OPTIMAL TAX PROGRESSIVITY Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L.
The Quarterly journal of economics,
11/2017, Volume:
132, Issue:
4
Journal Article
Peer reviewed
Open access
What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect ...private insurance against idiosyncratic earnings risk. On the other hand, progressivity reduces incentives to work and to invest in skills, distortions that are especially costly when the government must finance public goods. We develop a tractable equilibrium model that features all of these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how preference, technology, and market structure parameters influence the optimal degree of progressivity. A calibration for the U.S. economy indicates that endogenous skill investment, flexible labor supply, and the desire to finance government purchases play quantitatively similar roles in limiting optimal progressivity. In a version of the model where poverty constrains skill investment, optimal progressivity is close to the U.S. value. An empirical analysis on cross-country data offers support to the theory.
Full text
Available for:
BFBNIB, INZLJ, IZUM, KILJ, NMLJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
•Explore the impacts of environmental policies (tax vs. subsidy) on a supply chain.•Examine how they abate pollutions, reduce emissions, and enhance the social welfare.•Provide insights to the ...government about when to implement tax or subsidy policy.
This paper investigates the impact of two environmental policies: emissions abatement subsidy and emissions tax, on a three-tier supply chain where the manufacturer distributes through competitive retailers and invests in emissions abatement manufacturing technology. The government pursues social welfare maximization, while the manufacturer and retailers are profit driven. We find that the subsidy policy offers the manufacturer greater incentives to abate pollution and yields higher profits for channel members; however, when emissions abatement is very costly and production emissions are highly damaging, the tax policy should be implemented, as the subsidy policy leads to lower social welfare and environmental performance. Interestingly, we show that the manufacturer has no incentive to improve emissions abatement efficiency if the environmental damage of its production is high under the subsidy policy or low under the tax policy. The manufacturer always welcomes more downstream entry under the subsidy policy but not necessarily under the tax policy; each retailer always fares worse with more competition. More competition enhances social welfare under the tax policy but not necessarily under the subsidy policy. Furthermore, caution should be exercised when adopting the subsidy policy, because a “hazard zone” exists where society suffers but does not under the tax policy.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPUK, ZAGLJ, ZRSKP
lThis study investigates the heterogeneous effects of central vs. local R&D subsidies on firms’ exploratory innovation.lTo reduce the selection bias in the data, we have adopted a multiple-treatment ...matching algorithm based on the Generalized Propensity Scores generated by the Generalized Boosted Models (GBMs).lIn comparison to central subsidies, local subsidies are shown to be more effective in promoting firms’ exploratory innovation.lThe positive effect of subsidies is stronger for the recipients in a highly specialized industrial agglomeration.
Public R&D subsidy is a commonly adopted policy instrument to promote firms’ exploratory innovation that encourages novel knowledge learning. Under the multi-level institutional settings such as China, however, it is unclear in current literature as to whether central and local-level governmental R&D subsidy programs exert heterogeneous influences on recipient firms’ exploratory innovation. By employing an exclusive panel data of manufacturing firms in Jiangsu Province, this study investigates the heterogeneous effects of central and local R&D subsidies on firms’ exploratory innovation. Considering that regional innovation contexts may influence the learning and innovation of subsidy recipients, we further test the interaction effects of specialized industrial agglomeration and R&D subsidies. We find that R&D subsidies in general do promote firms’ exploratory innovation, and the local R&D subsidy exhibits a more salient effect. In addition, the positive effect of subsidies is stronger for the recipients in a highly specialized industrial agglomeration. This study contributes to R&D subsidy literature and extends our knowledge on the different roles of central and local governments in firms’ learning behaviors and technological upgrading.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPUK, ZAGLJ, ZRSKP
By considering 92 renewable energy listed enterprises in China between 2007 and 2016 as sample, this paper constructs a panel threshold effect model to investigate the threshold effect of government ...subsidies on renewable energy investment and further explores the effects and differences regarding government subsidy types and enterprise size on the threshold effect. The results show that, first, government subsidies have a positive threshold effect on renewable energy investment of China. When energy consumption intensity and bank credit are greater and the level of economic development is less than the threshold value, the contribution of government subsidies to renewable energy investment is significantly enhanced. Second, monetary subsidies and tax incentive policies can promote renewable energy investment, but the effect of tax incentives is more significant. Third, government subsidies are the main force supporting the development of medium-, small-, and micro-sized renewable energy enterprises. On the basis of these results, the Chinese government should strengthen policy support in those areas with high economic costs of energy transition, encourage the investment in renewable energy in large-sized enterprises, play a policy-guiding role, and focus on strengthening subsidies for medium-, small-, and micro-sized enterprises.
•A panel threshold effect model is constructed.•Government subsidies have a positive threshold effect on renewable energy investment.•Tax incentives can greatly promote renewable energy enterprises' investment.•Government subsidies are the main force supporting the medium-, small-, and micro-sized renewable energy enterprises.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK, ZRSKP
The withdrawal of the purchase subsidy and the spread of Covid-19 have had a significant effect on Chinese consumers' purchase intentions regarding electric vehicles (EVs). Therefore, it is ...worthwhile analyzing the factors influencing EV purchase decisions from the consumer's perspective. We use a consumer-oriented model to analyze the total cost of ownership over 5- and 10-year holding periods in China for internal combustion engine vehicles, plug-in hybrid electric vehicles (PHEVs), and battery electric vehicles (BEVs). We include consumer usage habits and non-monetary costs to reflect consumer characteristics. The results show that the small BEVs will achieve parity before 2025, while medium-sized and large BEVs will do so around 2030. Regarding PHEVs, large and medium-sized models show better performance. Even though BEV and PHEV purchase costs will fall by 31%–36% and 16%–18%, respectively, between 2020 and 2030, most EV models will still not reach purchase cost parity by 2030. Incentive policies will have a significant impact, and oil prices are likely to have a huge impact on the time until EVs reach parity. Thus, policy-makers should introduce incentive policies aimed at ensuring a smooth transition to the electrification of China's vehicle fleet.
