The Effect of Addiction on Environmental Taxation in a First and Second-best world
AbstractWe examine the effect of addictive behavior on a socially optimal environmental tax. If utility in part depends on past consumption and individuals are time-consistent, the socially optimal environmental tax is shown to be equal to the conventional Pigovian tax. In a second-best world where the social planner has a restriction on the future environmental tax level, the current optimal tax is no longer equal to the Pigovian tax. We extend the analysis with time-inconsistent (myopic) individuals to both the first (no restriction on future environmental tax) and second-best world (restriction on future environmental tax). Also, the importance of addiction in an environmental framework is discussed.
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Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 91.
Length: 26 pages
Date of creation: 12 Mar 2003
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
Optimal taxation; environment; addiction; timeinconsistency; second-best;
Find related papers by JEL classification:
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-03-19 (All new papers)
- NEP-ENE-2003-03-19 (Energy Economics)
- NEP-MIC-2003-03-25 (Microeconomics)
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