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Taxing intermediate goods to compensate for distorting taxes on household consumption
Örebro universitet, Handelshögskolan vid Örebro universitet.ORCID-id: 0000-0003-2241-6093
(Engelska)Manuskript (preprint) (Övrigt vetenskapligt)
Abstract [en]

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 economies with substitution possibilities in the production functions. Moreover, it shows that the welfare maximizing proportion between the tax rate for intermediate use by firms and final demand by households declines with higher elasticities of substitution in production functions and with higher price elasticities in import demand functions and export supply functions. It also shows that the welfare maximizing proportion of tax rates between households and firms for one commodity will depend upon the corresponding proportion of tax rates for important substitutes for that commodity. These results are shown both in stylized Computable General Equilibrium (CGE) models and in an applied CGE model of the Swedish economy where the tax on electricity is used as an example.

Nyckelord [en]
Optimal taxation, CGE-analysis
Nationell ämneskategori
Nationalekonomi Samhällsvetenskap
Forskningsämne
Nationalekonomi
Identifikatorer
URN: urn:nbn:se:oru:diva-12173OAI: oai:DiVA.org:oru-12173DiVA, id: diva2:356382
Tillgänglig från: 2010-10-14 Skapad: 2010-10-12 Senast uppdaterad: 2017-10-17Bibliografiskt granskad
Ingår i avhandling
1. Taxation of intermediate goods: a CGE analysis
Öppna denna publikation i ny flik eller fönster >>Taxation of intermediate goods: a CGE analysis
2010 (Engelska)Doktorsavhandling, sammanläggning (Övrigt vetenskapligt)
Abstract [en]

This dissertation is concerned with tax rates for the use of commodities in general, and energy in particular. Computable General Equilibrium (CGE) models are used to analyze the normative question of whether the tax rate for intermediate use by firms should be the same as the tax rate for final consumption by households. To answer this question, a distinction needs to be made between fiscal taxes for the purpose of raising revenue for the government, and Pigovian taxes for the purpose of changing behaviour. Concerning fiscal taxes, firms should not pay taxes on their use of inputs if the tax rates in final consumption are at their optimal level. If the tax rate for households is above the optimal level, intermediate use in firms should be taxed in order to increase the price of other commodities and reduce the distortion of relative prices. Essay 1 ascertains what factors determine the optimal relation between the tax rate for final consumption by households and intermediate use by firms. Essay 2 analyses Swedish energy taxes from the perspective of reducing global emission of CO2. It is found that the welfare maximizing tax rates are equal for households and firms not participating in emission trading, while firms that participate in emission trading should have a zero tax rate. Essays 3 and 4 deal with methodological issues. Essay 3 derives a new method for estimation of symmetric input-output tables from supply and use tables. This method solves the problem of negative coefficients, makes it possible to use both the industry and commodity technology assumptions simultaneously and enables the commodity technology assumption to be used even when the number of commodities is larger than the number of industries. Essay 4 describes the model used in the first two essays. The price structure developed here makes it possible to take into account price differences between different purchasers other than differences in tax rates. This essay also makes a comparison between the Swedish implementation of this model and other Swedish CGE-models used to analyse climate policy and energy taxation.

Ort, förlag, år, upplaga, sidor
Örebro: Örebro universitet, 2010. s. 27
Serie
Örebro Studies in Economics, ISSN 1651-8896 ; 19
Nyckelord
Optimal taxation, energy taxation, environmental taxes, emission trading, climate policy, carbon leakage, CGE-analysis, input-output tables
Nationell ämneskategori
Samhällsvetenskap Nationalekonomi
Forskningsämne
Nationalekonomi
Identifikatorer
urn:nbn:se:oru:diva-11902 (URN)978-91-7668-753-6 (ISBN)
Disputation
2010-11-12, Hörsal M, Fakultetsgatan 1, Örebro, 13:15 (Svenska)
Opponent
Handledare
Tillgänglig från: 2010-09-24 Skapad: 2010-09-24 Senast uppdaterad: 2017-10-17Bibliografiskt granskad

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Bohlin, Lars

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