OPTIMAL POLICY IN COLLATERAL CONSTRAINED ECONOMIES

2017 ◽  
Vol 23 (2) ◽  
pp. 798-836 ◽  
Author(s):  
Nina Biljanovska
Keyword(s):  
Optimal Policy ◽  
Competitive Equilibrium ◽  
Policy Instruments ◽  
Policy Recommendations ◽  
Tax Rates ◽  
Second Best ◽  
Collateral Constraints ◽  
Income Transfers ◽  
Lump Sum ◽  
Distortionary Taxes

This paper examines optimal policy in a macroeconomic model with collateral constraints. Binding collateral constraints yield inefficient competitive equilibrium allocations because they distort the optimal utilization of real resources. I identify the set of policy instruments that can be used by a Ramsey planner to achieve the first-best and the second-best (i.e., constrained planner's) allocations. A system of distortionary taxes on capital and labor income, along with direct lump-sum transfers among borrowers and lenders replicates the first-best outcome. The tax rates correct for the marginal distortions, whereas the direct lump-sum transfers perform income redistributions among the agents. In absence of direct lump-sum transfers, the distortionary taxes have an additional role, i.e., to perform implicit income transfers, and only second-best outcomes are attainable. I also derive the optimal policy in response to real and financial shocks, and show how the policy recommendations differ depending on the set of policy instruments available.

scholarly journals Second-Best Pollution Taxation and Environmental Quality

2005 ◽  
Vol 1 (1) ◽  
Author(s):  
Thomas Gaube
Keyword(s):  
Environmental Quality ◽  
Environmental Taxation ◽  
Public Expenditures ◽  
Tax Rates ◽  
Marginal Revenue ◽  
Second Best ◽  
Lump Sum ◽  
Pollution Taxation ◽  
Distortionary Taxes

Abstract This paper deals with second-best pollution taxation by investigating allocations instead of the corresponding tax rates. Assuming certain restrictions on utility and that the marginal revenue from environmental taxation is positive, it is shown that environmental quality is higher in second best where only distortionary taxes are used to finance public expenditures than in the first-best optimum where lump-sum taxes are available.

scholarly journals Recycling Carbon Tax Revenue to Maximize Welfare

2021 ◽  
Vol 2021 (023) ◽  
pp. 1-30
Author(s):  
Stephie Fried ◽  
◽  
Kevin Novan ◽  
William B. Peterman ◽  
◽  
...  
Keyword(s):  
Optimal Policy ◽  
Income Tax ◽  
Carbon Tax ◽  
Tax Revenue ◽  
Labor Income ◽  
Capital Income ◽  
Lump Sum ◽  
Distortionary Taxes ◽  
Distortionary Tax ◽  
The U.S

This paper explores how to recycle carbon tax revenue back to households to maximize welfare. Using a general equilibrium lifecycle model calibrated to reflect the heterogeneity in the U.S. economy, we find the optimal policy uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while the remaining one third is used to increase the progressivity of the labor-income tax. The optimal policy attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists--which called exclusively for reductions in distortionary taxes.

scholarly journals On the Limits of Macroprudential Policy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Marcin Kolasa
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
New Keynesian ◽  
Output Volatility ◽  
Macroprudential Policy ◽  
Collateral Constraints ◽  
Keynesian Model ◽  
Additional Stabilization ◽  
The Interest Rate

AbstractThis paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activity or credit at some exogenous (and possibly time-varying) levels. We show analytically in a canonical New Keynesian model with housing and collateral constraints that using the loan-to-value (LTV) ratio, tax on credit or tax on property as additional policy instruments does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and credit with monetary and macroprudential policy is possible only if the role of housing debt in the economy is sufficiently small. The identified limits to the considered policies are related to their predominantly intertemporal impact on decisions made by financially constrained agents, making them poor complements to monetary policy, which also operates at an intertemporal margin. These limits can be overcome if macroprudential policy is instead designed such that it sufficiently redistributes income between savers and borrowers.

scholarly journals Sustainable Consumer Tax Evasion Theory under Information Inattention

2021 ◽  
Vol 13 (2) ◽  
pp. 562
Author(s):  
Bodo Herzog
Keyword(s):  
Public Policy ◽  
Tax Evasion ◽  
Detection Probability ◽  
Policy Instruments ◽  
Tax Rates ◽  
Policy Debate ◽  
Income Levels ◽  
Theory Of Information ◽  
Financial Penalty ◽  
Public Policy Debate

This article studies the renewed interest surrounding sustainable public finance and the topic of tax evasion as well as the new theory of information inattention. Extending a model of tax evasion with the notion of inattention reveals novel findings about policy instruments that can be used to mitigate tax evasion. We show that the attention parameters regarding tax rates, financial penalty schemes and income levels are as important as the level of the detection probability and the financial penalty incurred. Thus, our theory recommends the enhancement of sustainability in public policy, particularly in tax policy. Consequently, the paper contributes both to the academic and public policy debate.

scholarly journals Optimality of index policies for stochastic scheduling with switching penalties

