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

By:

Luttmer, Erzo F.P

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w30213.Publication details: Cambridge, Mass. National Bureau of Economic Research 2022.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w30213 (Browse shelf(Opens below))	Not For Loan

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July 2022.

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.