Optimal tax policy under heterogeneous environmental preferences (original) (raw)

Optimal consumption Taxes, Cross-Border Pollution and Economic Integration

2013

We consider a two-good, two small open economies model with crossborder pollution that is generated from consumption. Within this framework we examine i) the Nash-equilibrium consumptions taxes and compare them to the case where pollution is only local, ii) the cooperative equilibrium consumption taxes and we compare them to the Nash tax rates, and iii) cases where cooperative taxes are different between countries. Many results of the paper depend on wheather pollution and the polluting good are complements or substitutes in consumption.

Second-Best Pollution Taxes and the Structure of Preferences

2001

We characterize optimal taxes on polluting and nonpolluting goods in Ramsey and Mirrlees second-best environments. The polluting good tax differs from the Pigouvian tax by Ramsey terms in the first and by Stiglitz/Mirrlees plus another adjustment term in the second. These terms can be positive, negative, or zero. If preferences are weakly separable in public and private goods, with the

Tax competition in the presence of environmental spillovers

International Tax and Public Finance, 2021

This paper examines the e¢ ciency of destination-and origin-based consumption taxes, in the presence of consumption generated perfect cross-border pollution spillovers, when tax revenue either …nances public pollution abatement or it is lump-sum distributed. When consumption tax revenue …nances the provision of public pollution abatement and regions have identical preferences then, the non-cooperative equilibrium origin-based consumption taxes are e¢ cient while the destination-based consumption taxes are ine¢ ciently low. When, however, consumption tax revenue is lump-sum distributed, then, the destination-based tax principle leads to ine¢ ciently low taxes while the origin-based tax principle leads either to ine¢ ciently high or low taxes.

The Welfare Consequences of Pollution-Tax Harmonization

Environmental and Resource Economics, 2012

A key, and often controversial, issue in environmental negotiations is the appropriate extent of harmonization of the participating countries' environmental policies. This paper, within a general equilibrium model of international trade with endogenous pollution discharges, identi…es instances in which pollution-tax harmonization can deliver potential Pareto improvements.

Taxing pollution: agglomeration and welfare consequences

Economic Theory, 2014

This paper demonstrates that a pollution tax with a …xed cost component may lead, by itself, to segregation between clean and dirty …rms without heterogeneous preferences or increasing returns. We construct a simple model with two locations and two industries (clean and dirty) where pollution is a by-product of dirty good manufacturing. Under proper assumptions, a completely strati…ed con…guration with all dirty …rms clustering in one city emerges as the only equilibrium outcome when there is a …xed cost component of the pollution tax. Moreover, a strati…ed Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax. To support such a strati…ed Pareto optimum, however, an e¤ective but unconventional policy prescription is to redistribute the pollution tax revenue from the dirty to the clean city residents.

Optimal Tax Policies with Private-Public Clean-Up, Cross-Border Pollution and Capital Mobility

2002

This paper builds a model of a region with two non-identical countries, cross-border pollution and free movements of goods and capital within the region. Pollution reduces welfare and there is simultaneous private and public pollution abatement. Public pollution abatement is financed with the use of lump-sum and pollution tax revenue. The introduction of public pollution abatement enables us to derive the optimal pollution taxes in terms of the marginal cost of public pollution abatement. We derive and compare for each country the Nash and cooperative lump-sum and pollution taxes and examine how cross-border pollution and capital mobility affect them. Finally, we examine the impact of capital mobility on the effectiveness of pollution taxes on net pollution. JEL Classification: F18, F22, H21.

Environmental taxation with endogenous choice of environmental quality

The present paper examines the role of environmental policy in the presence of imperfect competition and endogenous quality choices, assuming environmentally conscious consumers. We compare the shortsighted policy intervention (the government takes the choice of environmental quality as given) to the second best maximization of social welfare, where the environmental tax is set taking into account both its long run effect on quality choices, as well as its short run effect on quantities. We find that ignoring long run effects leads to the introduction of less polluting product types, yet, higher environmental damage. Firms anticipate that the environmental tax will depend on their product's emissions per unit of output, and increase the environmental quality of their product in order to enjoy a lower tax rate. Total emissions increase despite the reduction in emissions/unit and social welfare decreases relative to the second best. Our results imply that a short-sighted environmental policy may induce higher environmental quality but it might also be detrimental to the environment.

A note on optimal taxation of environmental spillovers

Journal of Environmental Economics and Management, 1975

This note addresses the question of what policy the government should adopt when industrial pollution can be reduced partially by the imposition of effluent taxes and partially by a publicly operated waste treatment plant. In the case of increasing returns to public abatement, an effluent tax set at marginal user cost will not generate enough revenue to finance the facility. The key issue is that of finding additional revenue the most efficiently. Here, this question is dealt with in the framework of commodity taxation, with consideration given to the possibility that both effluent and commodity taxes derived on efficiency grounds might be quite regressive.

Optimal environmental taxation when green

We extend the result of the environmental tax under imperfect competition being below the Pigouvian level to an economy with a polluting monopolist facing a green competitive fringe, where two substitutable varieties are supplied to heterogeneous buyers. The optimal tax is shown to account for four e¤ects: standard Pigouvian marginal damage, monopoly subsidy, matching e¤ect and business-switching effect. The last two e¤ects however, are shown to split the market in a socially desirable way when the regulator is "empathic". If he is "non-empathic", the optimal tax is even smaller. Moreover, taxing only buyers and not the polluting …rm leads to internalization buyers' externality in addition to the environmental one.

Piecemeal Reform of Domestic Indirect Taxes toward Uniformity in the Presence of Pollution: with and without a Revenue Constraint

Journal of Public Economic Theory, 2013

The literature on indirect tax reforms in pollution-ridden economies is quite limited. This paper, using a general model of a perfectly-competitive small open economy with both production and consumption generated pollution, considers the welfare implications of tax reforms that take the structure of consumption and production taxes toward uniformity. Specifically, both in the presence and absence of a binding government revenue constraint, we derive sufficient conditions for welfare improvement in the case where we implement (i) reforms in either production or consumption taxes, and (ii) reforms in both consumption and production taxes.