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Gilbert E Metcalf - One of the best experts on this subject based on the ideXlab platform.
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environmental levies and Distortionary Taxation pigou Taxation and pollution
Journal of Public Economics, 2003Co-Authors: Gilbert E MetcalfAbstract: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.
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cap and trade policies in the presence of monopoly and Distortionary Taxation
Social Science Research Network, 2002Co-Authors: Don Fullerton, Gilbert E MetcalfAbstract:We extend an analytical general equilibrium model of environmental policy with pre-existing labor tax distortions to include pre-existing monopoly power as well. We show that the existence of monopoly power has two offsetting effects on welfare. First, the environmental policy reduces monopoly profits, and the negative effect on income increases labor supply in a way that partially offsets the pre-existing labor supply distortion. Second, environmental policy raises prices, so interaction with the pre-existing monopoly distortion further exacerbates the labor supply distortion. This second effect is larger, for reasonable parameter values, so the existence of monopoly reduces the welfare gain (or increases the loss) from environmental restrictions.
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tax distortions and global climate policy
National Bureau of Economic Research, 2002Co-Authors: Mustafa H Babiker, Gilbert E Metcalf, John M ReillyAbstract:We consider the efficiency implications of policies to reduce global carbon emissions in a world with pre-existing tax distortions. We first note that the weak double-dividend, the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion, need not hold in a world with multiple distortions. We then present a large-scale computable general equilibrium model of the world economy with Distortionary Taxation. We use this model to evaluate a number of policies to reduce carbon emissions. We find that the weak double dividend is not obtained in a number of European countries. Results also demonstrate the point that the interplay between carbon policies and pre-existing taxes can differ markedly across countries. Thus one must be cautious in extrapolating the results from a country specific analysis to other countries.
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Distortionary Taxation in general equilibrium climate modeling
2001Co-Authors: Mustafa H Babiker, Gilbert E Metcalf, John M ReillyAbstract:The meeting of economists and modelers at the Fourth Annual Conference on Global Economic Analysis indicates the importance of global modeling and, consequently, global datasets. The GTAP data base has become a leading dataset used by researchers worldwide for a large number of important issues. In this paper, we discuss the importance of Distortionary Taxation in general equilibrium climate modeling. Towards that end, we'd like to do the following. First, we discuss how Distortionary Taxation affects our policy choices in the area of environmental policymaking in general and global climate change in particular. Then, we discuss how GTAP could be expanded to incorporate Distortionary factor taxes (as well as consumption taxes) so that researchers can carry out applied research in a second best world with Distortionary Taxation. Finally, we also demonstrate its use with the MIT Joint Program on the Science and Policy of Global Change's CGE model known as EPPA.
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environmental levies and Distortionary Taxation pigou Taxation and pollution
Social Science Research Network, 2000Co-Authors: Gilbert E MetcalfAbstract:Bovenberg and de Mooij (1994) showed that, in the presence of preexisting distorting taxes, the optimal pollution tax typically lies below social marginal damages. Many have viewed this result as a refutation of the so-called double dividend hypothesis,' which suggests that a tax on pollution can both improve the environment and reduce distortions in the tax system. Bovenberg and de Mooij's paper triggered a large literature on optimal environmental tax rates in a second-best world. In this note, I argue that the emphasis on tax rates is misguided. 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.
Jenny Ligthart - One of the best experts on this subject based on the ideXlab platform.
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fiscal policy Distortionary Taxation and direct crowding out under monopolistic competition
Social Science Research Network, 1996Co-Authors: Ben J Heijdra, Jenny LigthartAbstract:A simple macroeconomic model with monopolistic competition on the goods market is developed which displays Keynesian features. The model is used to study the effects of a rise in public spending on national income. The model extends the literature in two directions. First, we assume that the government balances its budget by employing Distortionary income Taxation. Second, we allow for direct crowding out since public consumption enters private utility in a non-separable fashion. It is shown that an increase in public spending depresses national income, particularly if there is not much crowding out and firms have a lot of market power. We also derive that the short-run national income multiplier (with a fixed number of firms) exceeds the long-run multiplier (with free entry and exit of firms). The marginal cost of public funds is unambiguously smaller in the short run than in the long run, which implies a larger government sector in the short run.
