Optimal Tax Level Research Articles

Optimal redistributive policy in debt constrained economies

How should governments with a preference for redistribution design tax policies when facing limited borrowing? This paper studies optimal taxation in a small open economy with heterogeneous agents and endogenous debt constraints arising from the government's limited commitment to fiscal policies. The optimal labor tax decreases over time and is nonzero in the limit, and the optimal capital and domestic borrowing taxes are positive in the limit, deviating from the standard Ramsey tax results. The government's redistributive motive directly affects optimal tax levels, whereas binding debt constraints influence optimal tax dynamics. In the numerical analysis, a stronger redistributive preference requires greater initial tax distortions and a higher external debt level in the long run.

Green technology upgrading choice in a competitive setting: the effect of environmental tax

ABSTRACT This research considers a supply chain consisting of a regulator and two symmetric firms where the regulator influences the market by imposing a tax on firms’ environmental pollutant emissions. A price competition model is proposed to examine the equilibrium solutions that the two firms can reach in their technology upgrading process, and the effect of the environmental tax is evaluated. The two firms’ Nash equilibrium solutions regarding their technology improvement decision show that there is no asymmetric equilibrium. The decision to upgrade or not upgrade may arise in equilibrium, depending on the technology’s fixed cost. Besides, a prisoner’s dilemma may arise when the two firms do not upgrade their technology, and multiple equilibria may arise when the fixed cost incurred is at a medium level. Technology improvement decision is the dominant strategy when either prisoner’s dilemma arises or multiple equilibria arise for the two firms regardless of whether the environmental tax is exogenous given or not. In addition, firms’ reactions to environmental tax may be non-monotone. However, the role of the tax on firms’ improvement decisions is limited when the regulator further increases the tax. Finally, the optimal tax level for the regulator that can maximise welfare is obtained.

Tax systems of Ukraine and EU countries during the COVID-19 pandemic: current status and prospects

At the start of 2020, the world faced major challenges due to the COVID-19 pandemic. International institutions, governments and various organizations are forced to apply unprecedented restrictive measures in many areas of activity. The answer to these challenges by the governments of almost all countries of the world is actively manifested in tax measures aimed at supporting citizens and businesses. The article was devoted to the study of the level of taxation for certain taxes in Ukraine and EU countries in a crisis. The study proves the relevance of determining the optimal level of taxes to fill the budget. This study uses the method of comparative analysis, which compares the levels of tax rates in Ukraine and some EU countries. The optimal level of tax revenues to the state budget has been determined. The level of tax revenues to the Consolidated Budget of Ukraine has been analyzed and the main directions for improving the tax system of Ukraine have been identified. The necessity of focusing on the experience of highly developed EU countries in the field of taxation with the obligatory consideration of national characteristics is proved.

A Dynamic Tax Model Based on Destination Lifecycle for Sustainable Tourism Development

This study proposes a dynamic model for identifying the optimal amount of tourism taxes at the different stages of a destination’s lifecycle. Based on the Ramsey-Cass-Koopmans model of economic growth, we reformulate the Cobb-Douglas function to incorporate new variables to estimate the optimal level of tax that could maximize the total output of the tourism industry while maintaining below the critical point of the destination’s carrying capacity. We illustrate the model with an empirical study using time series data collected from 31 administrative regions in mainland China from 2000 to 2016. The results suggest that the proposed model has satisfactory goodness of fit, and the estimated tax amount was congruent with the trends of tourism development at the destinations. The study offers practical implications for destination policymakers.

Environmental taxation: The impact of carbon tax policy commitment on technology choice and social welfare

Motivated by multiple real-world settings, we determine a social welfare-maximizing regulator's tax policies that induce a profit-maximizing polluting firm to make green technology choices. Using a game-theoretic approach we compare the optimal tax and social welfare over two periods under two scenarios: (1) a regulator committing to a tax level for both periods at the beginning of the first period; (2) a regulator who sets the same tax at the beginning of each period without disclosing this information to the firm (i.e. the firm is not aware of the second period tax in the first period). We find that regulators can achieve a higher social welfare when two-period commitments are made. Moreover, the outcomes in the commitment policy are less sensitive to small deviations in the optimal tax level.

