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Environmental Policy and Public Revenue with International Capital Mobility

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Author Info
Ottar MÆstad ()

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Abstract

In the presence of preexisting distortionary taxes, it is often argued that auctioned emission permits are preferable to non-auctioned permits, because the former generate revenues that may be used to reduce other taxes. This paper shows that when capital is internationally mobile, it may be optimal to use a combination of non-auctioned and auctioned emission permits, for both environmental and fiscal reasons. By letting the number of non-auctioned permits be a positive function of the amount of capital used domestically, they will attract capital to the home country. This may create environmental benefits in terms of reduced transboundary pollution and may lead to increased public revenue because the price of emission permits may increase and because the tax base may be enhanced. It is also shown that the optimal number of non-auctioned permits may increase as the marginal costs of public funds increase. Copyright Springer Science + Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s10797-006-1267-8
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 13 (2006)
Issue (Month): 1 (January)
Pages: 43-58
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Handle: RePEc:kap:itaxpf:v:13:y:2006:i:1:p:43-58

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Web page: http://www.springerlink.com/link.asp?id=102915

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Related research
Keywords: environmental policy; capital mobility; public revenue; leakage;

References listed on IDEAS
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  1. A. Bovenberg, 1999. "Green Tax Reforms and the Double Dividend: an Updated Reader's Guide," International Tax and Public Finance, Springer, vol. 6(3), pages 421-443, August. [Downloadable!] (restricted)
  2. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November. [Downloadable!] (restricted)
  3. Parry, Ian W. H. & Williams III, Roberton C., 1999. "A second-best evaluation of eight policy instruments to reduce carbon emissions," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 347-373, August. [Downloadable!] (restricted)
  4. Razin, Assaf & Sadka, Efraim, 1991. "Efficient investment incentives in the presence of capital flight," Journal of International Economics, Elsevier, vol. 31(1-2), pages 171-181, August. [Downloadable!] (restricted)
  5. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April. [Downloadable!] (restricted)
  6. Ottar Mæstad, 2001. "Efficient Climate Policy with Internationally Mobile Firms," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(3), pages 267-284, July. [Downloadable!] (restricted)
  7. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June. [Downloadable!] (restricted)
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  8. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December. [Downloadable!] (restricted)
  9. Poterba, James M, 1993. "Global Warming Policy: A Public Finance Perspective," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 47-63, Fall. [Downloadable!] (restricted)
  10. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February. [Downloadable!] (restricted)
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