Despite abundant studies of the application of pension systems in developed countries, little work has been done on how to apply a sustainable pension system in developing countries. The set-up of pension systems in developed countries and developing countries are expected to be different because in developing countries, labor is concentrated in the informal production sectors, while labor in developed countries is concentrated in the formal production sectors. Informal production sectors are sectors where the government, either central or local government, has little access to implement fiscal policies (taxes and subsidies) on firms and labor. This research develops a comprehensive system on how to set-up pension policies generally in developing countries and specifically in Indonesia. The basic set-up of the pension system suggested in this dissertation is as follows: a short run consumption tax policy to finance a defined benefit plan to support minimum physical needs of the older population, a medium run labor income tax policy to finance individuals' defined contribution fully funded savings plan, and a long run skilled labor creation through university education so that individuals are able to self-finance their own pension savings through the fully funded savings plan. The defined benefit plan is important because it can serve as a societal redistribution tool, while the defined contribution plan serves as a household savings tool. In addition, the skilled labor creation serves as a supporting tool so that the pension program is sustained in the long run. A theoretical model is developed from Auerbach and Kotlikoff overlapping generation (OLG) computable general equilibrium (CGE) model and specified for the Indonesian economy by introducing heterogeneity in households, where skilled and unskilled labor exist. In writing the model in terms of computer language, we apply an approach named mathematical programming system for general equilibrium analysis (MPSGE), developed by Thomas Rutherford. Some parameters used in the model are estimated by using econometric methods. The OLG-CGE model is applied in order to analyze the impact of consumption taxes and pension taxes on labor supply and also to calculate the equivalent variation of the distribution of consumption taxes burden across generations. Meanwhile, the impact of skilled labor creation on economic growth is calculated by applying linear algebra. The main macroeconomy data is taken from the Indonesian social accounting matrix (SAM) year 2000. Meanwhile, labor data are taken from the Indonesian labor conditions 1998-2003. The findings in this dissertation are as follows: for the equivalent variations, the consumption taxes for USD 1, USD 2, and USD 3 cash transfers per day person gave more benefit to the skilled labor than to the unskilled ones. In the meantime, the consumption taxes for USD 1 cash transfer gave incentives to the highest amount of labor, both skilled and unskilled labor, to work in the formal sector. The amount of labor after the consumption taxes for USD 1 cash transfer is higher than the initial condition. Increasing the consumption taxes for the USD 2 cash transfer only decreased the amount of labor work in the formal sector, with the amount of skilled labor decreased more than the unskilled labor. In addition, increasing the consumption taxes for the USD 3 cash transfer would also decrease the amount of labor work in the formal sector, with the amount of unskilled labor decreased more than skilled labor. We also find that the elasticity of government education expenditures on skilled labor creation is roughly 0.3. This means that if the Indonesian central government would like to eliminate the informal sector by 25 percent within 20 years, or an average 1.25 percent annually, they should increase the government education expenditures to 8 percent of total annual government budget. Other findings are that the increase of skilled labor would contribute positively to Indonesian economic growth, while the consumption taxes and the fully funded pension taxes would be likely to reduce current economic growth but increase the future one. Finally, these are the theoretical contributions to public finance literature: first, given dual formal and informal labor sectors present in an economy, where the latter is dominant, taxation of expenditures is preferred to taxation of income because the first may induce labor to work in the formal sector; second, given dual formal and informal labor sectors present in an economy, where the latter is dominant, there exists an optimal rate of consumption taxes that provides incentives for the highest amount of labor, skilled and unskilled labor, to work in the formal sector.

