This article analyses instruments which are available to the government to correct environmental externalities. We assume that only the government has access to environmental maintenance activity, which is financed by levying taxes. The competitive equilibrium is therefore not optimal because the economy faces (i) a problem of public good supply, i.e. the maintenance activity, (ii) a pollution externality from private consumption, (iii) the selfishness of the short lived agents. We determine the optimal fiscal structure that allows the competitive equilibrium and the optimum to coincide. To determine the optimal level of environmental maintenance, we use the Samuelson rule, modified to take into account the relevant social rate of discount that incorporates the natural rate of depletion. We show that the considered optimal maintenance activity should not only neutralize the flow of emissions of pollutants but also increases the environmental quality. Otherwise, in the long run, the environmental amenities would disappear.
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Article provided by De Boeck Université in its journal Recherches économiques de Louvain.
Volume (Year): 71 (2005)
Issue (Month): 4 ()
Pages: 413-425
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: - John, A. & Pecchenino, R. & Schimmelpfennig, D. & Schreft, S., 1995.
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"Intergenerational Altruism and the Environment,"
G.R.E.Q.A.M.
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