Tax Adjustments Research Articles

The relation between cigarette taxes and older adult smoking in Zhejiang and Gansu: what happened following the 2009 Chinese Tax adjustments?

BackgroundIn May 2009, the Chinese government raised cigarette excise tax rates and adjusted standards for Grade A cigarettes and Grade B cigarettes. The present study aimed to examine the effects of the tax adjustments in 2009 on smoking behaviors and health outcomes among smokers aged above 45.MethodsData from the 2008 and 2012 China Health and Retirement Longitudinal Study of Zhejiang and Gansu provinces were used to estimate the influence of tax increase on the number of cigarettes smoked daily and health capital. The sample included 706 smokers who were 45 years old and older at the time of data collection in 2008. The sample group was surveyed again in 2012. The final sample size was 1366. Logit model was applied.ResultsCigarette tax adjustment in 2009 resulted in the decrease in the likelihood of smoking 0–10 cigarettes per day by 1.06%; the increase in the likelihood of those smoking 11–20 cigarettes per day by 0.44%; and, those smoking 20 cigarettes or more by 0.63%; the decrease in the likelihood of good health by 0.47%; the increase in the prevalence of chronic disease by 1.34%.ConclusionsThe smoke tax adjustment in 2009 worsened individual unhealthy smoking behaviors and health outcomes. The proposed cigarette tax levied at the retail level can reduce the State Tobacco Monopoly Administration’s control overall and each price and increase the influence of the market on cigarette consumption in China.

Designing and Updating a US Carbon Tax in an Uncertain World

A carbon tax provides certainty about the price of emissions, but it does so in a context characterized by uncertainty about its environmental benefits, economic costs, and international relations implications. Given current knowledge, suppose that the government sets a carbon tax schedule. In the future, a higher (lower) carbon tax could be justified by the resolution of uncertainty along the following ways: climate change turns out to be worse (better) than current projections; the economic costs of a carbon tax are lower (higher) than expected; other major economies implement more (less) ambitious carbon mitigation programs. This paper describes the design of a predictable process for updating the carbon tax in light of new information. Under this “structured discretion” approach, every five years the president would recommend an adjustment to the carbon tax based on analyses by the Environmental Protection Agency, the Department of the Treasury, and the Department of State on the environmental, economic, and diplomatic dimensions of climate policy. Similar to the expedited, streamlined consideration of regulations under the Congressional Review Act and trade deals under trade promotion authority, Congress would vote up or down on the presidential recommendation for a carbon tax adjustment, without the prospect of filibuster or amendment. This process could be synchronized with the timing of updating of nationally determined contributions under the Paris Agreement in a manner to leverage greater emissions mitigation ambition by other countries in future pledging rounds. The communication of guiding information and the latest data and analysis could serve as “forward guidance” for carbon tax adjustments, akin to the Federal Reserve Board’s communication strategy.

Remarks by Warren Maruyama

Well, thanks, Gary, and thanks to the American Society of International Law for convening this panel. And I guess we should also thank Donald Trump, because whatever one may think about his policies, he's been great for trade lawyers, trade professors, trade consultants, trade experts. And even tax people, who never had the time of day for us trade types, now have to listen to us go on and on about these obscure parts of WTO law regarding border tax adjustments, which are just as incomprehensible as my tax return.

Transboundary Externalities and Reciprocal Taxes: A Differential Game Approach

I investigate the interaction between a country that imports a commodity whose production contributes to a stock pollution, such as electricity, from a country that produces that commodity. If the transboundary externality is priced improperly, the application of a feed-in tariff or border tax adjustment can provide an indirect policy instrument. But the imposition of such a tariff or tax creates an incentive for the producing country to deploy some sort of pollution controlling instrument. This, in turn, creates a strategic interaction between the two countries. Because the externality is inked to a stock pollutant, this strategic interaction will play out over time, which induces a dynamic game. In this modeling context, I describe the nature of the strategic interaction, and characterize the Markov-perfect equilibrium.