本研究利用台灣2001年資料以Ramsey與OLG假設分別建立區分四部門別與八部門別之動態可計算一般均衡模型，進行「提高間接稅（消費稅、環境稅）、降低直接稅（資本、勞動所得稅）」之稅制改革模擬分析。結果發現若以單一時點比較靜態方式分析可能迥異於動態長期分析結果；其次以Ramsey分析所欠缺的代際分配影響結果在OLG分析中可以察見，特別是進行以消費稅或環境稅替代資本所得稅模擬時；再者OLG因代際傳遞效果可能較Ramsey假設下反應緩慢，故也可觀察到Ramsey模型面對衝擊後若干變數增減幅度會較OLG模型陡峭。最後特別在環境稅替代所得稅模擬中經由替代稅率變化發現，活在初期世代雖可享受所得稅下降好處但卻也面臨排放稅課徵，因此福利水準增減變化不大，惟屆至排放稅課徵瀕至臨界點需使用原所得稅來平衡稅收時，此為另一波必須為減量政策付出代價的時點與世代。 / Based on a thorough comparison of the basic assumptions and economic underpinning of the Ramsey and Overlapping generation (OLG) model, this study builds both static and dynamic computable general equilibrium tax policy models to analyze the effect of tax reform on Taiwan’s economy. The new tax structure considers mainly a replacement of some parts of direct tax - labor and capital income taxes by indirect tax- consumption tax or environment tax. The benchmark year of the model is 2001, and the economy is divided into four and eight sectors. The modeling framework is implemented on top of MPSGE, which is a special module within the General Algebraic Modeling System (GAMS).Our simulation results show differential outcomes for static and dynamic models. The slower speed of transition inherent in OLG model has caused variables such as welfare, capital stock, and replacement consumption tax rate change less than that in the Ramsey model when the tax reform policy is imposed. And the intergeneration effects of different tax burden between young and old generations can be found in the OLG model but not in the Ramsey model. Finally, we find as the income tax rate coming lower and the environment tax going up when simulation of tax replacement, causing the welfare does not change much at the beginning of shock, and generations especially born in the near future when environment tax does not grow and revenue neutrality needs to be meet are another cost payers of abatement policy.

Thesis Abstract: Chapter I: Regional burden sharing of GHG mitigation policies – A Canadian perspective. The distribution of the burden of cost arising from the reduction of greenhouse gas (GHG) emissions is a contentious issue in policy discussions; more so among regional jurisdictions in the federalist countries with decentralized authorities over environmental regulations. In this setting, often the policy discussions are focused on the distribution of regional emission reduction targets that, in turn, entails negotiations over the distribution of the scarcity rents and the regional transfers of wealth. The allocation of regional emission entitlements is thus a key factor that could hinder the political feasibility of a national GHG mitigation policy. In this paper, we build a multi-region computable general equilibrium (CGE) model of the Canadian economy to assess the implications of different burden sharing rules governing the national GHG abatement policy with a cap-and-trade system of emission permits. In addition to assessing the impacts of traditional regional emissions allocation rules that involve intra-regional transfers of wealth, we consider a particular emission allocation that avoids such transfers, which may be a more palatable option given the context of likely fierce negotiations over the issue. Our results indicate to differing outcomes depending on the allocation policy in use. The CGE framework is also able to shed light on the transmission mechanisms that drive the results underlying the policy options. Chapter II: Endogenous technological change and emission allowances. Given the imminent threat of global warming due to GHG emissions, a number of emission mitigation policies have been proposed in the literature. However, they generally suffer from the classical equity-efficiency trade-off. High costs from equity concerns often render environmental policies politically unattractive and thus hard to implement. Recent advancement in the climate policy modeling literature that incorporates endogenous technological change (ETC) into the framework can potentially bring new insights into this debate. Using an inter-temporal, multi-sector CGE approach with ETC incorporated into the framework, this paper builds a model that focuses on the equity-efficiency debate for the policymakers. Canada is chosen as the country of investigation for this purpose. The paper provides a new welfare ranking of four permit allocation policies that address the equity-efficiency trade-off. In a second-best setting with pre-existing distortions, output-based allocation (OBA) of emission permits is compared to three other policy options: (i) an emissions trading system with grandfathered allocation (GFA), (ii) an auction permit trading system where permit revenue is recycled to lower payroll taxes (RPT), and (iii) a hybrid of OBA and R&D subsidy (O-R&D). We find that adapting OBA, as well as O-R&D, is welfare improving over GFA. The implicit output subsidy, entailed in the OBA policy, mitigates against the rising cost effect in the GFA policy. This is reinforced through added investment incentive in R&D when ETC in incorporated into the framework. With O-R&D, since the R&D subsidy corrects for market imperfections in the knowledge accumulation process, the effect is further bolstered, culminating into mitigation of uneven distributional outcome for energy-intensive industries as a whole. Contrary to previous results, we also find that, in terms of the welfare metric, OBA unequivocally improves the distributional outcome across sectors as compared to the RPT policy. Inclusion of ETC also unequivocally generates a higher