1992 ◽  
Vol 29 (04) ◽  
pp. 957-966 ◽  
Author(s):  
Mark P. Van Oyen ◽  
Dimitrios G. Pandelis ◽  
Demosthenis Teneketzis
Keyword(s):  
Optimal Policy ◽  
Time Delays ◽  
Stochastic Scheduling ◽  
Optimal Scheduling ◽  
Scheduling Policies ◽  
Parallel Queues ◽  
Lump Sum ◽  
Index Policies ◽  
Service Policy ◽  
The Impact

We investigate the impact of switching penalties on the nature of optimal scheduling policies for systems of parallel queues without arrivals. We study two types of switching penalties incurred when switching between queues: lump sum costs and time delays. Under the assumption that the service periods of jobs in a given queue possess the same distribution, we derive an index rule that defines an optimal policy. For switching penalties that depend on the particular nodes involved in a switch, we show that although an index rule is not optimal in general, there is an exhaustive service policy that is optimal.

scholarly journals Developing a new national MDMA policy: Results of a multi-decision multi-criterion decision analysis

2021 ◽  
pp. 026988112098138
Author(s):  
Jan van Amsterdam ◽  
Gjalt-Jorn Ygram Peters ◽  
Ed Pennings ◽  
Tom Blickman ◽  
Kaj Hollemans ◽  
...  
Keyword(s):  
Law Enforcement ◽  
Decision Analysis ◽  
Optimal Policy ◽  
Policy Instruments ◽  
Policy Instrument ◽  
Organised Crime ◽  
Sensitivity Analyses ◽  
Environmental Damage ◽  
Policy Model ◽  
Outcome Criteria

Background: Ecstasy (3,4-methylenedioxymethamphetamine (MDMA)) has a relatively low harm and low dependence liability but is scheduled on List I of the Dutch Opium Act (‘hard drugs’). Concerns surrounding increasing MDMA-related criminality coupled with the possibly inappropriate scheduling of MDMA initiated a debate to revise the current Dutch ecstasy policy. Methods: An interdisciplinary group of 18 experts on health, social harms and drug criminality and law enforcement reformulated the science-based Dutch MDMA policy using multi-decision multi-criterion decision analysis (MD-MCDA). The experts collectively formulated policy instruments and rated their effects on 25 outcome criteria, including health, criminality, law enforcement and financial issues, thematically grouped in six clusters. Results: The experts scored the effect of 22 policy instruments, each with between two and seven different mutually exclusive options, on 25 outcome criteria. The optimal policy model was defined by the set of 22 policy instrument options which gave the highest overall score on the 25 outcome criteria. Implementation of the optimal policy model, including regulated MDMA sales, decreases health harms, MDMA-related organised crime and environmental damage, as well as increases state revenues and quality of MDMA products and user information. This model was slightly modified to increase its political feasibility. Sensitivity analyses showed that the outcomes of the current MD-MCDA are robust and independent of variability in weight values. Conclusion: The present results provide a feasible and realistic set of policy instrument options to revise the legislation towards a rational MDMA policy that is likely to reduce both adverse (public) health risks and MDMA-related criminal burden.

scholarly journals Vertical externalities with lump-sum taxes: how much difference does unemployment make?

2014 ◽  
Vol 3 (1) ◽  
pp. 75
Author(s):  
Diego Martinez-Lopez ◽  
Tomas Sjongren
Keyword(s):  
Federal Government ◽  
Policy Instruments ◽  
Conventional Approach ◽  
Federal State ◽  
Lump Sum ◽  
Public Inputs ◽  
Stackelberg Leader

This paper analyses how the existence of unemployment affects the conventional approach to vertical externalities. We discuss the optimality rule for the provision of public inputs both in a unitary and in a federal state. Our findings indicate that decentralising spending responsability on public inputs in the presence of unemployment allows output to be closer to the first best level. Moreover, we describe the inability of the federal government, behaving as a Stackelberg leader, to replicate the unitary outcome, unless there are new policy instruments at government's disposal.

Income redistribution through taxation – how deductions undermine the effect of taxes

2018 ◽  
pp. 1-35
Author(s):  
Oliver Hümbelin ◽  
Rudolf Farys
Keyword(s):  
Real Estate ◽  
Pension Scheme ◽  
Tax Rates ◽  
Tax System ◽  
Effect Decomposition ◽  
Lump Sum ◽  
Tax Relief ◽  
Swiss Canton ◽  
Tax Deductions ◽  
Redistributive Effect

This paper shows the potential of administrative data to grant us a more complete picture of the redistributive effects of the visible (tax rates) and hidden (tax deductions) instruments of the fiscal welfare state. Based on administrative tax data from a large Swiss canton, we apply a gini-based redistributive effect decomposition to demonstrate how several taxes and deductions impact the post-tax income distribution. We show that tax deductions drastically reduce the redistributive effect of taxes because lump sum deductions in a progressive tax system lead to greater tax relief for higher income earners. Moreover, high income earners have additional options to claim deductions such as real-estate expenses or extra-mandatory payments to the pension scheme. Comparison over time furthermore shows that the role of deductions for real-estate expenses decreased. All in all, because deductions reduce the redistributive effect of taxes, they lead to higher post tax income inequality compared to a hypothetical system without deducations. The redistrubtive effect of the tax system should therefore be studied, not only with respect to tax rates, but also with respect to deductions.

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