Designing and Updating a US Carbon Tax in an Uncertain World

A carbon tax provides certainty about the price of emissions, but it does so in a context characterized by uncertainty about its environmental benefits, economic costs, and international relations implications. Given current knowledge, suppose that the government sets a carbon tax schedule. In the future, a higher (lower) carbon tax could be justified by the resolution of uncertainty along the following ways: climate change turns out to be worse (better) than current projections; the economic costs of a carbon tax are lower (higher) than expected; other major economies implement more (less) ambitious carbon mitigation programs. This paper describes the design of a predictable process for updating the carbon tax in light of new information. Under this structured discretion approach, every five years the president would recommend an adjustment to the carbon tax based on analyses by the Environmental Protection Agency, the Department of the Treasury, and the Department of State on the environmental, economic, and diplomatic dimensions of climate policy. Similar to the expedited, streamlined consideration of regulations under the Congressional Review Act and trade deals under trade promotion authority, Congress would vote up or down on the presidential recommendation for a carbon tax adjustment, without the prospect of filibuster or amendment. This process could be synchronized with the timing of updating of nationally determined contributions under the Paris Agreement in a manner to leverage greater emissions mitigation ambition by other countries in future pledging rounds. The communication of guiding information and the latest data and analysis could serve as forward guidance for carbon tax adjustments, akin to the Federal Reserve Board's communication strategy.

Trade and Fiscal Deficits, Tax Reform, and the Dollar: General Equilibrium Impact Estimates

Advocates of using a border tax adjustment (BTA) to shift the corporate profits tax to a destination basis argue that such an arrangement would not be protectionist, because the import tax and export subsidy would be fully offset by an induced appreciation of the dollar. To examine this claim, this study applies an updated and extended general equilibrium model from the author's 2005 book, The United States as a Debtor Nation. Cline finds that across various scenarios, the dollar appreciation typically would be less than half the amount needed to offset fully the BTA. Advocates of the BTA implicitly assume a strong, prompt expectational boost to the dollar upon announcement of the shift. Instead, market practitioners and mainstream macroeconomic models see the interest rate as the main driver of the exchange rate. Although an incipient rise in the trade balance would indeed put upward pressure on the interest rate and thus the exchange rate, it would also result in reduced investment. With the trade deficit equal to investment minus saving (I–S = M–X), reduced investment would tend to set the new equilibrium at a lower trade deficit before the interest rate would rise sufficiently to boost the dollar to a level that would completely offset the BTA.

New Partnership Audit Regime and Tax‐Exempt Organizations

Partnerships are subject to a new audit regime, which enables the IRS to engage in examinations of partnerships and make tax adjustments at that level, rather than focus on the partners. This body of law was created on enactment of the Bipartisan Budget Act of 2015, with the rules revised on enactment of the Protecting Americans from Tax Hikes Act of 2015.

Tax Competition in Vertically Differentiated Markets with Environmentally Conscious Consumers

This paper analyses the effects of tax competition on environmental product quality, pollution and welfare in a two-country, vertically differentiated, international duopoly, in which consumers are environmentally conscious. The firm in each country chooses first the environmental quality of its product (which reflects the emissions generated in the production process) and then the price. In equilibrium one country will be more polluted than the other because firms choose different levels of environmental quality of their products. We find that a country’s optimal commodity tax is higher if the domestic firm is the more polluting supplier. Furthermore, non-cooperative commodity tax rates are inefficiently high in equilibrium. This is because, in this framework with environmentally aware consumers, commodity taxes affect the choice of firms regarding their emissions. Therefore, a domestic tax reduction not only raises the profits of the foreign firm but also lowers its emission levels, resulting in higher welfare for the other country. We also analyse the optimal cooperative and non-cooperative commodity and emission taxes with border tax adjustments. With these two policy instruments available, commodity taxes are higher.

Adding Quantity Certainty to a Carbon Tax

A concern often raised about a carbon tax is that it does not provide any certainty as to the quantity of emission reductions achieved under the policy. We explore in this Issue Brief how greater emission reduction certainty can be built into a carbon tax. We first define a Tax Adjustment Mechanism for Policy Pre-Commitment (TAMPP). A TAMPP is an adjustment mechanism for the tax rate of a carbon tax to ensure that targeted emission reduction milestones are met over the next few decades. We then provide some guidance based on economic principles related to various design considerations that should be incorporated in a cost-effective and politically realistic TAMPP.

