A.J. de Zeeuw

On the Optimal Taxation of Common-Pool Resources

Recent research developments in common-pool resource models emphasize the importance of links with ecological systems and the presence of non-linearities, thresholds and multiple steady states. In a recent paper Kossioris et al. (2008) develop a methodology for deriving feedback Nash equilibria for non-linear differential games and apply this methodology to a common-pool resource model of a lake where pollution corresponds to benefits and at the same time affects the ecosystem services. This paper studies the structure of optimal state-dependent taxes that steer the combined economic-ecological system towards the trajectory of optimal management, and provides an algorithm for calculating such taxes.

POLICY SOLUTIONS FOR A LINKED MODEL FOR TWO COMMON MARKET COUNTRIES

Abstract Mini-Interplay consists of two linked macroeconometric policy models for the Federal Republic of Germany and the Netherlands. The policy evaluation problem is formulated as a linear quadratic difference game. Algorithms are given for stagewise solutions with a pure feedback information structure for three solution concepts: the “noncooperative” Nash, the “hierarchical” Stackelberg and the “cooperative” Pareto concept. The set of Pareto solutions is parametrized by the weighing factor of the two cost functionals. The preferences are chosen such that acceptable Nash and Stackelberg solutions result. It is tried to meet the target paths of the objective variables or to do better under the restriction that the use of instrumental variables stays within acceptable bounds. The mostly unrealistic symmetry of the quadratic cost-functionals is taken into account. Those end-costs of the Pareto solutions which are individually rational with respect to the end-costs of the Nash solution form possible outcomes of a bargaining game. Following the axiomatic approach Nash and Kalai-Smorodinsky arbitration schemes are applied to arrive at acceptable Pareto solutions. Unfortunately, the corresponding weighing factors are not invariant under equivalent cost-functional representations.

CORPORATE TAX RATE POLICY AND PUBLIC AND PRIVATE EMPLOYMENT

Abstract High tax revenues give the government the opportunity to create public employment. However, if the government tries to increase total tax revenues by increasing the corporate tax rate, two negative effects are invoked. Investment decreases, so that generally future tax revenues and private employment decrease. With the purpose to analyse this trade-off a dynamic game between the government and a representative firm is formulated. The governments objective is maximal total employment and the governments instrument is a corporate tax rate policy. The firms objective is maximal total dividends and the firms instrument is an investment rate policy. In general it is optimal for the government to start with a low corporate tax rate and to end with a high corporate tax rate. However, the switching time depends on the credibility and reputation of the government. If the government is committed to an announced policy, even if this announced policy becomes suboptimal over time, and if the firm is expected to believe so, the open-loop Stackelberg outcome of the game results. If the government is not committed to an announced policy and if the firm expects rational behaviour of the government at all times, the feedback Stackelberg outcome results. It is shown that in the open-loop outcome the switch in policy occurs later and the results are better for both the government and the firm than in the feedback outcome. Finally, the sensitivity of this switching time with respect to the capital/labour intensiveness is investigated.

Corporate Tax Rate Policy and Public and Private Employment

Abstract High tax revenues give the government the opportunity to create public employment. However, if the government tries to increase total tax revenues by increasing the corporate tax rate, two negative effects are invoked. Investment decreases. so That generally future tax revenues and private employment decrease. With the purpose to analyse this trade-off a dynamic game between the government and a representative firm is formulated. The governments objective is maximal total employment and the governments instrument is a corporate tax rate policy. The firms objective is maximal total dividends and the firms instrument is an investment rate policy. In general it is optimal for the government to start with a low corporate tax rate and to end with a high corporate tax rate. However, the switching time depends on the credibility and reputation of the government. If the government is committed to an announced policy, even if this announced policy becomes suboptimal over time, and if the firm is expected to believe so, the open-loop Stackelberg outcome of the game results. If the government is not committed to an announced policy and if the firm expects rational behaviour of the government at all times, the feedback Stackelberg outcome results. It is shown that in the open-loop outcome the switch in policy occurs later and the results are better for both the government and the firm than in the feedback outcome. Finally, the sensitivity of this switching time with respect to the capital/labour intensiveness is investigate.