Applied Welfare Economics

Contents......Page 10
List of Figures......Page 14
List of Tables......Page 18
Introduction......Page 20
1. Measuring Welfare Changes—A Brief Overview......Page 26
1.1. Measuring Welfare Changes using Price–Quantity Comparisons......Page 28
1.1.1. Welfare Changes for Single Consumers......Page 29
1.1.2. Welfare Changes for Many Consumers......Page 33
1.2.1. Welfare Changes for Single Consumers......Page 42
1.2.2. Welfare Changes for Many Consumers......Page 51
1.3. Application: Measuring the Social Deadweight Losses from Distorting Taxation......Page 56
1.3.1. Measuring the Welfare Costs from Multiple Commodity Taxes......Page 59
1.4. Summary and Conclusions......Page 63
2. Conventional Shadow Prices......Page 67
2.1. A General Equilibrium Model of a Tax-distorted Economy......Page 71
2.1.1. A Conventional Welfare Equation......Page 75
2.2. Conventional (Harberger) Shadow Prices......Page 77
2.2.2. Efficiency Effects......Page 79
2.2.3. Income Effects and the Shadow Value of Government Revenue......Page 81
2.3. Project Evaluation......Page 88
2.4. Concluding Remarks......Page 89
3. Distributional Effects......Page 93
3.1. A Conventional Welfare Equation with Distributional Effects......Page 95
3.2.1. Shadow Prices......Page 97
3.3. Identifying Pareto Improvements—The Bruce-Harris-Diewert Approach......Page 98
3.3.1. Income Effects and the Shadow Value of Government Revenue......Page 99
3.3.2. The Welfare Effects from a Lump-sum Redistribution of Income......Page 101
3.5. Concluding Remarks......Page 102
4. Non-tax Distortions in Markets......Page 107
4.1. Price Controls......Page 108
4.1.1. Price Ceilings......Page 109
4.1.2. Price Floors and the Shadow Wage......Page 111
4.2. Production Quota......Page 121
4.3. Non-Competitive Behaviour......Page 123
4.4. Externalities......Page 125
4.5. Concluding Remarks......Page 130
5. International Trade......Page 134
5.1. Conventional Harberger Shadow Prices of Fully Traded Goods......Page 137
5.2.1. The Traditional Formula for the Shadow Exchange Rate......Page 138
5.2.2. Fixed versus Flexible Exchange Rates—and the Choice of Numeraire......Page 140
5.3. Compensated Shadow Prices and the Choice of Numeraire......Page 142
5.4. The Little-Mirrlees (1969) Result......Page 145
5.5. The Twin Deficits......Page 146
5.6. Quota Protection......Page 147
5.6.1. The Shadow Value of Import Quota......Page 148
5.6.2. The Shadow Prices of Quota Protected Goods......Page 150
5.7. Home-price Consumption Schemes......Page 151
5.8. The Effective Rate of Protection......Page 154
5.9. The Domestic Resource Cost Ratio......Page 157
5.10. Concluding Remarks......Page 159
6. Revised Shadow Prices......Page 164
6.1. Determinants of the Changes in Tax Inefficiency......Page 168
6.2. Efficiency Effects......Page 170
6.2.1. Determinants of the Compensated Changes in Tax Inefficiency......Page 173
6.3. Income Effects and the Revised Shadow Value of Government Revenue......Page 176
6.4. Project Evaluation......Page 177
6.5. Concluding Remarks......Page 178
7. The Marginal Social Cost of Public Funds......Page 181
7.1. Conventional Cost-Benefit Analysis and the MCF......Page 182
7.2.1. Efficiency Effects......Page 187
7.2.2. Income Effects......Page 189
7.3. The MCF in Project Evaluation......Page 192
7.4. A Modified Measure of the MCF......Page 193
7.5. The MCF for a Lump-sum Tax......Page 195
7.6.1. Measuring Distributional Effects—The Dréze-Stern Approach......Page 198
7.6.2. Identifying Pareto Improvements—The Bruce-Harris-Diewert Approach......Page 201
7.7. Progressive Taxation and the MCF......Page 202
7.8. Concluding Remarks......Page 207
8. Time and the Social Discount Rate......Page 212
8.1. Linear Income Taxation......Page 214
8.1.1. The Social Discount Rate—The Weighted Average Formula......Page 215
8.1.2. The Social Discount Rate with Multiple Time Periods......Page 216
8.1.3. The Marginal Excess Burden of Taxation......Page 218
8.2. Non-linear Income Taxation......Page 220
8.2.1. Personal Social Discount Rates......Page 222
8.2.2. The Marginal Excess Burden of Taxation......Page 223
8.3. Corporate Taxation......Page 224
8.3.1. A Classical Corporate Tax without Personal Taxes......Page 225
8.3.2. A Classical Corporate Tax with Personal Taxes—The Miller Equilibrium......Page 227
8.3.3. The Corporate Tax as a Withholding Tax......Page 230
8.3.4. Personal Social Discount Rates and Corporate Tax......Page 231
8.4. Social Discount Rates and Uncertainty......Page 232
8.4.1. Computing the Risk Premium with the CAPM......Page 233
8.4.2. The Arrow-Lind Theorem......Page 234
8.5. Concluding Remarks......Page 235
9. Optimal Commodity Taxation......Page 239
9.1. Ramsey Optimal Taxes......Page 240
9.1.1. Ramsey Optimal Taxes with Distributional Effects......Page 242
9.1.2. Project Evaluation and Ramsey Optimal Taxes......Page 243
9.2. Optimal Tax Rules and Piecemeal Tax Reform......Page 249
9.2.1. Optimal Tax Rules......Page 250
9.2.2. Piecemeal Tax Reform......Page 254
9.3. Concluding Remarks......Page 255
10. The Optimal Provision of Public Goods......Page 259
10.1. The Samuelson Condition with Lump-sum Taxation......Page 261
10.1.1. Income Effects and the Optimal Supply of Public Goods......Page 263
10.2. The Samuelson Condition with Distorting Taxation......Page 264
10.2.1. A Modified Measure of the MCF......Page 265
10.2.2. Income Effects and the MCF......Page 266
10.2.3. The Samuelson Condition with Production Inputs......Page 267
10.3. Distributional Effects......Page 270
10.3.1. The Samuelson Condition with Lump-sum Taxation......Page 272
10.3.2. The Samuelson Condition with Distorting Taxation......Page 273
10.3.4. The Revised Samuelson Condition in Slemrod and Yitzhaki (2001)......Page 274
10.4. Lindahl Prices......Page 275
10.5. Concluding Remarks......Page 277
11. Problems......Page 281
Appendix......Page 303
Bibliography......Page 320
F......Page 328
S......Page 329
W......Page 330
M......Page 331
S......Page 332
Y......Page 333