Can Fiscal Externalities Be Internalized? / Erzo F.P. Luttmer.

Format:

Book

Author/Creator:

Luttmer, Erzo F.P.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30213.

NBER working paper series no. w30213

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

Subsidies and in-kind transfers give rise to negative fiscal externalities. However, internalizing negative fiscal externalities through taxation would undo the subsidy or in-kind transfer that caused them. Similarly, positive fiscal externalities cannot be internalized though government subsidies. This paper describes a mechanism that transfers fiscal externalities from the government to private parties. Such transfers generate incentives within the private sector to reduce inefficiencies caused by fiscal externalities. Thus, the paper offers a straightforward, but powerful, insight: transferring fiscal externalities to third parties extends the reach of the Coase Theorem to inefficiencies stemming from fiscal externalities.

Notes:

Print version record

July 2022.