Tax-subsidy Policy Research Articles

A dynamic equilibrium model of durable goods monopoly

In this paper, we construct a simple dynamic general equilibrium model of durable goods monopoly in a discrete time framework and show that a revised Coase Conjecture, ‘ Monopolists are efficient under a proper tax-subsidy policy’, holds even in the case of increasing marginal cost if the length of each period in the discrete model is sufficiently short.

On the possibility of efficient private provision of public goods through government subsidies

This paper investigates the possibility of implementing an efficient provision of a public good through distortionary tax-subsidy policies in a simple one-shot game of voluntary contributions. Within the class of all linear tax-subsidy policies two cases are distinguished. The first is where individual taxes only depend on the sum of all other individuals' contributions. Although such policies may increase total supply of the public good, it is shown that the implementation of an efficient amount is not possible unless the government has complete information about individual characteristics. In the second case, where taxes depend on the distribution of contributions, the equilibrium supply of the public good is no longer unique. For any efficient interior solution there might also exist inefficient boundary solutions. Moreover, unlike the boundary solutions, the efficient interior solution is in general not stable.

Pigouvian policies in closed behavioral systems

This essay-analyzes the Pigouvian tax-subsidy policy, reviews the traditional justification and several practical and theoretical criticisms of it, and offers three arguments about the Pigouvian policy and the implied structure of effluent charges (as well as subsidies). First, many proponents of a Pigouvian policy misinterpret its purpose. The tax is not designed to reduce pollution to an ‘acceptable’ level, but to maximize joint production value. Second, Pigouvian effluent charges may violate some constructions of the equal protection clause. Third, these charges may violate, also, some constructions of the due process clause, as well as the ethical criteria that the right of due process implies.

Taxes, Subsidies, and Employment

It is asserted that tax subsidies in favor of the labor-intensive commodity will increase employment as will tax-subsidy policies against capital and in favor of labor. A two sector model that provides two approaches to increasing the total volume of employment when scarce capital stock is fully employed is used to examine this assertion. The main thrust of the argument is that an important effect of factor taxation in an industry is to lower the rate of profit in that industry. This produces intersectoral effects that may have significant effects for total employment. The direction of the intersectoral effects is vital for the design of an employment policy consistent with other government policy objectives. The analysis suggests some general rules. For example, factor price intervention is less ambiguous when generally applied to all sectors. Further, when selectivity is needed, the employment promotion impact of fiscal intervention is greatest when the labor subsidies are given to the labor-intensive industries and the capital taxation imposed on the capital-intensive industries.