A Potential PES Mechanism for Agroforestry-Led Industrial Wastewater Remediation Using Short-Rotation Trees

Industrial effluents and municipal wastewaters are increasingly finding their way into freshwater bodies, posing serious health and environmental challenges. In this paper, the potential for industrial wastewater remediation through agroforestry is explored for a peri-urban farming region in India. Farmers are incentivized under a payment for ecosystem services (PES) mechanism to convert their farmlands into poplar-based agroforestry and utilize industrial effluents for irrigating trees. Additional income can be derived through sale of poplar timber which enhances the attractiveness of such a PES mechanism. A dynamic optimization model compares farmers’ optimal land use allocation to a socially optimal case. Further, the firm’s effluent discharge outcomes are compared to an alternative arrangement where it is fined for discharging untreated wastewater into waterbodies in the absence of the agroforestry remediation option. Results support the attractiveness of such PES mechanisms in addressing the industrial effluent discharge problem while simultaneously mitigating the effects of water scarcity through wastewater reclamation. The optimal level of tax required to accomplish complete treatment of effluents by polluting firms is several times higher compared to PES payments. Further, the incentive to convert farmland into poplar plantations improves with PES payments but declines with higher profitability of agricultural crops.

Trade, Consumption Pollution and Tax

Consumption is an important source of greenhouse gas (GHG) emissions. This study theoretically analyzes how trade liberalization and consumption tax affect firm locations across countries and GHG emissions originating from consumption. Introducing consumption-originated emissions in a standard footloose capital model, we find several novel results that extend previous analyses of production-originated GHG emissions. First, trade liberalization has a non-monotonic effect on global emissions; that is, as trade costs decline, global emissions initially decrease and then increase. Second, consumption taxes cause carbon leakage; that is, the tax on one country reduces emissions in that country, while increasing it in the rest of the world. Third, optimal consumption taxes that maximize global welfare must be neutral about firm location decisions. In particular, even if firms are asymmetrically distributed across countries in the absence of a consumption tax, the optimal tax level must be identical across countries.

The role of labor-supply margins in shaping optimal transport taxes

Transportation economists apply different labor supply models when examining transport pricing: (i) endogenous working hours; (ii) endogenous workdays; (iii) labor supply as a residual. We study whether the optimal level of transport taxes that changes the relative cost of labor supply margins is robust against the model applied. We find surprisingly strong differences in the level of optimal fuel and miles taxes and even variation in the sign of the Ramsey terms. For instance, the US and UK optimal fuel taxes vary up to 19% and 15% and the Ramsey terms up to 73% and 130%. Finally, we develop a recommendation for research on all issues that include decisions on commuting trips: Researchers should apply both a model of endogenous working hours and a model of endogenous workdays because the first provides the upper limit and the second the lower limit for optimal tax levels and Pigouvian and Ramsey terms.

A General Equilibrium Model of Optimal Alcohol Taxation in the Czech Republic

This paper provides a general equilibrium theoretical model of alcohol taxation and empirically estimates the model. For this purpose, we use a model determined by both externality corrections and fiscal considerations as the tax increase is assumed to immediately change other governmental policies such as labour taxation or medical expenditures. The results of our analysis show that under most parametric scenarios, the current Czech tax rate on beer and wine is below its optimal level and that the fiscal component has a significant impact on the optimal level of tax.

Internalizando externalidades: El impuesto a la gasolina en Guatemala

( Internalizing externalities: Gasoline tax in Guatemala ) The objective of this article is to estimate the optimal level of the tax on gasoline to internalize the costs caused by the use of cars in a developing country such as Guatemala. The estimation is done using the methodology by Parry and Small (2005). The results suggest an optimal tax level of USD27.5 cents per liter. Forty percent of the tax is explained by the externalities associated to traffic congestion. The estimated level of USD27.5 cents per liter is above the tax currently imposed for the two types of gasoline sold in Guatemala, thus their adjustment is recommended. There is a degree of uncertainty regarding the proper value of some of the parameters of the model; however, the sensitivity analysis reports that the results are robust. The study stands out among others because it offers a detailed procedure for the estimation of this tax, using information from a developing country. Finally, the need to implement public policies to decrease the adverse effects of the tax, especially among middle and lower decile households.

Health-motivated taxes on red and processed meat: A modelling study on optimal tax levels and associated health impacts.