welfare ranking for all permit policy schemes. Chapter III: Emission permit banking and induced technological change. This paper attempts to undertake an exploratory research by integrating two themes in the emission mitigation policy literature, which include: the inter-temporal emission permit banking and borrowing and the role of induced technological change in emission mitigation. Using a simple optimal control approach, we construct a unified framework that evaluates the optimal path of emissions and the optimal trajectory of permit price when both inter-temporal banking and borrowing of permits and the effects of induced technological change (ITC) are present. We find that ITC leads to a declining emission trajectory over time. The effect of ITC on the optimal permit price path, however, is ambiguous and critically depends on the extent of marginal cost saving that emanates from emission-saving technological innovation.

Thesis Abstract: Chapter I: Regional burden sharing of GHG mitigation policies – A Canadian perspective. The distribution of the burden of cost arising from the reduction of greenhouse gas (GHG) emissions is a contentious issue in policy discussions; more so among regional jurisdictions in the federalist countries with decentralized authorities over environmental regulations. In this setting, often the policy discussions are focused on the distribution of regional emission reduction targets that, in turn, entails negotiations over the distribution of the scarcity rents and the regional transfers of wealth. The allocation of regional emission entitlements is thus a key factor that could hinder the political feasibility of a national GHG mitigation policy. In this paper, we build a multi-region computable general equilibrium (CGE) model of the Canadian economy to assess the implications of different burden sharing rules governing the national GHG abatement policy with a cap-and-trade system of emission permits. In addition to assessing the impacts of traditional regional emissions allocation rules that involve intra-regional transfers of wealth, we consider a particular emission allocation that avoids such transfers, which may be a more palatable option given the context of likely fierce negotiations over the issue. Our results indicate to differing outcomes depending on the allocation policy in use. The CGE framework is also able to shed light on the transmission mechanisms that drive the results underlying the policy options. Chapter II: Endogenous technological change and emission allowances. Given the imminent threat of global warming due to GHG emissions, a number of emission mitigation policies have been proposed in the literature. However, they generally suffer from the classical equity-efficiency trade-off. High costs from equity concerns often render environmental policies politically unattractive and thus hard to implement. Recent advancement in the climate policy modeling literature that incorporates endogenous technological change (ETC) into the framework can potentially bring new insights into this debate. Using an inter-temporal, multi-sector CGE approach with ETC incorporated into the framework, this paper builds a model that focuses on the equity-efficiency debate for the policymakers. Canada is chosen as the country of investigation for this purpose. The paper provides a new welfare ranking of four permit allocation policies that address the equity-efficiency trade-off. In a second-best setting with pre-existing distortions, output-based allocation (OBA) of emission permits is compared to three other policy options: (i) an emissions trading system with grandfathered allocation (GFA), (ii) an auction permit trading system where permit revenue is recycled to lower payroll taxes (RPT), and (iii) a hybrid of OBA and R&D subsidy (O-R&D). We find that adapting OBA, as well as O-R&D, is welfare improving over GFA. The implicit output subsidy, entailed in the OBA policy, mitigates against the rising cost effect in the GFA policy. This is reinforced through added investment incentive in R&D when ETC in incorporated into the framework. With O-R&D, since the R&D subsidy corrects for market imperfections in the knowledge accumulation process, the effect is further bolstered, culminating into mitigation of uneven distributional outcome for energy-intensive industries as a whole. Contrary to previous results, we also find that, in terms of the welfare metric, OBA unequivocally improves the distributional outcome across sectors as compared to the RPT policy. Inclusion of ETC also unequivocally generates a higher welfare ranking for all permit policy schemes. Chapter III: Emission permit banking and induced technological change. This paper attempts to undertake an exploratory research by integrating two themes in the emission mitigation policy literature, which include: the inter-temporal emission permit banking and borrowing and the role of induced technological change in emission mitigation. Using a simple optimal control approach, we construct a unified framework that evaluates the optimal path of emissions and the optimal trajectory of permit price when both inter-temporal banking and borrowing of permits and the effects of induced technological change (ITC) are present. We find that ITC leads to a declining emission trajectory over time. The effect of ITC on the optimal permit price path, however, is ambiguous and critically depends on the extent of marginal cost saving that emanates from emission-saving technological innovation.