US-proofing the Paris Climate Agreement

What can be done if a future US President withdraws from the Paris Climate Agreement? This is a critical question for an agreement which relies on universal participation for legitimacy. The US can and likely will ratify the Paris Agreement via a presidential-executive agreement. However, this could be easily reversed by a future President or an antagonistic Congress. A non-party US operating outside of the Paris climate architecture is a real threat, especially given Republican opposition to international climate policy. This article explores both what tools are available for addressing a non-party US in any climate agreement and what the Paris Agreement in particular can do. The Paris Agreement is extremely vulnerable to the withdrawal of the US, or any other major party. It possesses no non-party measures, although it can be amended to help avoid this Achilles heel. Through amendments to Article 6 a market link between subnational states in a renegade US and international carbon markets could be created. Ideally, a more semi-global approach with punitive carbon border tax adjustments could be taken to help US-proof an alternative climate agreement. The Paris Agreement will be fatally susceptible to a US dropout unless amendments to the treaty are made. Relying on the good will of a single president is short-sighted. Longer-term climate governance needs to take seriously the threat of non-parties, particularly if they are superpowers.Policy relevanceThis article explores how to craft an effective climate treaty without US ratification, including through reforms to the Paris Agreement. While the US is likely to be able to be able legally adopt the Paris Agreement through a presidential-executive agreement there is a distinct possibility of the US withdrawing and repealing such an agreement due to a change in president. This article suggests that the Paris Agreement is vulnerable to such an occurrence and thus the insights of this research are both timely and relevant to delegations and others involved with the UNFCCC. It will be of use to domestic US actors, as well as international negotiators and scholars in dealing with a non-party US and non-parties in general.

A Study on the Introduction of Value Added Tax Adjustment and Plural Tax Rate System

A Study on the Introduction of Value Added Tax Adjustment and Plural Tax Rate System

Tariff Reforms in the Presence of Pollution

Accepted date 8 May 2017 but publication date 2016 - Greek journal - no open access information available. Acknowledgments An earlier version of this paper was part of my PhD thesis conducted at the University of Exeter. I am grateful to the faculty of Economics, University of Exeter, for their support. Special thanks to Christos Kotsogiannis for introducing me to the issue of border tax adjustments and for his helpful comments and suggestions. I also thank Pascalis Raimondos Moller, Ben Zissimos and Michael Michael for their comments and suggestions as well as the participants in the ETSG 2013 and the Second Environmental Protection and Sustainability Forum: Towards Global Agreements on Environmental Protection and Sustainability 2015.

WTO Law Constraints on Border Tax Adjustment and Tax Credit Mechanisms to Reduce the Competitive Effects of Carbon Taxes

It is possible to design an import border tax adjustment that would pose a reduced risk of violating World Trade Organization (WTO) law, and, in the event a violation is found, an increased likelihood of satisfying the requirements for an exception. The lowest risk of successful WTO legal challenge would be presented by a border tax adjustment (BTA) in relation to a national product-based tax that does not vary by reference to carbon intensity of production, but is set at a fixed rate for specified categories of products. A national carbon consumption tax that varies by reference to the carbon intensity of production could achieve many of the same goals as the combination of a national carbon tax on production combined with an import BTA. If the consumption tax structure is not used, then an export border tax adjustment could address the foreign market competitiveness issue, but might significantly reduce the likelihood of the related import BTA satisfying the requirements for a WTO law exception. Alternatively, it is possible to provide domestic subsidies to high-carbon industries.

Frameworks for Evaluating Policy Approaches to Address the Competitiveness Concerns of Mitigating Greenhouse Gas Emissions

Domestic carbon pricing policies may impose adverse competitiveness risks on energy-intensive firms and industries competing with foreign firms that may bear a lower or zero price on carbon. The risks of competitiveness effects include adverse economic outcomes — reduced production, lower employment, and higher net imports — and adverse environmental outcomes, with the shifting of emissions-intensive activities to unregulated foreign markets. Each can undermine political support for carbon pricing. Competitiveness policies, such as border tax adjustments, output-based tax credits, and related policies, also carry potential risks. They may result in less favorable distributional outcomes, undermine cost-effectiveness and economic efficiency, and raise risks in international trade and multilateral climate negotiations. This paper reviews the theoretical and empirical research on competitiveness risks, as well as the risks posed by competitiveness policies, and presents two alternative frameworks through which policymakers can weigh these various risks when evaluating policy options for addressing potential competitiveness effects as a part of a domestic carbon pricing regime.

