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Environmental tax design with endogenous earning abilities (with applications to France)

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  • Cremer, Helmuth
  • Gahvari, Firouz
  • Ladoux, Norbert

Abstract

This paper studies environmental taxation in a Mirrlees setting with two novel features. First, energy, a polluting good, is used both as a factor of production and a final consumption good; second, the wage is determined endogenously while labor of different individual types remain homogeneous. The model is calibrated for the French economy. We show that: (i) The optimal tax is less than the marginal social damage of emissions and turns into an outright subsidy when the inequality aversion index is high; (ii) the optimal tax on energy as an input is always equal to its marginal social damage; (iii) the social welfare gain due to lowering the current energy taxes to their optimal levels, with the general income tax being set optimally in both cases, is between 17 and 32 euro per household. This hurts the rich and benefits the poor.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 59 (2010)
Issue (Month): 1 (January)
Pages: 82-93

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Handle: RePEc:eee:jeeman:v:59:y:2010:i:1:p:82-93

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: The general income tax Endogenous earning abilities Emission taxes Consumption and intermediate goods Welfare gains;

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Cited by:
  1. Roeder, Kerstin & Habla, Wolfgang, 2012. "The Political Sustainability of Germany's Environmental Tax Rate," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century, Verein für Socialpolitik / German Economic Association 62060, Verein für Socialpolitik / German Economic Association.
  2. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 2011. "Energy taxes and oil price shock," LERNA Working Papers, LERNA, University of Toulouse 12.15.372, LERNA, University of Toulouse.
  3. Webster, Allan & Ayatakshi, Sukanya, 2013. "The effect of fossil energy and other environmental taxes on profit incentives for change in an open economy: Evidence from the UK," Energy Policy, Elsevier, Elsevier, vol. 61(C), pages 1422-1431.

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