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Health effects and optimal environmental taxes in welfare state countries

Author

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  • Jean-Christophe Caffet

    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Most studies on the green tax reform issue point out that environmental taxes exacerbate pre-existing tax distortions, thereby increasing the welfare costs associated with the overall tax code. As a result, the optimal environmental tax should lie below the Pigovian level (or marginal social damages). This article challenges this finding by arguing that health benefits from reduced pollution may sufficiently affect labor supply to create benefit-side tax interactions which, in turn, may be of the same magnitude as cost-side ones. Using a simple general equilibrium model that assumes the existence of a social security system, this paper shows that the optimal environmental tax rate could be greater than traditionally thought.

Suggested Citation

  • Jean-Christophe Caffet, 2005. "Health effects and optimal environmental taxes in welfare state countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194917, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00194917
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00194917
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    Cited by:

    1. Mohajan, Haradhan, 2011. "Air pollution causes health effects and net national product of a country decreases: a theoretical framework," MPRA Paper 50858, University Library of Munich, Germany, revised 23 May 2012.
    2. Haradhan Kumar Mohajan, 2011. "Optimal Environmental Taxes Due to Health Effect," KASBIT Business Journals (KBJ), Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 4, pages 1-19, December.

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