Modern Public Economics

Transcription

1 Modern Public Economics Second edition Raghbendra Jha B Routledge Taylor Si Francis Group LONDON AND NEW YORK

2 Contents List of tables List of figures Preface Preface to the first edition xiv xv xix xxi PARTI Welfare economics 1 Introduction to Part I 2 1 A quick primer on consumer demand Introduction Some key definitions Utility functions The consumer's utility maximization problem Some other useful relations in demand theory Consumer's surplus and measurement of welfare changes Conclusions Appendix on welfare evaluation of economic changes 18 2 Perfect competition and Pareto optimality Introduction Paretian ranking of social states Pareto optimality The classical theorems of welfare economics An extension to the case of uncertainty The theorem of second best Conclusions 53

3 viii Contents 3 Forms of the social welfare function Introduction Early attempts at formulating an approach to distribution Aggregating individual preferences to arrive at social choice Arrow's general possibility and other impossibility theorems Beyond the Arrow framework Forms of the social welfare function (SWF) Concluding remarks 74 PART II The theory of public expenditure 75 Introduction to Part II 76 4 External effects and the market mechanism Introduction Effects of externalities A policy example: the pricing of education Common property resources Multilateral externalities Conclusions 94 5 The theory of pure public goods Introduction Pareto optimality with pure public goods Public goods with distortionary taxation The free-rider problem Private provision of public goods Voting models of public goods Concluding remarks Topics in the theory of public goods Introduction The theory of clubs The Tiebout hypothesis Multi-product clubs Financing pure public goods with distortionary taxes 133

4 6.6 Public goods provision with asymmetric information Rent seeking Conclusions 150 Contents ix PART III The theory of taxation 153 Introduction to Part III The effects of taxes on savings! Introduction The elementary life-cycle model of saving Capital market imperfections and the life-cycle model Broader life-cycle models of savings and taxes Aggregate savings and taxation A consumption/expenditure tax Savings by firms Social security, pensions, and savings The extended life-cycle models of savings Empirical evidence on effects of taxes on savings Conclusions Taxation and labor supply Introduction The basic model of labor supply Comparison of the effects of various types of taxes Taxation and the decision to enter the labor market Effects of a progressive tax on labor supply A summary of the empirical evidence on effects of lower taxes on labor supply Conclusions 205 Appendix The effects of taxes on investment behavior Introduction The Fisherian model The aggregate approach Comparing the effects of an investment tax credit versus a corporate tax cut: a Cobb Douglas example Decisions on the financing of investment expenditure The effective rate of taxation and the cost of finance 224

5 x Contents 9.7 The impact of subsidies on incentives for R&D Conclusions Taxation and risk taking Introduction Effects of taxation on risk taking by households The Modigliani Miller theorem and decisions on the financing of investment expenditure The effects of progression on risk taking Concluding comments 248 i, 11 The theory of tax incidence Introduction Tax incidence in the two-sector model of general equilibrium Tax incidence in a model of involuntary unemployment Extensions of the basic model Tax incidence with a rate of return regulation Conclusions Tax incidence in dynamic models Introduction The neoclassical model of economic growth Balanced growth path tax incidence A Taxation in the life-cycle model Tax incidence in a monetary version of the Solow model Tax incidence in more general life-cycle models Land rent taxation in an intertemporal economy Tax and debt as revenue instruments Conclusions Some results in commodity taxation Introduction Elasticity type rules in commodity taxation Uniform commodity taxation Redistributive indirect taxation Extent of redistribution through commodity taxation The value added tax (VAT) VAT and the informal sector Conclusions 326

6 Contents xi 14 Aspects of income taxation Introduction Optimal linear taxes Optimal non-linear income taxation (Mirrlees and Ramsey) Information theoretic foundations of optimal tax theory Optimal taxation with imperfect substitution of labor Optimal wage and interest income taxation in steady state The optimal mix of direct and indirect taxes Conclusions 356 Appendix Topics in the theory of taxation Introduction Taxation in models of endogenous growth Problems of income tax indexation Time inconsistency Tax compliance and tax evasion Intertemporal tax evasion: Andreoni's model Concluding comments Tax reform Introduction Welfare foundations of tax reform Tax reform in a dynamic context The marginal approach to tax reform Conclusions 406 PART IV Applied problems in public economics 409 Introduction to Part IV Pricing in the public sector Introduction The Ramsey-Boiteux linear pricing problem Some simplified examples The optimality of marginal cost pricing Second-best Ramsey-Boiteux pricing once again Redistributive Ramsey (Feldstein) pricing the general case 425

7 xii Contents 17.7 Multi-part tariffs Peak load pricing Pricing of joint products - allocation of common costs Conclusions International aspects of taxation Introduction The theory of tariffs in an open economy International fiscal coordination: interest taxation Integrating personal and corporate taxation in an open economy Ramsey optimal taxation in an open economy Concluding remarks Tax incentives and corporate taxation Introduction Tax incentives Effective tax rates Conclusions Global public goods Introduction Defining a global public good Allocation issues with inter-generational global public goods Understanding supply decision problems of global public goods International cooperation and global public goods Conclusions Cost-benefit analysis and randomized evaluation Introduction Criteria for cost-benefit analysis The social rate of discount Evaluating benefits and costs - shadow prices Some difficulties in the measurement of benefits and costs Randomized evaluation Conclusions 508

8 Contents 22 Environmental taxation and emission trading schemes Introduction Instrument choice in the design of environmental policy Choosing between environmental taxes and emissions trading Designing environmental taxes Efficiency in permit markets Comparing auctions and grandfathering Conclusions 521 xiii PARTV Fiscal federalism 523 Introduction to Part V Issues in fiscal federalism Introduction and background Efficiency and equity in a federal economy Equity considerations with layers of governments Rationale for the existence of subcentral authorities Other roles of subcentral authorities The optimal size of local jurisdictions Conclusions 539 Appendix Grants and taxes in federal countries Introduction Purposes of grants Types of grants The effects of various types of grants - traditional models The new models of the effects of grants Tax assignment in federal countries Conclusions 567 Problems 569 Bibliography 582 Author index 616 Subject index 620