BackgroundThe consumption of red and processed meat has been associated with increased mortality from chronic diseases, and as a result, it has been classified by the World Health Organization as carcinogenic (processed meat) and probably carcinogenic (red meat) to humans. One policy response is to regulate red and processed meat consumption similar to other carcinogens and foods of public health concerns. Here we describe a market-based approach of taxing red and processed meat according to its health impacts.MethodsWe calculated economically optimal tax levels for 149 world regions that would account for (internalize) the health costs associated with ill-health from red and processed meat consumption, and we used a coupled modelling framework to estimate the impacts of optimal taxation on consumption, health costs, and non-communicable disease mortality. Health impacts were estimated using a global comparative risk assessment framework, and economic responses were estimated using international data on health costs, prices, and price elasticities.FindingsThe health-related costs to society attributable to red and processed meat consumption in 2020 amounted to USD 285 billion (sensitivity intervals based on epidemiological uncertainty (SI), 93–431), three quarters of which were due to processed meat consumption. Under optimal taxation, prices for processed meat increased by 25% on average, ranging from 1% in low-income countries to over 100% in high-income countries, and prices for red meat increased by 4%, ranging from 0.2% to over 20%. Consumption of processed meat decreased by 16% on average, ranging from 1% to 25%, whilst red meat consumption remained stable as substitution for processed meat compensated price-related reductions. The number of deaths attributable to red and processed meat consumption decreased by 9% (222,000; SI, 38,000–357,000), and attributable health costs decreased by 14% (USD 41 billion; SI, 10–57) globally, in each case with greatest reductions in high and middle-income countries.InterpretationIncluding the social health cost of red and processed meat consumption in the price of red and processed meat could lead to significant health and environmental benefits, in particular in high and middle-income countries. The optimal tax levels estimated in this study are context-specific and can complement the simple rules of thumb currently used for setting health-motivated tax levels.

Consumer awareness and ex-ante versus ex-post environmental policies revisited

In this paper, we re-investigate the strategic environmental policies in a free entry oligopoly. We consider two scenarios in which the government chooses the optimal level of tax before or after firms enter the market. We find that in both cases, the emission tax/subsidy could be provided and the optimal level of tax is always less than the marginal environmental damage. The most important result is that, regardless of the degree of the consumers’ environmental cognition, the ex-post taxation case yields a lower level of tax and a larger number of firms than does ex-ante taxation. Our results have important implications on competition and environmental policies.

Government effectiveness in the provision of public goods: the role of institutional quality

ABSTRACTWhile poorer countries have a much smaller public sector and correspondingly a smaller tax burden than richer countries, their economic performance has not been necessarily better. This paper discusses the role that institutional quality plays in determining government’s effectiveness in delivering public goods and in, therefore, mediating the effects of higher taxation in an economy. A simple theoretical model shows that provision of public goods and optimal tax levels increase with improved institutional quality. Using firm-level perceptions data on the quality of public services and the tax burden, consistent with the predictions of our model, we find that a higher level of institutional quality bolsters positive perception of the quality of public services while at the same time moderating the view of the taxes as an obstacle to growth.

Optimal Fuel Taxes and Heterogeneity of Cities

In the United States all levels of jurisdictions are allowed to levy supplements to the federal fuel tax level. While fuel tax differentials at the state level are substantial, there is a relatively small differentiation across cities. This seems surprising given the heterogeneity of U.S. metropolitan areas. Against this background, the objective of the present paper is to analyze whether the current small level of tax differentiation across heterogeneous metropolitan areas is justified on efficiency grounds. We employ a spatial urban computable general equilibrium approach and calculate optimal gasoline taxes for an average U.S. prototype urban area characterized by a medium degree with respect to the spatial distribution of jobs (implying a medium spatial expansion of the urban area, medium degree of externalities, medium public transit share etc.) and for cities that differ with respect to these and further characteristics. We find that in our prototype urban economy the optimal gasoline tax is higher than current rates as suggested by previous studies calculating nationwide optimal gasoline taxes. Furthermore, it is shown that optimal tax levels may vary considerably across heterogeneous cities, much more than actual tax rates. This implies that stronger spatial fuel tax differentiation across cities could raise social welfare. However, we also show that setting an optimal spatially uniform tax, i.e. a uniform tax that maximizes the sum of the benefits generated in all cities, is capable to generate a significant fraction of the maximum achievable welfare gain under optimal city specific locally differentiated gasoline taxes. Interestingly, such an optimal uniform tax could deviate from all city specific optimal fuel tax levels. This suggests that the additional benefit from spatial fuel tax differentiation might actually be relatively small, in our case the efficiency premium is less than one-thirds.

