Diamonds Are a Government's Best Friend: Burden-Free Taxes on Goods Valued for Their Values: Comments
One of the most startling tax policy prescriptions to appear in recent years is the "diamond good" tax of Yew-Kwang Ng (1987). Diamond goods are goods, such as diamonds, precious stones and metals, expensive fur coats, and luxurious cars, which are valued for their values more than for their intrinsic consumption effects. Consumers of diamond goods are viewed as deriving utility from exhibiting their wealth and/or by using these goods as a store of value and/or giving them as gifts of value. In these cases it is the value of the good that matters most. After analyzing the taxation of diamond goods, Ng formally asserts three propositions and a corollary. His principal findings are that "a change in the price of a diamond good leaves its value and the amounts of all other goods consumed, and hence the utility level of the consumer unaffected" (Proposition 1) and that " the demand curve for a diamond good is a rectangular hyberbola with unit elasticity throughout the whole range where it remains a pure diamond good" (Corollary 1). These findings form the basis for his conclusion that "a pure diamond good has an infinite tax in an optimal tax system" (Proposition 3). The taxation of diamond goods thus represents a burdenless tax policy panacea. The purpose of this paper is to reconsider the microeconomic analysis of the taxation of diamond goods. We show that the striking results of Ng depend on the particular way in which the diamond good is specified. We demonstrate that an alternative-and eminently reasonable -specification yields drastically different results, in that Ng's principal findings do not hold. Ng considers a representative consumer choosing among a single pure diamond good and n -1 ordinary consumption goods. The utility function is assumed to be well behaved and is written
Optimal Taxation on Mixed Diamond Goods: Implications for Private Car Ownership in China
The 'diamond effect' exists when a consumer's utility depends on the exchange value, not just on the intrinsic consumption effects of the good. Yew-Kwang Ng has discussed the optimal tax on a pure 'diamond' good. This paper extends Ng's model to cover mixed diamond goods. It uses three mathematical models to show that the optimal tax on a mixed diamond good with both intrinsic and diamond effects depends on the proportion of the diamond effect. The result may explain the violation of the Ramsey Rule in practice, and may be used to formulate private car taxes in China. Copyright 2004 Blackwell Publishing Asia Pty Ltd
Did the metamorphosis from Export Processing Zones to Special Economic Zones improve the efficiency of trade enclaves in India?
In this paper, the efficiency of seven conventional Special Economic Zones in India is analyzed, by adopting a stochastic production frontier technique, for the period between 1986–1987 and 2007–2008.Results indicate that although the efficiency scores of these enclaves have improved over the years, specifically with the introduction of the SEZ policy (2000–2001), it is far below the threshold level as identified in the literature. Besides, one can also observe a discrepancy emerging between better export earning zones and efficient zones. On the determinants side, policy intervention and large geographical area, accompanied by clustering of units, are found to have impacted the efficiency scores of these enclaves positively.