Lump-sum Rebates Research Articles

Fuel Exemptions, Revenue Recycling, Equity and Efficiency: Evaluating Post-Kyoto Policies for Switzerland

Summary The Swiss CO2 law runs out in 2012, together with the first commitment period of the Kyoto Protocol. Currently, the Swiss parliament is deciding on the successor of the law that aims to achieve a 20% reduction of CO2 emissions below 1990 levels by 2020. As a means to achieve this ambitious target, the current tax on stationary fuels at 36 CHF/t CO2 will be maintained, while transportation fuels will still be exempted from the carbon tax. Currently, the tax revenues are fully redistributed as a per-capita lump-sum payment via mandatory health insurance and to the employers proportional to their wage payments. This recycling scheme is likely to be prolonged. However, in the presence of the actual debate on the revision of the CO2 law, this paper reexamines the exemption of transportation fuels and the revenue recycling scheme under two points of view. First, I examine the effects on cost-effectiveness and second, I study their impact on equity. Using a static computable general equilibrium model of the Swiss economy incorporating 14 household groups, I find that tax exemptions increase the economy-wide costs of a carbon tax, yet fail to ease the effect on over-proportionally affected households. However, adjusting CO2 tax rates to correct for pre-existing fuel taxes that do not internalize any external effects may decrease the economy-wide cost of a green tax reform. On the other hand the choice of the recycling scheme has less of an effect on efficiency, but its impact on the distributional outcome of the tax reform has to be considered. Choosing an optimal, economy-wide tax will decrease overall costs considerably, while a lump-sum per-capita rebate will result in a progressive tax package at reasonable costs.

Anti-insurance: Analysing the Health Insurance System in Australia

This paper develops a model to analyse the Australian health insurance system when individuals differ in their health risk and this risk is private information. The Australian system involves mixed public and private health insurance with private insurance both duplicating and supplementing public insurance. We show that, absent any other interventions, the Australian system implicitly transfers wealth from those most at risk of adverse health to those least at risk. When considered over society as a whole, these transfers represent a mean preserving spread of income, creating social risk and lowering welfare. We refer to these implicit transfers as anti-insurance. Further, we use comparative statics to show that a decline in the take-up of private insurance may lead to a reduction in the welfare of all members of society. Increased take-up of private health insurance may be Pareto improving. We consider the recently introduced rebate on private health insurance and show that this alleviates this welfare reducing anti-insurance. However, its ad valorem nature distorts insurance premiums. We demonstrate that a lump sum rebate could achieve the same reduction in anti-insurance while avoiding additional dead weight losses. Nonetheless, we conclude by suggesting that more significant reform of the Australian system is needed, for example by moving to a system of supplementary private health insurance.

Determination of Warranty Reserves

Cost of warranty claims for failure of a product is an identifiable business cost. Methods of calculation are presented for determining this cost item for a linear prorata rebate plan and for a lump sum rebate plan where the customer receives a fixed amount for any failures within the warranty period. It is shown that a calculable amount, usually modest for good products, can be allocated by the manufacturer to a warranty reserve fund to cover the expected risks of warranty claims. Additionally, it is shown that the insight gained by a manufacturer about the components contributing to warranty reserve funding can furnish him with new marketing strategies.