Investment scaling up and the role of government

ABSTRACTThis article studies the fiscal and welfare implications of a scaling up of public investment when the government is subject to inefficiencies on the spending and on the tax collection side. In our simulations, the scaling up of public investments results in higher long-run output and consumption levels but requires a fiscal stabilization package in order to preserve fiscal sustainability. The effects on consumers’ welfare after the fiscal adjustment are nontrivial. Our welfare analysis shows that consumers’ welfare is increased when the government smooths the fiscal adjustment via higher borrowing and not through an increase in taxation. Moreover, the comparison between several stabilization packages via tax adjustment shows that higher welfare is achieved when the government relies mostly on taxation of capital as this allows higher levels of consumption. Lower fiscal costs that do not undermine fiscal sustainability can however be achieved if the government manages to reduce inefficiency in tax collection. Finally, we consider a change in the trade regime that causes a decline in revenues. We find that the higher fiscal burden required to preserve fiscal sustainability would completely wipe out the welfare gain of higher public investments.

Chapter 4. Economic Considerations: Cost-Effective and Efficient Climate Policies

In this chapter we discuss the economics of climate change. We begin with a discussion of economic considerations that are important to take into account when designing and evaluating climate policy, including cost effectiveness and efficiency. We then discuss specific policies at the state, national, and international level in light of these economic considerations.We have several recommendations for the path forward for climate policy. First, the goal of climate policy should be to reduce the damages caused by greenhouse gases. In addition to mitigation policy to reduce greenhouse gas concentrations in the atmosphere, one can also reduce the damages causes by greenhouse gases by adaptation measures that reduce our vulnerability to climate change impacts.Second, policy-makers should use incentive- (or market-) based instruments as opposed to command and control policies (including quantity-based mandates) whenever possible. Whenever unpriced emissions are the sole market failure, incentive-based instruments such as a carbon tax or cap and trade program are more likely to achieve the social optimum and maximize social net benefits [12]. Lin and Prince [3] calculate that the optimal gasoline tax for the state of California is $1.37 per gallon.Our third recommendation is to address the risk of emissions leakage, which arises when only one jurisdiction (e.g., California) imposes climate policy, but not the entire world. One way to reduce emissions leakage is to use the strategic distribution of emissions allowances to local producers. This method, known as “output-based allocation” or benchmarking, effectively subsidizes local producers and at least partially offsets the increase in their costs caused by an emissions cap [4]. Importantly, only local production is eligible for an allocation of valuable allowances, providing a counterweight to the incentive for emission leakage.Our fourth recommendation is that if they are used instead of incentive-based instruments, quantity-based mandates such as the federal Renewable Fuel Standard, California’s Low Carbon Fuel Standard, renewable portfolio standards, and the Clean Power Plan should be combined with a cost containment mechanism. The findings of Lade, Lin Lawell and Smith [5] suggest that pure quantity-based mechanisms leave policies susceptible to large increases in compliance costs, particularly in the presence of capacity or production constraints that are inherent in energy markets. Given the experiences with the federal RFS2 in 2013, anticipating and designing climate policies in a way that can contain compliance costs is imperative.Our fifth recommendation is that for international leverage, we should develop a climate club backed by border tax adjustments to non-participants. University of California at Berkeley Professor Larry S. Karp has been proposing an agreement between the top 10 emitters as an alternative to the UN framework [6]. Without international leverage or cooperation, unilateral climate policies, such as California’s AB 32 or the American Clean Energy and Security Act, are not only unlikely to fully combat climate change, but can also have other detrimental effects such as the reduction of economic competitiveness and the possible displacement of jobs from the U.S. to countries without carbon pricing [7].Our final, and main, recommendation is that, as University of California at Berkeley Professor Severin Borenstein points out, California should focus on solving the problem of global climate change. The primary goal of California climate policy should be to invent and develop the technologies that can replace fossil fuels, allowing the poorer nations of the world – where most of the world’s population lives – to achieve low-carbon economic growth [8].

