This paper assumes that a subjective discount factor is affected by an average level of investment in future-oriented resources in an economy (investment externalities) in addition to a level of individual investment in future-oriented resources. Under this assumption, this paper considers a maximization problem formulated as a pseudo planning problem and shows the conditions under which equili...

This paper addresses two fundamental issues in indirect tax design. It first revisits the case for reduced rates on items especially important to the poor, establishing conditions under which even very crudely targeted spending measures better serve their interests. It then explores the welfare costs from cascading taxes, showing that these may actually be lower the wider the set of inputs that...

This study examines optimal emission policy in a union of countries. In each country, labor is used in either production or research and development (R&D) which increases the probability of the improvement of production technology. The production of goods in any country incurs emissions that are spread all over the union. A household’s utility in any country depends positively on his personal c...

This paper reports the results of experiments designed to examine whether a taste for fairness affects people’s preferred tax structure. Building on the Fehr and Schmidt (1999) model, we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality avers...

This study develops a theoretical general equilibrium model to examine optimal externality tax policy in the presence of externalities linked to one another through markets rather than technical production relationships. Analytical results reveal that the second-best externality tax rate may be greater or less than the first-best rate, depending largely on the elasticity of substitution between...

The paper studies the optimal distribution of business and residential land in a circular city. Once the optimum is characterized, we analyze the effect of changes in commuting costs and externality parameters. We also propose policies like labor subsidies, land taxes and zoning restrictions that can implement the efficient allocation as an equilibrium, or close the gap between the optimal and ...

Are prices or quantities the best regulatory instrument to align private actions with public interests in the presence of externalities? We add another dimension to this ongoing debate by experimentally analyzing the interaction between instrument choice and intrinsic motivation of regulated agents. The response of subjects facing a trade-off between real CO2 emissions and private monetary payo...

In this note, we introduce increasing returns to Bovenberg and Mooij’s (1994) model as generalised in Fullerton (1997) and use an example to show that (1) even with a distortionary labor tax, the optimal environmental levy is greater than the Pigouvian rate; (2) the difference between tax on the “dirty” good and the “clean” good is also greater than the Pigouvian tax; (3) under certain circumst...

This paper studies the optimal direct/indirect tax mix problem when individuals differ in several unobservable characteristics (productivity and endowments). It presents general expressions for the optimal commodity tax rates and proves that contrary to Atkinson and Stiglitz’s (1976) result, differential commodity taxation remains a useful instrument of tax policy even if preferences are separa...

This paper considers education investment and public education policy in closed and open economies with an extortionary government. The extortionary government in a closed economy chooses an education policy in order to overcome a hold-up problem of time-consistent taxation similar to benevolent governments. The two types of government differ in their education policies if highly productive lab...