surely some tension between the economic goals of growth and equality it is not at all clear that they are necessarily incompatible or that government can contribute only to the latter

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

emerging stock markets portfolio capital flows and long term economie growth micro and macroeconomic perspectives abstract the paper examines two major components of financial liberalization stock market development and portfolio capital flows in the context of less developed countries the paper considers microeconomic and macroeconomic perspectives on their implications for long term development and economic growth it concentrates on 1 a the role of stock markets in financing corporate growth 2 b the implications of stock market volatility for resource allocation and productive efficiency and 3 c the interactions between the foreign exchange and stock markets in the context of economic shocks its policy recommendations are that ldcs should promote bank based systems influence the scale and composition of capital inflows and prevent a market for corporate control from emerging

taxation aggregate activity and economic growth cross country evidence on some supply side hypotheses data from sixty three countries are used to examine the impact of average and marginal tax rates on the level and growth of economic activity apparent negative effects of tax rates on growth disappear upon controlling for 1 potential endogeneity of average tax rates to per capita income and 2 the relation between economic growth and per capita income however controlling for average tax rates increases in marginal tax rates have negative effects on the level of economic activity this evidence supports the hypothesis that reductions in the progressivity of tax rates induce a parallel shift upward in the growth path

case study on initial allocation of shanghai carbon emission trading based on shapley value abstract carbon emission trading is an effective measure to reduce greenhouse gas emissions worldwide china has publicized plans to initiate the demonstration of carbon emission trading in seven regions as of 2013 initial allocation is fundamental but it proposes difficulty in the mechanism design of the carbon emission trading system benchmark grandfathering and the shapley value have been employed to simulate a specific case which consists of the initial allocation of carbon emission allowances of three power plants in shanghai china the results of the shapley value are regarded as a theoretical equitable reference the results of benchmark are similar to those of the shapley value however it is apparent that the allocation regarding grandfathering is inequitable considering other factors we proposed the following at the introduction of experimental stage free allocation pertaining to grandfathering can be adopted meanwhile benchmark should be prepared and adopted at the appropriate time furthermore a portion of the initial allowances can be reserved for auction and this portion for auction will escalate to the extent of 100 upon entering the formal stage in addition the tiered price mechanism and the subsidy policy are also suggested

an experimental study on emission trading behaviors of generation companies the overall performance of emission trading et a market based emission regulation tool strongly relies on participants participation and responses in order to improve market design it is important for policy makers to understand the participants trading behaviors in different market environments however human behaviors cannot be easily modeled with conventional analytical methods due to its bounded rationality characteristics in this paper based on the complementary features between experimental and agent based computational methods a hybrid interactive simulation methodology is proposed to solve human behaviors related problems human subjected experiment based on european union emissions trading system price data in 2006 is conducted the results show that there is no fixed emission trading interval for generation companies and the strategic behaviors of market participants are observed major driving factors of emission trading are categorized into emission price emission quantity and time related factors which are in accordance with empirical analysis results on eu ets 2005 2006 transaction dataset furthermore more human subjected experiments are conducted under different emission price scenarios to obtain samples for quantitative analysis based on thousands of samples obtained the joint influences of driving factors on emission trading behaviors are analyzed the quantitative analysis results obtained can reflect the trading patterns of human participants which provide basis for constructing computer agents that can act as useful substitutes for human participants

short term growth effects of fiscal policy revisited a markov switching approach abstract this paper investigates the growth effects of three different types of tax policy innovations on short term economic growth within a markov switching framework applied to the u s economy

nonlinear growth effects of taxation a semi parametric approach using average marginal tax rates summary one of the major challenges of empirical tax research is the identification and calculation of appropriate tax data while there is consensus that average marginal tax rates are most suitable for studying the effects of tax policy on economic growth because of data limitations the calculation of marginal tax rates has been limited to the usa and the uk this paper provides calculations of average marginal tax rates for the four scandinavian countries using the methodologies of seater 1982 1985 and barro and sahasakul 1983 1986 then by pooling the newly calculated tax rates for the scandinavian countries with the data for the usa and the uk we investigate the effects of tax policy shocks on the per capita gdp growth rate our results suggest that an increase in average marginal tax rates has a negative impact on economic growth employing additive mixed panel models with penalized splines as estimation approach we show that changes in tax rates have nonlinear effects increasing average marginal tax rates turn out to be the most distorting at relatively moderate tax rates copyright 2013 john wiley sons ltd

allocation of carbon permits within a country a general equilibrium analysis of the united kingdom abstract the kyoto agreement includes international trade in carbon permits from 2008 we have used a cge model to evaluate methods of allocating permits within the uk auctioning is broadly similar to a carbon tax with revenues recycled to reduce other distortions grandfathering some permits free to large firms would mean a loss of recycling and possibly give windfall profits to foreigners alternatively regularly revised allocation using best practice estimates would be similar to recycling revenue as an output subsidy such a system could allow much of the potential double dividend to be realised though an auction system might still be preferable