Politique d'augmentation des taxes sur les cigarettes au Cameroun: Comment réaliser à la fois les objectifs de santé publique et de recettes fiscales

RésuméL'augmentation des taxes sur les produits du tabac est largement promue comme politique efficace pour enrayer le tabagisme. Toutefois, les craintes que cette politique pourrait faire baisser les recettes fiscales contribuent à ralentir sa mise en œuvre dans la plupart des pays en développement. Cet article examine le problème dans le cas du Cameroun, notamment en essayant de déterminer le niveau optimal des taxes sur les cigarettes. À l'aide des données d'enquête auprès des fumeurs, nous estimons l'élasticité‐prix de la consommation des cigarettes, et nous simulons les effets que des hausses hypothétiques des taxes frappant les cigarettes pourraient avoir sur la consommation et les recettes fiscales. Les résultats permettent de souligner comment les pouvoirs publics pourraient, à travers une hausse substantielle des taxes sur les cigarettes, réaliser à la fois des objectifs de santé publique et de recettes fiscales.

Research on Environmental Tax to Affect the Economic Development and GHG Mitigation in Beijing, China

As the most industrialized and urbanized region, Beijing plays as a demonstration role to show the impact of environmental policies on the economy development and GHG mitigation. In this paper, we constructed a dynamic input-output model introducing the different levels of environmental taxes. It not only can choose the optimal tax level, explore the relationships between economy and environment, but also can analyze the future trends of the economy and GHG intensity from 2010 to 2025. The objective function is the maximized GRP, subject to GHG emissions constraint and a series of subjective functions. The simulation results illustrated that with the GHG emissions constraint as 1.5 times of the 2010 level, carbon tax as 50 CNY/t CO2-e is effective to promote the economic development and GHG emissions mitigation. Annual growth rate of GRP can be up to 6.1%. The economic growth rate increases 0.3% compared with the condition when not introducing the policies. In 2025, the GHG intensity will be 43.5 t CO2-e/million CNY, 38.8% reduced compared with the 2010 level. This research proves that the proposed environmental tax is effective to promote the economic development and GHG mitigation.

Determining the Exogeneity of Tax Components with Respect to GDP

In this study we examine the relationship between tax revenues and GDP for Turkey for the period from 2004.Q1 to 2012.Q1. The effectiveness of tax components on GDP are investigated by using Johansen and Juselius (1990) cointegration and Granger Causality test. According to our findings, the main categories of taxes are cointegrated with GDP but the sub categories are not. This results means that more than optimal level of tax is collecting in some sub categories. When determined these sub categories, we have found as result that policy makers should increase Withholding Income Tax. When consider Special Consumption Tax, except Tobacco and Alcohol Products’ SCT, all categories of Special Consumption Tax should be increased.

A Note On Interstate Migration And Tax Burdens: New Evidence

This study extends the work of Cebula (1990) and examines interstate in-migration for 48 contiguous states based on the 1990 Census data. We find that the optimal value for the state and local tax burden is $1,943 per capita. Interstate in-migration rates are likely to increase (decrease) given a change in tax burdens, if the current tax level is below (above) the optimal tax level. We also find that more sunshine, employment growth, and income encourage in-migration and that higher heating degree days, percent of metropolitan area population, and violent crime reduce in-migration.

TAX BURDEN MANAGEMENT AND GDP GROWTH: CASE OF EU COUNTRIES

Tax system is an object of various scientific debates. The challenging question for centuries is determination of the optimal level of tax, which ensures possibilities of social development, quality of common welfare, and favorable business development. The effectiveness of tax system is an important factor of creation of national economic potential. Tax system itself in turn is a complicated set of provisions and standards, and economic condition of every country is being influenced by various circumstances. Therefore the issue of tax system optimization is ever so interesting scientifically and practically. The objective of the research is to analyze the nature of interdependence of GDP variation and tax burden in EU countries and to determine, how the results of tax system’s modification do influence GDP of countries with different level of economic development. Statistical data of 1995-2007 were used in this research. The strength of relation is being determined by Spearman correlation coefficient; cluster analysis is used in order to evaluate the similarities of changes of tax system and GDP growth in EU countries.

THE EFFICIENCY OF THE GREEN TAXES AS INSTRUMENTS FOR ENVIRONMENTAL PROTECTION

This paper focused on the green taxes, great actuality issue in the contemporary world. As research method, the paper is based on economical theory of externalities, their presence making the company to take decisions with different social effects. Starting from social cost and private cost of human activity, it is a debate regarding the internalization of external costs by applying the corrective taxes. The purpose of this paper it is the establishing of an optimal tax level which has as effect the decreasing of the overall cost of a negative externality (for example, the pollution) through controlling the external effects. Deriving from the analysis it has been disclosed that ideally the environmental taxes should be introduced over externalities source, meaning that taxes should report directly over emissions or environment services.