This article compares the effects of increasing traditional welfare to introducing in-work benefits in the 15 (pre-enlargement) countries of the European Union. We use a labour supply model encompassing responses to taxes and transfers along both the intensive and extensive margins, and the EUROMOD microsimulation model to estimate current marginal and participation tax rates. We quantify the equity-efficiency trade-off for a range of elasticity parameters. In most countries, because of large existing welfare programmes with high phase-out rates, increasing traditional welfare is undesirable unless the redistributive tastes of the government are extreme. In contrast, the in-work benefit reform is desirable in a very wide set of cases.

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Welfare reform in European countries: a microsimulation analysis*

This chapter examines government policy alternatives for protecting the environment. We compare environmentally motivated taxes and various non-tax environmental policy instruments in terms of their efficiency and distributional impacts. Much of the analysis is performed in a second-best setting where the government relies on distortionary taxes to finance some of its budget. The chapter indicates that in this setting, general-equilibrium considerations have first-order importance in the evaluation of environmental policies. Indeed, some of the most important impacts of environmental policies take place outside of the market that is targeted for regulation.

Section 2 examines the optimal level of environmental taxes, both in the absence of other taxes and in the second-best setting. Section 3 analyzes the impacts of environmental tax reforms, concentrating on revenue-neutral policies in which revenues from environmental taxes are used to finance cuts in ordinary, distortionary taxes. Here we explore in particular the circumstances under which the “recycling” of revenues from environmental taxes through cuts in distortionary taxes can eliminate the non-environmental costs of such reforms – an issue that has sparked considerable interest in recent years. Section 4 compares environmental taxes with other policy instruments – including emissions quotas, performance standards, and subsidies to abatement – in economies with pre-existing distortionary taxes. We first compare these instruments assuming that policymakers face no uncertainties as to firms’ abatement costs or the benefits of environmental improvement, and then expand the analysis to explore how uncertainty on the part of regulators and the associated monitoring and enforcement costs affect the choice among alternative policy instruments. Section 5 concentrates on the trade-offs between efficiency and distribution in a second-best setting. Section 6 offers conclusions.

Chapter 23 – Environmental Taxation and Regulation*

This chapter examines government policy alternatives for protecting the environment We compare environmentally motivated taxes and various non-tax environmental policy instruments in terms of their efficiency and distributional impacts Much of the analysis is performed in a second-best setting where the government relies on distortionary taxes to finance some of its budget The chapter indicates that in this setting, general-equilibrium considerations have first-order importance in the evaluation of environmental policies Indeed, some of the most important impacts of environmental policies take place outside of the market that is targeted for regulation Section 2 examines the optimal level of environmental taxes, both in the absence of other taxes and in the second-best setting Section 3 analyzes the impacts of environmental tax reforms, concentrating on revenue-neutral policies in which revenues from environmental taxes are used to finance cuts in ordinary, distortionary taxes Here we explore in particular the circumstances under which the “recycling” of revenues from environmental taxes through cuts in distortionary taxes can eliminate the non-environmental costs of such reforms – an issue that has sparked considerable interest in recent years Section 4 compares environmental taxes with other policy instruments – including emissions quotas, performance standards, and subsidies to abatement – in economies with pre-existing distortionary taxes We first compare these instruments assuming that policymakers face no uncertainties as to firms’ abatement costs or the benefits of environmental improvement, and then expand the analysis to explore how uncertainty on the part of regulators and the associated monitoring and enforcement costs affect the choice among alternative policy instruments Section 5 concentrates on the trade-offs between efficiency and distribution in a second-best setting Section 6 offers conclusions

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Environmental Taxation and Regulation

This article provides a review of economic studies analyzing the use of multiple policies – a socalled policy mix – to cope with single pollution problems. To guide and structure the review, an analytical framework is developed and applied. The framework integrates transaction costs into the analysis of pollution problems and policies to overcome them. Moreover, it understands a pollution externality not only as a market failure but more generally as the failure of private governance structures. Based on this insight, two rationales for using a policy mix are identified. First, a policy mix may help to correct for multiple reinforcing failures of private governance structures, such as pollution externalities and technological spillovers. Second, a policy mix can be employed if the implementation of single first-best policies brings about high transaction costs – e.g., when marginal pollution damages are heterogeneous or polluters are unlikely to comply with the policy. For each rationale, the relevant literature is presented. Based on the review, avenues for future research are identified.

