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Comments on: Caps, taxes and The Man http://www.tvhe.co.nz/2007/11/06/caps-taxes-and-the-man/ The Visible Hand in Economics Tue, 06 Nov 2007 03:31:23 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: rauparaha http://www.tvhe.co.nz/2007/11/06/caps-taxes-and-the-man/#comment-480 Tue, 06 Nov 2007 03:31:23 +0000 http://tvhe.wordpress.com/2007/11/06/caps-taxes-and-the-man/#comment-480 I dunno. The level of taxation will be designed to take into account the offsetting effect of the compensation to low income families. It might be as easy as making the income tax system a bit more progressive to offset the effect of the flat carbon tax. The only efficiency losses should come from the inherent deadweight loss form taxation and the administrative costs of the scheme.

]]> By: Matt Nolan http://www.tvhe.co.nz/2007/11/06/caps-taxes-and-the-man/#comment-479 Tue, 06 Nov 2007 03:13:56 +0000 http://tvhe.wordpress.com/2007/11/06/caps-taxes-and-the-man/#comment-479 Well, if the concern is that the poor are suffering, you could use the additional revenue to compensate the poor to make them indifferent (or at least less bad off, as it would take a greater increase in income to reach the same indifference curve) between the permit and non-permit states of the world.

As the permit should increase the price the consumer pays for polluting goods, compensating them will still lead to a net decrease in consumption of polluting products unless demand for polluting products is perfectly inelastic (since the relative price of polluting goods is higher).

Some people complain that this ‘defeats the purpose’ as the reduction is not as large is when the government does not compensate. As a result, we have a clear trade-off between the efficiency and equity of the system, this is where normative judgments come in, and I look confused 🙂

]]> By: rauparaha http://www.tvhe.co.nz/2007/11/06/caps-taxes-and-the-man/#comment-478 Tue, 06 Nov 2007 02:05:25 +0000 http://tvhe.wordpress.com/2007/11/06/caps-taxes-and-the-man/#comment-478 Hi, thanks for your comment. Unfortunately, I’m not all that familiar with the particular implementations of carbon permits schemes. I was under the general impression that permits were usually grandfathered and occasionally the rights were auctioned. I didn’t realise that they are often ‘leased’ and payment is made to the government regularly so thanks for pointing that out. I guess such a scheme would create a long term revenue stream for the government that should be the same as an efficient tax’s revenue.

I have rewritten my post to mention the permits you talk about. Does it make more sense now? Hopefully it is at least a bit more accurate 🙂

]]> By: Daniel Hall http://www.tvhe.co.nz/2007/11/06/caps-taxes-and-the-man/#comment-477 Mon, 05 Nov 2007 15:16:57 +0000 http://tvhe.wordpress.com/2007/11/06/caps-taxes-and-the-man/#comment-477 A permit trading scheme does not do this; at best it can create one off revenues from the auction of the permits.

I’m not sure I understand this critique, particularly the “one off” comment. For example, in the EU ETS there are annual emissions permits that could be auctioned every year (in reality the vast majority are given away for free, but in theory the could provide a stable revenue stream). All major cap-and-trade proposals in the U.S. would work the same way (and would involve much higher auction percentages than currently prevail in Europe). Could you elaborate?

]]> By: Caps, taxes and The Man http://www.tvhe.co.nz/2007/11/06/caps-taxes-and-the-man/#comment-476 Mon, 05 Nov 2007 13:15:35 +0000 http://tvhe.wordpress.com/2007/11/06/caps-taxes-and-the-man/#comment-476 […] Read the rest of this great post here […]

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