Thesis Abstract: Chapter I: Regional burden sharing of GHG mitigation policies – A Canadian perspective. The distribution of the burden of cost arising from the reduction of greenhouse gas (GHG) emissions is a contentious issue in policy discussions; more so among regional jurisdictions in the federalist countries with decentralized authorities over environmental regulations. In this setting, often the policy discussions are focused on the distribution of regional emission reduction targets that, in turn, entails negotiations over the distribution of the scarcity rents and the regional transfers of wealth. The allocation of regional emission entitlements is thus a key factor that could hinder the political feasibility of a national GHG mitigation policy. In this paper, we build a multi-region computable general equilibrium (CGE) model of the Canadian economy to assess the implications of different burden sharing rules governing the national GHG abatement policy with a cap-and-trade system of emission permits. In addition to assessing the impacts of traditional regional emissions allocation rules that involve intra-regional transfers of wealth, we consider a particular emission allocation that avoids such transfers, which may be a more palatable option given the context of likely fierce negotiations over the issue. Our results indicate to differing outcomes depending on the allocation policy in use. The CGE framework is also able to shed light on the transmission mechanisms that drive the results underlying the policy options. Chapter II: Endogenous technological change and emission allowances. Given the imminent threat of global warming due to GHG emissions, a number of emission mitigation policies have been proposed in the literature. However, they generally suffer from the classical equity-efficiency trade-off. High costs from equity concerns often render environmental policies politically unattractive and thus hard to implement. Recent advancement in the climate policy modeling literature that incorporates endogenous technological change (ETC) into the framework can potentially bring new insights into this debate. Using an inter-temporal, multi-sector CGE approach with ETC incorporated into the framework, this paper builds a model that focuses on the equity-efficiency debate for the policymakers. Canada is chosen as the country of investigation for this purpose. The paper provides a new welfare ranking of four permit allocation policies that address the equity-efficiency trade-off. In a second-best setting with pre-existing distortions, output-based allocation (OBA) of emission permits is compared to three other policy options: (i) an emissions trading system with grandfathered allocation (GFA), (ii) an auction permit trading system where permit revenue is recycled to lower payroll taxes (RPT), and (iii) a hybrid of OBA and R&D subsidy (O-R&D). We find that adapting OBA, as well as O-R&D, is welfare improving over GFA. The implicit output subsidy, entailed in the OBA policy, mitigates against the rising cost effect in the GFA policy. This is reinforced through added investment incentive in R&D when ETC in incorporated into the framework. With O-R&D, since the R&D subsidy corrects for market imperfections in the knowledge accumulation process, the effect is further bolstered, culminating into mitigation of uneven distributional outcome for energy-intensive industries as a whole. Contrary to previous results, we also find that, in terms of the welfare metric, OBA unequivocally improves the distributional outcome across sectors as compared to the RPT policy. Inclusion of ETC also unequivocally generates a higher welfare ranking for all permit policy schemes. Chapter III: Emission permit banking and induced technological change. This paper attempts to undertake an exploratory research by integrating two themes in the emission mitigation policy literature, which include: the inter-temporal emission permit banking and borrowing and the role of induced technological change in emission mitigation. Using a simple optimal control approach, we construct a unified framework that evaluates the optimal path of emissions and the optimal trajectory of permit price when both inter-temporal banking and borrowing of permits and the effects of induced technological change (ITC) are present. We find that ITC leads to a declining emission trajectory over time. The effect of ITC on the optimal permit price path, however, is ambiguous and critically depends on the extent of marginal cost saving that emanates from emission-saving technological innovation.