partial carbon permits allocation of potential emission trading scheme in australian electricity market emission trading is widely considered to be the most effective policy to minimize the overall costs for co2 abatement however the political feasibility of an emission trading scheme may crucially depend on the free initial allocation of emission permits to carbon intensive industries in order to offset the reduction in profits this paper aims to analyze these potential profit impacts and the possible compensation to affected generation companies through modeling the australian national electricity market under a potential emission trading scheme historical emission based and historical generation based allocation approaches are used in this paper to calculate and compare the percentages of carbon permits that should be freely allocated two carbon permit price scenarios are used to analyze the sensitivity of the optimal percentage of free allocation to carbon permit price

government size and economic growth a new framework and some evidence from cross section and time series data a study of the impact of government size on economic performance and growth is important theoretically one point of view suggests that a larger government size is likely to be detrimental to efficiency and economic growth because for example i government operations are often conducted inefficiently ii the regulatory process imposes excessive burdens and costs on the economic system and iii many of government s fiscal and monetary policies tend to distort economic incentives and lower the productivity of the system at the other extreme one can identify some points of view that assign to the government a critical role in the process of economic development and could argue that a larger government size is likely to be a more powerful engine of economic development there are several arguments on which the latter point of view is based these include besides others i role of the government in harmonizing conflicts between private and social interests ii prevention of exploitation of the country by foreigners and iii securing an increase in productive investment and providing a socially optimal direction for growth and development

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

transitional dynamics and economic growth in the neoclassical model neoclassical transitional dynamics are a central element of standard macroeconomic theory quantitative experiments with the fixed savings rate models of the 1960s showed lengthy transitions thus potentially rationalizing sustained differences in growth rates across countries the authors investigate quantitative transitional dynamics in various neoclassical models with intertemporally optimizing households lengthy transitions occur only with very low intertemporal substitution generally when one tries to explain sustained economic growth with transitional dynamics there are extremely counterfactual implications these result from the fact that implied marginal products are extraordinarily high in the early stages of development copyright 1993 by american economic association

government spending and economic growth this study reviewed recent empirical studies providing fresh evidence of the impact of government spending on economic growth it is followed by a new theoretical synthesis and this as well as the other models are in turn subjected to empirical validation the empirical validation is conducted for both developed and less developed economies based on simultaneous equations as well as single equation models with or without adjusting for differences in th total factor productivity growth government size is estimated to have positive impact on economic growth in the short run but not in the intermediate run 25 years in this study

allocation of co2 emissions permits a general equilibrium analysis of policy instruments what are the effects of different ways of allocating co2 emissions permits under a tradable permit scheme numerical simulations show that using the permit revenue to lower existing taxes implies by far the lowest welfare cost but also a large reduction in employment in energy intensive sectors and substantial stranded costs grandfathering the permits compensates owners for losses on stranded investments but comes at a welfare cost and does not mitigate the adjustment imposed on the economy finally distributing the permits according to market shares reduces the degree of sectoral adjustment but also comes at a high welfare cost

government size and growth a survey and interpretation of the evidence the literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings this conflict is largely explained by variations in definitions and the countries studied an alternative approach of limiting the focus to studies of the relationship in rich countries measuring government size as total taxes or total expenditure relative to gdp and relying on panel data estimations with variation over time reveals a more consistent picture the most recent studies find a significant negative correlation an increase in government size by 10 percentage points is associated with a 0 5 to 1 percent lower annual growth rate we discuss efforts to make sense of this correlation and note several pitfalls involved in giving it a causal interpretation against this background we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth one hypothesis is that countries with higher social trust levels are able to develop larger government sectors without harming the economy another explanation is that countries with large governments compensate for high taxes and spending by implementing market friendly policies in other areas both explanations are supported by ongoing research

multi stage flexible expansion co planning under uncertainties in a combined electricity and gas market natural gas is an important fuel source in the power industry electricity and natural gas are both energy that can be directly consumed to improve the overall efficiency of the energy infrastructure it is imperative that the expansion of gas power plants electricity transmission lines and gas pipelines can be co planned the co planning process is modeled as a mixed integer nonlinear programming problem to handle conflicting objectives simultaneously we propose a novel model to identify the optimal co expansion plan in terms of social welfare to evaluate the robustness of plans under different scenarios the flexibility criterion is used to identify each plan s adaptation cost to uncertainties such as demand growth fuel cost and financial constraints etc we developed a systematic and comprehensive planning model to understand develop and optimize energy grids in order to reach higher social welfare and is therefore of great importance in terms of supporting and guiding investment decisions for the power and gas industry meanwhile we use the sequential importance sampling sis to perform scenario reduction for achieving a higher computational efficiency a comprehensive case study on the integrated ieee 14 bus and a test gas system is conducted to validate our approach

civil institutions and evolution concepts critique and models abstract the paper examines the relation between civil norms and evolution the survival of norms in the long run may depend on the evolutionary process and natural selection the sieve of natural selection may ensure that norms which persist must have minimal efficiency properties this paper begins with a general discussion of evolutionary processes and the survival of civil institutions it then presents an introductory account of the theory of evolutionary games it is argued that the model of evolutionary games is more suited to analyzing animal behaviour than the human one since it is the latter that is of interest to economists an attempt is made in this paper to develop some new solution concepts which are more apt for human games