•We model the total cost of ownership (TCO) of EV in future China.•The parity-time of small BEV TCO to gasoline vehicle is before 2025.•PHEVs show better TCO performance in medium and large size of models.•Policies and oil price affect EV's cost advantage on gasoline vehicle.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK, ZRSKP
Electricity and water are often subsidized in developing countries to increase their affordability for low-income households. Ideally, such subsidies would create sufficient demand in poor ...neighborhoods to encourage private investment in their infrastructure. Instead, many regions receiving large subsidies have precarious distribution networks supplying users who never pay. Using a structural model of household electricity demand in Colombia, I predict the change in consumption and profits from upgrading low-quality electricity connections. I show that the existing subsidies, which provide greater transfers to areas with unreliable supply, deter investment to modernize infrastructure. Finally, I analyze alternative programs with stronger investment incentives.
Full text
Available for:
BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
While the potential adverse effects of fossil fuel subsidy reform are well documented for households, the literature has largely ignored the effect of subsidy reform on firms’ competitiveness. This ...paper discusses how firms are affected by, and respond to, energy price increases caused by subsidy reforms. It highlights that cost increases (both direct and indirect) do not necessarily reflect competitiveness losses, since firms have various ways to mitigate and pass on price shocks. This paper presents and discusses direct and indirect transmission channels for price shocks, and firms’ response measures: absorbing cost shocks into profits, inter-fuel substitution, increasing energy and material efficiency, and passing on price increases. It argues that further micro-econometric studies using enterprise surveys are essential for quantifying the role of these mechanisms, and for designing policy measures that ensure that competitiveness losses due to subsidy reforms are minimised.
•Concerns about competitiveness can be a key political obstacle to subsidy reform.•Net impacts are determined by (in-)direct price shocks, and four response measures.•Policy makers need to understand impacts on firms to design effective reforms.•Enterprise surveys are key for understanding and quantifying impacts on firms.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK, ZRSKP
Interest groups, such as industry organization, public finance and environmental group, may exert influences on policy makers when they are choosing environmental policies. Considering the situation ...that two countries, where a domestic country suffers equal influence and a foreign country suffers different influences from these groups, can choose carbon tax policy or carbon subsidy policy. Then this paper constructs a two-staged game model to study how interest groups make differences to environmental policy choices, and their impacts on policy level, production (carbon emission), profit and welfare between countries. Results show that the domestic country will definitely choose carbon tax policy, but the foreign country may make different choices. Furthermore, if the foreign country chooses carbon subsidy policy, the domestic country will set higher tax rate than the foreign country does, but production (carbon emission), profit and welfare of the domestic country will be lower than those of the foreign country. If the foreign country chooses carbon tax policy, carbon tax rate, production (carbon emission), profit and welfare are ambiguous between countries.
•A domestic country and a foreign country are differently influenced by interest groups.•The domestic country will definitely choose carbon tax policy.•The foreign country may choose carbon tax policy or carbon subsidy policy.•Effects of environment policy choices between countries depend on the relative influence of interest groups.•Both countries should make efforts to carry out carbon tax policy.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK, ZRSKP
29.
Taxation and Migration Kleven, Henrik; Landais, Camille; Muñoz, Mathilde ...
The Journal of economic perspectives,
04/2020, Volume:
34, Issue:
2
Journal Article
Peer reviewed
Open access
In this article, we review a growing empirical literature on the effects of personal taxation on the geographic mobility of people and discuss its policy implications. We start by laying out the ...empirical challenges that prevented progress in this area and then discuss how recent work has made use of new data sources and quasi-experimental approaches to credibly estimate migration responses. This body of work has shown that certain segments of the labor market, especially high-income workers and professions with little location-specific human capital, may be quite responsive to taxes in their location decisions. When considering the implications for tax policy design, we distinguish between uncoordinated and coordinated tax policy. We highlight the importance of recognizing that mobility elasticities are not exogenous, structural parameters. They can vary greatly depending on the population being analyzed, the size of the tax jurisdiction, the extent of tax policy coordination, and a range of non-tax policies. While migration responses add to the efficiency costs of redistributing income, we caution against over-using the recent evidence of (sizeable) mobility responses to taxes as an argument for less redistribution in a globalized world.
Full text
Available for:
CEKLJ, IZUM, KILJ, NUK, PILJ, SAZU, UL, UM, UPUK
We combine a theoretical discrete-choice model of vehicle purchases, an econometric analysis of electricity emissions, and the AP2 air pollution model to estimate the geographic variation in the ...environmental benefits from driving electric vehicles. The second-best electric vehicle purchase subsidy ranges from $2,785 in California to —$4,964 in North Dakota, with a mean of —$1,095. Ninety percent of local environmental externalities from driving electric vehicles in one state are exported to others, implying they may be subsidized locally, even when the environmental benefits are negative overall. Geographically differentiated subsidies can reduce deadweight loss, but only modestly.
Full text
Available for:
BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
PDF
