DIRK KRUEGER, University of Pennsylvania - Department of Economics, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)
Email: dirk.krueger@wiwi.uni-frankfurt.de
ALEXANDER LUDWIG, University of Cologne - Faculty of Management, Economics and Social Sciences
Email: ludwig@wiso.uni-koeln.de

In this paper we characterize quantitativelya the optimal mix of progressive income taxes and education subsidies in a model with endogeneous himan capital formation, borrowing constraints, income risk and incomplete financial markets. Progressive labor income taxes provide social insurance against idiosyncratic income risk and redistributes after tax income among ex-ante heterogenous households. In addition to the standard distortions of labor supply progressive taxes also impede the incentives to acquire higher education, generation a non-trivial trade-off for the benevolent utilitatian government. The latter distortion can potentially be mitigated by an education subsidy. We find that the welfare-maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education. Both the degree of tax progressivity and the education subsidy are larger than in the current U.S. status quo.

AKSHAY SHANDILYA, Hidayatullah National Law University
Email: akshay.shandilya@hotmail.com

In this article the author examines, in brief, the existing tax system in India but gradually shifts to explaining Goods and Services Tax, which is to be inducted in the Indian system soon. Though the Parliament, Government appointed Task Force and Empowered Committees have decided in favour of GST induction several public policy think tanks, despite their inclination towards the new tax, have cited roadblocks which the authorities may encounter. With many federal states opposing the conditions mentioned in the 115th Constitution Amendment Bill which seeks to implement the Goods and Services tax, it still remains a distant dream. This article studies the impact of GST in the Indian framework and by what standards would it ameliorate the nation’s high fiscal deficit once it is put into operation.

PATRICK A. PARENTEAU, Vermont Law School
Email: pparenteau@vermontlaw.edu
ABIGAIL BARNES, Vermont Law School, Yale University
Email: abarnes@vermontlaw.edu

Energy policy in the United States is once again at a crossroads. Hydraulic fracturing combined with the breakthrough technology of horizontal drilling has opened up a vast store of natural gas deposits formerly locked deep beneath the earth. Experts are calling natural gas a foundational fuel for the 21st century and a bridge to a cleaner, more climate-friendly energy future. At the same time the pace of climate change is accelerating, the damage to human and natural communities is mounting, and the window of opportunity to avoid catastrophic consequences later this century is closing fast. We cannot negotiate the laws of physics. Bold and decisive action is needed to decarbonize the energy sector with all deliberate speed.

Depending on how it is used, natural gas could either be part of the solution to climate change or it could perpetuate our dependence on fossil fuels. At the combustion stage gas is a less carbon intensive fuel than coal. But whether it is better for the climate depends on how well its life cycle methane emissions, which are at present inadequately quantified, can be controlled. However, even with negligible methane leakage, a massive investment in a new — albeit environmentally preferable — fossil fuel infrastructure threatens to stall the rapidly emerging markets for renewables and stifle efficiency enhancements. Based on the weight of evidence amassed by the world’s leading climate scientists, we have reached a critical juncture for investments in the electricity sector. What happens in the next five, ten, and twenty years is vastly more important than what happens in the next fifty to a hundred years.

This article argues that gas cannot provide a bridge to a safe climate. Absent a coherent set of policies to insure that gas does not crowd out renewables, we face another carbon lock-in that will take a half-century to undo. To avoid this dead end, we propose four “off ramp� policies. First, Congress must adopt a graduated carbon tax that helps reduce the deficit, provides rebates to low-income taxpayers, and invests a modest amount in clean energy. While implementing this tax may not be politically feasible at the moment, the merits of well-designed tax on carbon pollution are too compelling to ignore forever. A number of countries have adopted carbon taxes including Australia, China, Finland, India and Japan. Second, the energy playing field must be leveled, which requires ending subsidies for fossil fuels, closing regulatory loopholes that favor gas, and providing tax and other incentives to allow quicker and deeper penetration of renewables into the electricity market. Third, energy efficiency must be ramped up through cost-effective measures with high rates of return and job creation benefits. Fourth, gas and renewables should be integrated in a complementary fashion through long-term planning and better forecasting, widespread deployment of smart grid technologies, and using wind and solar as hedges against gas price volatility.

Finally we call on President Obama to make good on his pledge to “respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations.� The primary responsibility of the president is to protect Americans from existential threats like climate change. President Obama’s legacy may well be defined by how vigorously he uses the authority he already has under the Clean Air Act and other laws to lower GHG emissions, and how well he uses the bully pulpit to galvanize public support to dislodge a recalcitrant Congress and chart a new energy path for the nation and the world.

FRANK CALIENDO, Utah State University
Email: frank.caliendo@usu.edu
T. SCOTT FINDLEY, Utah State University
Email: tscott.findley@usu.edu

We revisit the role of social security in countering inadequate saving for retirement. We compute the optimal social security tax rate for households who lack the computational ability to solve dynamic optimization problems. Instead, they follow the simple rule of thumb of consuming and saving a fixed fraction of disposable income. This departs from the tradition of computing the optimal tax rate when households suffer from some type of behavioral bias yet possess the ability to solve dynamic optimization problems. Our general equilibrium model is calibrated to the moments of the distribution of saving rates in the US, and our results are generally supportive of a social security program as large as the one in the US.

MACIEJ K. DUDEK, Institute of Economics of the Polish Academy of Sciences (INE PAN)
Email: mkdudek@alumni.caltech.edu

This paper solves an often neglected problem of efficient taxation where the policymaker is interested in minimizing the dead weight burden imposed on the society by labor income taxes. Specifically, it argues that the efficient tax function assumes the form of a step function. Furthermore, it allows the policymaker to exhibit aversion towards inequality and shows that the key result prevails, (i.e., that the tax function that ensures efficiency is locally flat).

DAVID MARTIMORT, University of Toulouse 1 - Industrial Economic Institute (IDEI), CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: martimor@cict.fr
WILFRIED SAND�ZANTMAN, University of Toulouse 1 - Toulouse School of Economics (TSE)

This paper discusses the feasibility and performances of simple mechanisms to implement international environmental agreements in the multilateral externalities context of global warming. Asymmetric information and voluntary participation by sovereign and heterogeneous countries are key constraints on the design of those agreements. Mechanisms must prevent two sorts of free�riding problems – free riding in effort provision and free riding in participation. As markets might fail to solve simultaneously those two problems, we construct instead a simple menu of options that trades off the provision of incentives for participating countries and the provision of incentives to participate. With such a mechanism, all countries voluntarily contribute to a fund, although at different intensities, but only the most efficient ones effectively reduce their pollution below its ‘business as usual’ level.

Résoudre le problème du réchauffement climatique global : au�delà des marchés, des mécanismes simples peuvent aider. Ce texte examine l'utilité et la performance de mécanismes simples pour mettre en place des accords environnementaux internationaux dans le contexte des externalités multilatérales du réchauffement global. L'information asymétrique et la nécessité d'obtenir la participation volontaire de pays hétérogènes et indépendants constituent des contraintes importantes dans le dessein de ces accords. L'utilisation de mécanismes peut prévenir deux sortes de comportement de passager clandestin � dans l'effort à fournir et dans la participation. Comme les marchés peuvent faillir dans la résolution de ces deux problèmes, on construit un simple menu d'options qui négocient des relations d’équivalence entre les incitations pour les pays participants à s'impliquer, et les incitations pour les pays à participer. Avec un tel mécanisme, tous les pays contribuent volontairement à un fond , même si c'est avec des intensités diverses, mais seulement les plus efficaces réduisent effectivement leurs émissions polluantes en dessous du niveau de la routine habituelle.