Andreas Schabert - One of the best experts on this subject based on the ideXlab platform.
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monetary policy under a fiscal theory of sovereign default
Journal of Economic Theory, 2010Co-Authors: Andreas SchabertAbstract:This paper examines equilibrium determination under different monetary policy regimes when the government might default on its debt. We apply a cash-in-advance model where the government does not have access to non-Distortionary Taxation and does not account for initial outstanding debt when it sets the income tax rate. Solvency is then not guaranteed and sovereign default can affect the return on public debt. If the central bank sets the interest rate in a conventional way, the equilibrium allocation cannot be determined. If, instead, money supply is controlled, the equilibrium allocation can uniquely be determined.
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Distortionary Taxation debt and the price level
Journal of Money Credit and Banking, 2009Co-Authors: Andreas Schabert, Leopold Von ThaddenAbstract:This paper considers the nominal and real determinacy of equilibria under an exogenously specifi ed path of interest rates in an economy in which Taxation is either lump-sum or Distortionary. Under lump-sum Taxation, we confirm the well-known finding that equilibria display nominal (in)determinacy if the primary surplus is exogenous (endogenous). Under Distortionary Taxation, this classification is no longer relevant. Nominal determinacy is always ensured since Distortionary taxes establish a link between the allocation and the sequences of taxes and debt and, hence, the price level, regardless of whether the primary surplus is exogenous or endogenous. Distortionary Taxation, however, increases the scope for real indeterminacy. As a general feature, the real (in)determinacy of equilibria depends on the interaction of fiscal and monetary policies, i.e. on the sequences of taxes, debt, and interest rates. If, for example, fiscal policy runs a balanced budget the central bank should set the nominal interest rate in a way consistent with long-run deflation in order to ensure real determinacy. This finding is different from a balanced-budget policy under lump-sum taxes where no such qualification with respect to the interest rate needs to be made.
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Distortionary Taxation debt and the price level
Research Papers in Economics, 2006Co-Authors: Andreas Schabert, Leopold Von ThaddenAbstract:This paper considers the nominal and real determinacy of equilibria under an exogenously specified path of interest rates in an economy in which Taxation is either lump-sum or Distortionary. Under lump-sum Taxation, we confirm the well-known finding that equilibria display nominal (in)determinacy if the primary surplus is exogenous (endogenous). Under Distortionary Taxation, this classification is no longer relevant. Nominal determinacy is always ensured since Distortionary taxes establish a link between the allocation and the sequences of taxes and debt and, hence, the price level, regardless of whether the primary surplus is exogenous or endogenous. Distortionary Taxation, however, increases the scope for real indeterminacy. As a general feature, the real (in)determinacy of equilibria depends on the interaction of fiscal and monetary policies, i.e. on the sequences of taxes, debt, and interest rates. If, for example, fiscal policy runs a balanced budget the central bank should set the nominal interest rate in a way consistent with long-run deflation in order to ensure real determinacy. This finding is different from a balanced-budget policy under lump-sum taxes where no such qualification with respect to the interest rate needs to be made. JEL Classification: E31, E63
Don Fullerton - One of the best experts on this subject based on the ideXlab platform.
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cap and trade policies in the presence of monopoly and Distortionary Taxation
Social Science Research Network, 2002Co-Authors: Don Fullerton, Gilbert E MetcalfAbstract:We extend an analytical general equilibrium model of environmental policy with pre-existing labor tax distortions to include pre-existing monopoly power as well. We show that the existence of monopoly power has two offsetting effects on welfare. First, the environmental policy reduces monopoly profits, and the negative effect on income increases labor supply in a way that partially offsets the pre-existing labor supply distortion. Second, environmental policy raises prices, so interaction with the pre-existing monopoly distortion further exacerbates the labor supply distortion. This second effect is larger, for reasonable parameter values, so the existence of monopoly reduces the welfare gain (or increases the loss) from environmental restrictions.
