SUBSIDIES FINANCED WITH DISTORTING TAXES

Policy Analysis in the Presence of Distorting Taxes

This article first describes the new literature in environmental economics on the socalled "double-dividend" and then explores its implications for a broad range of economic issues. This literature reveals that in a second-best, general-equilibrium setting, environmental measures raise costs and prices and thereby reduce the real wage. This rise in the cost of living reduces slightly the quanti...

Taxes, Subsidies and Equilibrium Labor Market Outcomes

We explore the effects of taxes and subsidies on job creation, job destruction, employment, and wages in the Mortensen-Pissarides version of the search and matching equilibrium framework. Qualitative analytical results show that wage and employment subsidies increase employment, especially of low skill workers, and also increase wages. A job creation or hiring subsidy reduces unemployment durat...

TAXING INTERMEDIATE GOODS TO COMPENSATE FOR DISTORTING TAXES ON HOUSEHOLD CONSUMPTION LARS BOHLIN ECONOMICS Taxing intermediate goods to compensate for distorting taxes on household consumption

In contrast to the classic result in Diamond and Mirrlees (1971) that fiscal taxes should not be levied on intermediate use of goods, Newbury (1985) showed that, in a closed economy with Leontief technology, input taxes should be used to indirectly tax commodities that for some reason are untaxed in final consumption. This paper extends the Newbury result to more general cases; i.e., to open ec...

Petroleum Taxes: Trends in Fuel Taxes (and Subsidies) and the Implications

In 2000 the price of crude oil rose to levels not seen for more than 20 years, and as a result so did the price of oil products. The price hikes prompted public debate about the level of taxes determining the final prices paid by consumers. By one estimate, taxes accounted for 68 percent of the final price in the European Union in 2000 (OPEC 2000). But what about developing countries, where pet...

Primer on Fat Taxes and Thin Subsidies: A Graphical Analysis