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Pollution Control Policy: A Dynamic Taxation Scheme

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  • George E. Halkos

    ()
    (University of Thessaly, Deparment of Economics, Volos, Greece)

  • George J. Papageorgiou

    ()
    (University of Thessaly, Deparment of Economics, Volos, Greece)

Abstract

In this paper we investigate a dynamic setting of environmental taxation, for which the government imposes a tax rate in order to internalize externalities caused by polluting firms. The basic model consists of the intertemporal maximization problem for an additively separable utility which is subject to the pollution accumulation constraint. We analyze some various aspects of the same setting such as the leader-follower, the social planning and the simultaneous move game. The model is very simple and has some similarities with capital taxation models. The crucial variables of the model are the tax rate as a control and the pollution stock as a state. We discuss a scheme in which polluters adopt Markovian emission strategies with respect to the flows, and the tax rate imposed is, in the most cases, a constant depending on the discount rate. Moreover, computing the time paths for the control and state variables, the welfare index analysis, that follows, reveals substantial inefficiencies caused by th e leader-follower setting, compared with the social planning optimal control setting.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its journal Czech Economic Review.

Volume (Year): 6 (2012)
Issue (Month): 1 (March)
Pages: 14-37

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Handle: RePEc:fau:aucocz:au2012_014

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Related research

Keywords: Pollution control; taxation; dynamic leader-follower games;

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  1. Karp, Larry & Lee, In Ho, 2003. "Time-consistent policies," Journal of Economic Theory, Elsevier, vol. 112(2), pages 353-364, October.
  2. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
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  8. Ines Lindner & Holger Strulik, 2004. "Distributive politics and economic growth: the Markovian Stackelberg solution," Economic Theory, Springer, vol. 23(2), pages 439-444, January.
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  10. Ngo Van Long & Antoine Soubeyran, 2002. "Selective Penalization Of Polluters: An Inf-Convolution Approach," CIRANO Working Papers 2002s-40, CIRANO.
  11. Kemp, Murray C & Long, Ngo Van & Shimomura, Koji, 1993. "Cyclical and Noncyclical Redistributive Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 415-29, May.
  12. Cohen, Daniel & Michel, Philippe, 1988. "How Should Control Theory Be Used to Calculate a Time-Consistent Government Policy?," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 263-74, April.
  13. Xepapadeas, A. P., 1992. "Environmental policy, adjustment costs, and behavior of the firm," Journal of Environmental Economics and Management, Elsevier, vol. 23(3), pages 258-275, November.
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Cited by:
  1. Halkos, George & Papageorgiou, George, 2012. "Pollution abatement and reservation prices in a market game," MPRA Paper 42150, University Library of Munich, Germany.

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