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Corrective Taxation versus Liability

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  • Steven Shavell
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    Abstract

    Taxation and liability are compared as means of controlling harmful externalities, with a view toward explaining why the use of liability predominates over taxation. Taxation suffers from a disadvantage in the analysis: because taxes do not reflect all the variables affecting expected harm, inefficiency results, whereas efficiency under liability requires only assessment of actual harm. However, liability also suffers from a disadvantage: incentives are diluted because injurers escape suit. Joint use of taxation and liability is examined, and it is shown that liability should be employed fully, with taxation taking up the slack due to escape from suit.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.273
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 101 (2011)
    Issue (Month): 3 (May)
    Pages: 273-76

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    Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:273-76

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    Cited by:
    1. Etienne Billette de Villemeur & Justin Leroux, 2014. "Curbing Emissions through a Carbon Liabilities Market: A note from a climate skeptic’s perspective," CIRANO Working Papers 2014s-20, CIRANO.
    2. Billette de Villemeur, Etienne & Leroux, Justin, 2013. "Curbing emissions through (efficient) carbon liabilities: A note from a climate skeptic's perspective," MPRA Paper 46953, University Library of Munich, Germany.
    3. Steven Shavell, 2012. "A Fundamental Enforcement Cost Advantage of the Negligence Rule over Regulation," NBER Working Papers 18418, National Bureau of Economic Research, Inc.

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