Recycling Carbon Tax Revenue to Maximize Welfare

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.

Reforming capital income taxation to improve housing affordability

New Zealand’s distortionary tax environment for housing imposes large costs on young people. Since 1989, New Zealand has taxed owner-occupied housing more lightly than other forms of capital income. In contrast, retirement savings have been taxed heavily. This combination has created a bias towards owner-occupied housing, encouraging homeowners to live in higher quality properties than they would under a neutral tax system, and bid up the price of land located near desirable amenities. While existing, often older homeowners have enjoyed high land and house values, our generation has faced artificially inflated house prices. Distortionary capital income taxation has contributed to New Zealand’s housing affordability crisis.

Internationaler Steuerwettbewerb um Direktinvestitionen bei überfüllbaren Infrastrukturgütern

SummaryIn this contribution, we analyze the provision of productive infrastructure goods (e. g. traffic facilities or results of scientific research) in the context of international tax competition for foreign direct investments (FDI). Mostly, these public inputs have two characteristics: on the one hand, firms who are unwilling to pay a user fee can be excluded. On the other hand, congestion externalities arise if many firms occupy the infrastructure good at the same time.We find out that local governments competing for international mobile capital should implement a user fee as an additional policy parameter in order to maintain efficiency. Otherwise, if local governments rely on a source-based tax on capital and a non-distortionary tax on local labour only, the decentralized equilibrium is socially inefficient. The derived condition for the optimal use of the available infrastructure is not fulfilled and firms will over-use the infrastructure. If, in addition, firms are charged a user fee, the decentralized equilibrium can be shown to be efficient. However, a selffinancing of infrastructure goods by user fees cannot be expected.