Thesis Abstract: Chapter I: Regional burden sharing of GHG mitigation policies – A Canadian perspective. The distribution of the burden of cost arising from the reduction of greenhouse gas (GHG) emissions is a contentious issue in policy discussions; more so among regional jurisdictions in the federalist countries with decentralized authorities over environmental regulations. In this setting, often the policy discussions are focused on the distribution of regional emission reduction targets that, in turn, entails negotiations over the distribution of the scarcity rents and the regional transfers of wealth. The allocation of regional emission entitlements is thus a key factor that could hinder the political feasibility of a national GHG mitigation policy. In this paper, we build a multi-region computable general equilibrium (CGE) model of the Canadian economy to assess the implications of different burden sharing rules governing the national GHG abatement policy with a cap-and-trade system of emission permits. In addition to assessing the impacts of traditional regional emissions allocation rules that involve intra-regional transfers of wealth, we consider a particular emission allocation that avoids such transfers, which may be a more palatable option given the context of likely fierce negotiations over the issue. Our results indicate to differing outcomes depending on the allocation policy in use. The CGE framework is also able to shed light on the transmission mechanisms that drive the results underlying the policy options. Chapter II: Endogenous technological change and emission allowances. Given the imminent threat of global warming due to GHG emissions, a number of emission mitigation policies have been proposed in the literature. However, they generally suffer from the classical equity-efficiency trade-off. High costs from equity concerns often render environmental policies politically unattractive and thus hard to implement. Recent advancement in the climate policy modeling literature that incorporates endogenous technological change (ETC) into the framework can potentially bring new insights into this debate. Using an inter-temporal, multi-sector CGE approach with ETC incorporated into the framework, this paper builds a model that focuses on the equity-efficiency debate for the policymakers. Canada is chosen as the country of investigation for this purpose. The paper provides a new welfare ranking of four permit allocation policies that address the equity-efficiency trade-off. In a second-best setting with pre-existing distortions, output-based allocation (OBA) of emission permits is compared to three other policy options: (i) an emissions trading system with grandfathered allocation (GFA), (ii) an auction permit trading system where permit revenue is recycled to lower payroll taxes (RPT), and (iii) a hybrid of OBA and R&D subsidy (O-R&D). We find that adapting OBA, as well as O-R&D, is welfare improving over GFA. The implicit output subsidy, entailed in the OBA policy, mitigates against the rising cost effect in the GFA policy. This is reinforced through added investment incentive in R&D when ETC in incorporated into the framework. With O-R&D, since the R&D subsidy corrects for market imperfections in the knowledge accumulation process, the effect is further bolstered, culminating into mitigation of uneven distributional outcome for energy-intensive industries as a whole. Contrary to previous results, we also find that, in terms of the welfare metric, OBA unequivocally improves the distributional outcome across sectors as compared to the RPT policy. Inclusion of ETC also unequivocally generates a higher welfare ranking for all permit policy schemes. Chapter III: Emission permit banking and induced technological change. This paper attempts to undertake an exploratory research by integrating two themes in the emission mitigation policy literature, which include: the inter-temporal emission permit banking and borrowing and the role of induced technological change in emission mitigation. Using a simple optimal control approach, we construct a unified framework that evaluates the optimal path of emissions and the optimal trajectory of permit price when both inter-temporal banking and borrowing of permits and the effects of induced technological change (ITC) are present. We find that ITC leads to a declining emission trajectory over time. The effect of ITC on the optimal permit price path, however, is ambiguous and critically depends on the extent of marginal cost saving that emanates from emission-saving technological innovation.