I have been doing some work on optimal taxation lately. (I will post a link to a draft paper soon.) As background reading, I just finished a twenty-year-old survey by Joe Stiglitz, called "Pareto Efficient and Optimal Taxation and the New New Welfare Economics."
It's brilliant.
Monday, April 2, 2007
Tax Incidence in Illinois
Remember, ec 10 students, when we studied tax incidence last fall? One lesson was that it does not matter which side of a market the government taxes. Regardless of whether a tax is levied on suppliers or demanders in a market, the final incidence is divided between the two groups of market participants depending on the elasticities of supply and demand.
That lesson is apparently lost on some elected leaders in Illinois. Here is the latest news from that state:
That lesson is apparently lost on some elected leaders in Illinois. Here is the latest news from that state:
On Thursday, March 22, 2007, Illinois Governor Rod Blagojevich released a draft of bill language designed to implement the 3% health care payroll tax first announced on March 7, 2007....The proposed legislation indicates that the tax is intended to fall on the employer rather than its employees, providing that the payroll tax "shall not be withheld from wages paid to employees or otherwise be collected from employees or reduce the compensation paid to employees."Life is a constant reminder that we teachers of basic economics need to try harder.
Back and Better Than Ever
So MRS. Preppy Wedding is back and well...tired.
You see on the lovely flight home from the glorious honeymoon in HOT, but delightful Aruba, the layover at JFK took a little longer than expected. And by longer, I mean the husband and I didn't arrive to our house until 2:45AM Monday morning. And now I sit in my office thinking of the great wedding weekend and the warm, relaxing week that follows and all I want to do is plop my head down and take a nap.
As a small recap, the wedding went beautifully. I never lost my cool, we ran totally ahead of schedule the ENTIRE wedding day (and you girls know how this preppy girl likes running AHEAD of schedule) and the day and night of our wedding just unfolded into this huge, amazing party, full of friends, smiles, laughter, dancing and quite a few mason margaritas.
When the HUSBAND (weird) and I set out to plan this wedding, we wanted a party and a party we got. Just as the sun began to set, the dance floor got very crowded and you could find me there for the duration of the night. The after-party ensued at a local bar and friends from near and far were enjoying the best mojitos in Richmond while trying to stay on their bar stools.
The morning after the wedding, the husband was seeing some friends off and I snuck down the hallways of our hotel to a room four doors down where the preppy lil sis and the best bud from NYC were passed out in their bridesmaids dresses. My NYC girl gets special points for still wearing her gifted pashmina and for trying to tempt a lovely stud the night before with an offering of chicken fingers.
But, what they said is what mattered most. �What a Party� Oh and �So, exactly what happened last night?�
You see on the lovely flight home from the glorious honeymoon in HOT, but delightful Aruba, the layover at JFK took a little longer than expected. And by longer, I mean the husband and I didn't arrive to our house until 2:45AM Monday morning. And now I sit in my office thinking of the great wedding weekend and the warm, relaxing week that follows and all I want to do is plop my head down and take a nap.
As a small recap, the wedding went beautifully. I never lost my cool, we ran totally ahead of schedule the ENTIRE wedding day (and you girls know how this preppy girl likes running AHEAD of schedule) and the day and night of our wedding just unfolded into this huge, amazing party, full of friends, smiles, laughter, dancing and quite a few mason margaritas.
When the HUSBAND (weird) and I set out to plan this wedding, we wanted a party and a party we got. Just as the sun began to set, the dance floor got very crowded and you could find me there for the duration of the night. The after-party ensued at a local bar and friends from near and far were enjoying the best mojitos in Richmond while trying to stay on their bar stools.
The morning after the wedding, the husband was seeing some friends off and I snuck down the hallways of our hotel to a room four doors down where the preppy lil sis and the best bud from NYC were passed out in their bridesmaids dresses. My NYC girl gets special points for still wearing her gifted pashmina and for trying to tempt a lovely stud the night before with an offering of chicken fingers.
But, what they said is what mattered most. �What a Party� Oh and �So, exactly what happened last night?�
So for you brides-to-be out there planning, I wish you the party of the lifetime. And a day where you stay ahead of schedule so you can enjoy the most perfect day of your life!
Sunday, April 1, 2007
Carbon Tax Problem
An article in today's Washington Post suggests a good homework problem:
Compare the effects of a $25 carbon tax with a cap-and-trade system in which the cap is set so that the price of a carbon permit ends up at $25. Is the impact on carbon emissions different under the two systems? Is the impact on consumers different? Who wins and who loses with cap-and-trade compared to the tax?
Post your answers in the comments section.
Update: Patrick gives the best answer:
Here is the good homework problem for introductory microeconomics:Tax on Carbon Emissions Gains Support
By Juliet Eilperin and Steven Mufson
As lawmakers on Capitol Hill push for a cap-and-trade system to rein in the nation's greenhouse gas emissions, an unlikely alternative has emerged from an ideologically diverse group of economists and industry leaders: a carbon tax.Most legislators view advocating any tax increase as tantamount to political suicide. But a coalition of academics and polluters now argues that a simple tax on each ton of emissions would offer a more efficient and less bureaucratic way of curbing carbon dioxide buildup, which scientists have linked to climate change.
"We want to do the least damage to the growth of GDP," said Michael Canes, a private consultant and former chief economist for the American Petroleum Institute, who led a Capitol Hill briefing on the subject in late February sponsored by the conservative George C. Marshall Institute. Between a cap system and a carbon tax, "a carbon tax will be the much more cost-effective way to go," he said...
Few lawmakers, Democrat or Republican, have the stomach for a carbon tax, however. Some are still smarting from a vote in the early 1990s when President Bill Clinton persuaded the House to adopt a BTU tax -- a tax on the heat content of fuels -- only to abandon the effort in the Senate.
Democrats such as House Natural Resources Committee Chairman Nick J. Rahall II (W.Va.) say they have no desire to revisit the issue. "I'm not an advocate of a carbon tax," Rahall said. "That's going to be passed on; the consumer would end up paying for that."...
Only one House Democrat, Rep. Pete Stark (Calif.), has drafted a carbon tax proposal. Stark, who first proposed such a tax 16 years ago as a way to ease the nation's energy crunch, plans to introduce a bill in April that would levy a tax of $25 per ton of carbon released for five years.
"It's more efficient, more equitable, and it's less subject to gaming, I might add," Stark said, estimating that it would raise the cost of gasoline by 10 cents a gallon.
Compare the effects of a $25 carbon tax with a cap-and-trade system in which the cap is set so that the price of a carbon permit ends up at $25. Is the impact on carbon emissions different under the two systems? Is the impact on consumers different? Who wins and who loses with cap-and-trade compared to the tax?
Post your answers in the comments section.
Update: Patrick gives the best answer:
The two systems produce the same effect on carbon emissions [and also on consumers]. The difference is purely distributive. In the tax situation, the government keeps all the revenue. In the cap-and-trade system, the revenue from the sale of permits goes to current polluters (it ends up essentially being a transfer to them).
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