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cap and trade policies in the presence of monopoly and Distortionary Taxation
Research Papers in Economics, 2000Co-Authors: Don Fullerton, Gilbert E MetcalfAbstract:We extend a simple analytical general equilibrium model of environmental policy with pre-existing labor tax distortions to include pre-existing monopoly power as well. We solve for the endogenous net wage rate, labor supply, and monopoly profits as functions of exogenous parameters and the environmental policy shock. We use plausible parameter values to calculate the interactions of the three simultaneous market failures: pollution, taxes, and monopoly. We confirm prior results that the extent of profits Taxation affects whether environmental policy can improve welfare at all, even with uncorrected pollution. This result still holds with monopoly power. However, the existence of monopoly has two offsetting effects on welfare. First, the environmental policy reduces monopoly profits, and the negative effect on income increases labor supply in a way that partially offsets the pre-existing labor supply distortion. Second, environmental policy raises prices further, so interaction with the pre-existing monopoly distortion further exacerbates the labor supply distortion. Thus monopoly power means that the income effect of capturing the scarcity rents from the emissions restriction is less important, but the price effect of higher output prices on the real net wage is more important. This second effect is larger, for reasonable parameter values, so the existence of monopoly reduces the welfare gain (or increases the loss) from environmental restrictions.
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Distortionary taxes and the provision of public goods
Journal of Economic Perspectives, 1992Co-Authors: Charles L Ballard, Don FullertonAbstract:When comparing marginal costs and benefits of a public project, most economists think in terms of adding together the marginal costs of production plus marginal costs of additional Distortionary Taxation. This paper clarifies how the "revenue effect" offsets the "Distortionary effect." For Cobb-Douglas utility with a marginal increase in a proportional wage tax, they exactly offset each other and the Samuelson rule is unaffected. Also, with a preexisting wage tax, an incremental lump-sum tax has only this "revenue effect:" it increases labor supply, increases tax revenue from the preexisting wage tax, and thus makes the project easier to fund. In our numerical example, the incremental lump-sum tax costs taxpayers only $.77 per dollar raised.
Guillermo Vuletin - One of the best experts on this subject based on the ideXlab platform.
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unsticking the flypaper effect using Distortionary Taxation
Economica, 2016Co-Authors: Carlos A Vegh, Guillermo VuletinAbstract:The flypaper effect is a widely-documented puzzle whereby the propensity of subnational governmental units to spend out of unconditional transfers is higher than the propensity to spend out of private income. Building on previous insights in the literature that rationalize this puzzle using costly Taxation, we develop a simple optimal fiscal policymodel with Distortionary Taxation that generates two novel and testable implications: (i) there should be a positive association between the degree of the flypaper effect and the level of the tax rate, and (ii) the flypaper effect should be larger the lower the elasticity of substitution between private and public spending and, in fact, should vanish for very high degrees of substitution. We show that these hypotheses hold for argentinean provinces and brazilian states.
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unsticking the flypaper effect using Distortionary Taxation
Research Papers in Economics, 2016Co-Authors: Carlos A Vegh, Guillermo VuletinAbstract:The flypaper effect is a widely-documented puzzle whereby the propensity of sub-national governmental units to spend out of unconditional transfers is higher than the propensity to spend out of private income. Building on previous insights in the literature that rationalize this puzzle using costly Taxation, we develop a simple optimal fiscal policy model with Distortionary Taxation that generates two novel and testable implications: (i) there should be a positive association between the size of the flypaper effect and the level of the tax rate, and (ii) the flypaper effect should be larger the lower the elasticity of substitution between private and public spending and, in fact, should vanish for very high degrees of substitution. We show that these hypotheses hold for Argentinean provinces and Brazilian states.
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unsticking the flypaper effect using Distortionary Taxation
Social Science Research Network, 2016Co-Authors: Carlos A Vegh, Guillermo VuletinAbstract:The flypaper effect is a widely-documented puzzle whereby the propensity of sub-national governmental units to spend out of unconditional transfers is higher than the propensity to spend out of private income. Building on previous insights in the literature that rationalize this puzzle using costly Taxation, we develop a simple optimal fiscal policy model with Distortionary Taxation that generates two novel and testable implications: (i) there should be a positive association between the size of the flypaper effect and the level of the tax rate, and (ii) the flypaper effect should be larger the lower the elasticity of substitution between private and public spending and, in fact, should vanish for very high degrees of substitution. We show that these hypotheses hold for Argentinean provinces and Brazilian states.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.