Evaluating the carbon leakage effect on cement sector under different climate policies

The European-Union Emissions Trading System (EU-ETS) is a cap and trade scheme that requires the industries participating in the program to obtain allowances to cover their carbon emissions. Energy Intensive Industries claim that this system puts their European plants at an economics disadvantage compared to facilities located outside the EU. As a direct consequence, industries may relocate their production activities in unregulated countries, leading to the so-called carbon leakage effect. In order to curb this effect, several policies have been devised, including grandfathering of CO2 allowances and border tax adjustment. This paper investigates the impact of these two policies on the cement sector, with a particular focus on the Italian market, particularly prone to carbon leakage. The analysis is based on an oligopolistic partial equilibrium model with a detailed technological representation of the market. The model is a Generalized Nash Equilibrium Problem that accounts for the interactions of cement companies. Simulations show that neither the grandfathering nor the border tax adjustment fully solve the carbon leakage problem because cement companies modify their cement and clinker trade strategies according to the measure applied in order to avoid or reduce their carbon costs.

Editorial: Austerity and some contemporary challenges for professionalism

The early post cold-war consensus - that bourgeois democracy has solved the riddle of history and a global capitalist economy will usher in worldwide prosperity and peace - lies in tatters; but no plausible alternatives of political and economic organization are in sight (Mishra, 2013). Globalisation has everywhere rapidly weakened older forms of authority. ‘Conservatives’ institute revolutionary free-market ‘reforms’; meanwhile technocrats slash employment and welfare benefits, and immiserate entire societies and generations. Both main UK political parties - Conservative and Labour - advocate continued austerity, albeit for the latter it has been defined as ‘austerity-lite’, with a mainstream position arguing for a slower reduction of debt, involving some combinations of spending and tax adjustments that would depend on the growth of the economy and tax revenues. This position however has proved to be not uncomfortable with people becoming very rich – putting the blame for the crash and the economic pressure for a recovery from the crash, on labour rather than the greed, avarice and shady practices of capital.

The Strategic and Effective Dimensions of the Border Tax Adjustment

Between 2001 and 2011, the Kyoto Protocol has experienced defections of two countries that took part in its negotiation and accounted for around 44% of all parties' emissions. The border tax adjustment, a tax levied on imports to reproduce domestic taxation on similar goods, is advocated to prevent such compliance failures as well as to support unilateral pollution regulations by mitigating firms' competitiveness losses and carbon leakages. The paper investigates whether this trade instrument can constitute a decentralized solution to achieve the first-best in a noncooperative framework. It develops a two-country two-firm reciprocal-market model of trade with global pollution and country heterogeneity. Countries' interactions are studied following a noncooperative game theory approach, for two scenarios defined by the possibility to implement a border tax adjustment to sanction unilateral deviation from the cooperative situation. The paper predicts first that this opportunity modifies the countries' choices of strategies toward more compliance; second that among the strategic and effective dimensions of the border tax adjustment, only the former allows to achieve the first-best; finally that the border tax adjustment fosters countries' participation in the cooperative international environmental agreement.

Windfall of Low Interest Payments and Fiscal Sustainability in the Euro Area: Analysis through Panel Fiscal Reaction Functions

SummaryWe estimate various panel fiscal reaction functions, including those of the main categories of general government revenue and expenditure for 12 Euro area member states over the 1970‐2013 period. We find that in the peripheral countries where sovereign bond yields decreased sharply in the years 1996‐2007, fiscal stance ceased to respond to sovereign debt accumulation. This was due to lack of sufficient adjustment in government current expenditure and direct taxes. In contrast, in the core member states, which did not benefit from yields’ convergence related to the Euro area establishment, responsiveness of fiscal stance to inherited sovereign debt increased during 1996‐2007. This was achieved mainly through pronounced adjustments in government current expenditure. The findings are robust to various changes in modelling approach.