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Second-Best Pollution Taxes and the Structure of Preferences

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  • Helmuth Cremer

    (IDEI and GREMAQ, University of Toulouse and Institut Universitaire de France)

  • Firouz Gahvari

    ()
    (Department of Economics, University of Illinois at Urbana–Champaign)

  • Norbert Ladoux

    (IDEI and GREMAQ, University of Toulouse and Institut Universitaire de France)

Abstract

We characterize optimal taxes on polluting and nonpolluting goods in Ramsey and Mirrlees second-best environments. The polluting good tax differs from the Pigouvian tax by Ramsey terms in the first and by Stiglitz/Mirrlees plus another adjustment term in the second. These terms can be positive, negative, or zero. If preferences are weakly separable in public and private goods, with the private good subutility weakly separable in labor and produced goods, nonpolluting goods are taxed uniformly and the concept of a tax differential between polluting and nonpolluting goods is well defined. The differential is then less than the Pigouvian tax in the Ramsey framework, but it can be greater, equal to, or smaller than the Pigouvian tax in the Mirrlees second best. In Mirrlees second best, if preferences are separable in labor supply and other goods, the second-best tax differential is identical to the Pigouvian tax.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 68 (2001)
Issue (Month): 2 (October)
Pages: 258-280

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Handle: RePEc:sej:ancoec:v:68:2:y:2001:p:258-280

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Aronsson, Thomas & Sjögren, Tomas, 2005. "Externalities, Border Trade and Illegal Production: An Optimal Tax Approach to Alcohol Policy," UmeÃ¥ Economic Studies, UmeÃ¥ University, Department of Economics 654, Umeå University, Department of Economics.
  2. Grimaud, André & Lafforgue, Gilles, 2008. "Second Best Analysis in a General Equilibrium Climate Change Model," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 535, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Earl L. Grinols & Peri Silva, 2012. "Intervention Efficiency, Incentive Symmetry, and Information," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 334, Centro Studi Luca d\'Agliano, University of Milano, revised 16 Jul 2012.
  4. Fullerton, Don & Wolverton, Ann, 2005. "The two-part instrument in a second-best world," Journal of Public Economics, Elsevier, Elsevier, vol. 89(9-10), pages 1961-1975, September.
  5. Taheripour, Farzad & Khanna, Madhu & Nelson, Charles, 2005. "Welfare Impacts of Alternative Public Policies for Environmental Protection in Agriculture in an Open Economy: A General Equilibrium Framework," 2005 Annual meeting, July 24-27, Providence, RI, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19317, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. André Grimaud & Gilles Lafforgue✝, 2008. "Climate change mitigation policies : Are R&D subsidies preferable to a carbon tax ?," Revue d'économie politique, Dalloz, Dalloz, vol. 0(6), pages 915-940.
  7. Aronsson, Thomas & Persson, Lars & Sjögren, Tomas, 2005. "Environmental Policy and Product Specialization," UmeÃ¥ Economic Studies, UmeÃ¥ University, Department of Economics 653, Umeå University, Department of Economics.
  8. Robin Boadway & Jean-Francois Trembley, 2008. "Pigouvian Taxation in a Ramsey World," Working Papers, Queen's University, Department of Economics 1167, Queen's University, Department of Economics.
  9. Brito, Dagobert L. & Hamilton, Jonathan H. & Intriligator, Michael D. & Sheshinski, Eytan & Slutsky, Steven M., 2006. "Private information, Coasian bargaining, and the second welfare theorem," Journal of Public Economics, Elsevier, Elsevier, vol. 90(4-5), pages 871-895, May.
  10. Gahvari, Firouz, 2006. "On the marginal cost of public funds and the optimal provision of public goods," Journal of Public Economics, Elsevier, Elsevier, vol. 90(6-7), pages 1251-1262, August.
  11. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 2001. "Environmental Taxes with Heterogeneous Consumers: An Application to Energy Consumption in France," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 127, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2002.
  12. Thomas Aronsson, 2005. "Environmental Policy, Efficient Taxation and Unemployment," International Tax and Public Finance, Springer, Springer, vol. 12(2), pages 131-144, March.

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