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Using a Policy Mix for Pollution Control { A Review of Economic Literature

Optimal government policy is considered in a second-best framework where consumers and producers cause an externality of the congestion type and income distribution issues are taken into account. The theoretical results of the optimal tax literature are adapted using the concept of the net social Pigouvian tax. An illustrative AGE model uncovers the relative importance of its components. The model demonstrates that the level of the externality tax does not depend strongly on distribution concerns, as reoptimization of the other taxes ensures that the income distribution objective is reached. The model also allows us to study the interaction between externality taxes and public abatement.

Optimal Tax and Public Investment Rules for Congestion Type of Externalities

Correcting externalities through taxes on/subsidies to related goods

During the last fifty years there have in many countries been large movements in the growth of labor productivity, real wage rates, the rate of interest, and the household savings ratio. In this paper we use an overlapping generations model to study if demographic shocks, like the baby boom, can generate the kind of movements observed. Simulations show this is indeed the case. We also study the interactions between a pay-as-you-go pension system and demographic disturbances.

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Fertility waves aggregate savings and the rate of interest.

A VIEW STILL WIDELY HELD among economists is that given the objective of maximizing a Paretian social welfare function-rationing of private goods is inferior to transfers and subsidies. Hence, existing rationing, e.g. in housing programs involving rent regulation, subsidized medical treatment to needy individuals, distribution of day care for children according to need, etc., is often interpreted as a reflection of paternalistic objectives on the part of the government or simply as bad policy; see Tobin (1970). The purpose of this paper is to challenge the general validity of this "conventional wisdom" in the context of a traditional model of public sector pricing supplemented by an anonymous rationing scheme which affects individuals' consumption patterns significantly. As is often the case, a government cannot achieve distributional equity (i.e., situations where the social value of marginal utility of income is equal for all individuals) by means of taxes and transfers because the use of these instruments is subject to various constraints. This is a common feature of many taxation models; cf. Atkinson and Stiglitz (1980). From a purely technical point of view, there is scope for improving on social welfare in such situations by means of other measures such as rationing. But, since the use of rationing as well as taxes and transfers is likely to be restricted by the same underlying factors, e.g. information about consumers' preferences and endowments or administrative costs, it may be questioned whether rationing qualifies as an efficient policy instrument. The type of rationing considered in this paper is stochastic rationing; when prices are set at levels which generate excess demand, some of the potential consumers are randomly barred from the markets entirely so that demand equals supply. From the point of view of implementation, such a rationing scheme has the desirable property of not requiring the government to have information about preferences and endowments at the individual consumer level; nor is extensive administration required. Another interesting aspect of such a scheme is that, in a sense, it represents a "lower bound" on rationing schemes since, in most cases, actual rationing can be based on some information about consumers. Therefore, if there are cases where a market-clearing equilibrium can be improved upon by reducing prices below market-clearing levels combined with elimination of excess demand by means of stochastic rationing, the argument for rationing as a potentially efficient policy tool is in fact fairly strong. In this paper we show that such cases do exist. We also indicate that stochastic rationing may still be efficient even in situations where prices can be highly differentiated among different groups of individuals, e.g. income groups. We conclude that the absence of costless redistribution of income, which indeed seems to be consistent with real-world situations, is crucial for the results. Two kinds of policy changes are considered. The first involves eliminating a marginal excess demand by means of rationing. In the model in this paper, there is a continuum of consumers. Therefore, while such a marginal rationing affects some consumers in a nonmarginal fashion, it only affects an infinitesimal group of consumers. Hence, it only

Equity and efficiency in public sector pricing: a case for stochastic rationing

Fertility waves, aggregate savings and the rate of interest (vol 7, pg 27, 1994)

Part I The issues. Part II The facts. Part III Evaluation methods. Part IV General Equilibrium effects. (Part contents).

Hans Wijkander

Papers

Correcting externalities through taxes on/subsidies to related goods

Fertility waves aggregate savings and the rate of interest.

Equity and efficiency in public sector pricing: a case for stochastic rationing

Fertility waves, aggregate savings and the rate of interest (vol 7, pg 27, 1994)

Taxation, welfare and the crisis of unemployment in Europe