Goulder Burtraw Perry Fullerton

Goulder Burtraw Perry Fullerton - Double Dividend P Berck...

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Double Dividend © P. Berck 2003
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Sources Goulder, Parry, Burtraw. Rand 1997 Fullerton. AER 1997 Fullerton and Metcalf. NBER wp 6199 1997
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Pictures L .0 Dirty good X .0 t l Private mc mc Labor Demand Income tax distorts labor market while externality distorts goods market
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GPB Model 3 Goods Dirty X Clean Y Leisure H Dirty good externality PPF: T=X+Y+H Producer prices are all 1. T – H is labor Taxes • t X for X • t l for T-H, labor Gov’t revenue • TR= t l (T-H) + t x X Given back to consumer lump sum. Is constant
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Consumer Problem Consumer problem max U(X,Y,H) • s.t. (1+t x )X + Y =(1-t l )(T-H) + TR good X costs more than good Y • labor (T-H) is taxed at rate t l foc: U x =(1+t x ) λ ; U Y = λ ; U H =(1-t l ) λ λ is marginal utility of income • Demands are X(t x ,t l ), Y(), H(). Write X(t), Y(t), H(t) for short.
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Consumer prices for Goods Approx 1/(1-t l ) as 1+t l Budget constraint is then
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Goulder Burtraw Perry Fullerton - Double Dividend P Berck...

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