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Optimal Taxation and Transboundary Externalities - Are Endogenous World Market Prices Important?

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  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

  • Persson, Lars

    ()
    (Department of Economics, Umeå University)

  • Sjögren, Tomas

    ()
    (Department of Economics, Umeå University)

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    Abstract

    This paper concerns income and commodity taxation in a multi-jurisdictional framework with transboundary environmental damage. We assume that each jurisdiction is large in the sense that its government is able to influence the world market prices via public policy. In such a framework, a noncooperative Nash equilibrium does not only imply that the commodity tax on the externality-generating good is inefficiently low seen from the perspective of global well-being; it also means that the marginal income tax rate is inefficiently high, and that too much resources are spent on public goods. With the noncooperative Nash equilibrium as a starting point, we also consider the welfare effects of policy coordination with respect to taxation and public expenditures.

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    Bibliographic Info

    Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 699.

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    Length: 29 pages
    Date of creation: 20 Nov 2006
    Date of revision:
    Handle: RePEc:hhs:umnees:0699

    Contact details of provider:
    Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
    Phone: 090 - 786 61 42
    Fax: 090 - 77 23 02
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    Web page: http://www.econ.umu.se/
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    Keywords: Trade and Environment; Optimal Taxation; Externalities;

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    1. Aronsson, Thomas & Jonsson, Thomas & Sjögren, Tomas, 2006. "Environmental Policy and Optimal Taxation in a Decentralized Economic Federation," UmeÃ¥ Economic Studies 669, Umeå University, Department of Economics.
    2. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
    3. Frederick Ploeg & Aart Zeeuw, 1992. "International aspects of pollution control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(2), pages 117-139, March.
    4. Parry, Ian W. H. & Williams, Roberton III & Goulder, Lawrence H., 1999. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 52-84, January.
    5. Aronsson, Thomas & Sjögren, Tomas, 2002. "Is the Optimal Labor Income Tax Progressive in a Unionized Economy?," UmeÃ¥ Economic Studies 587, Umeå University, Department of Economics.
    6. A. Lans Bovenberg & Lawrence H. Goulder, 1994. "Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses," NBER Working Papers 4897, National Bureau of Economic Research, Inc.
    7. Silva, Emilson C. D. & Caplan, Arthur J., 1997. "Transboundary Pollution Control in Federal Systems," Journal of Environmental Economics and Management, Elsevier, vol. 34(2), pages 173-186, October.
    8. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
    9. Thomas Aronsson, 1999. "On Cost Benefit Rules for Green Taxes," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 13(1), pages 31-43, January.
    10. Paola Conconi, 2003. "Green Lobbies and Transboundary Pollution in Large Open Economies," ULB Institutional Repository 2013/5837, ULB -- Universite Libre de Bruxelles.
    11. Sengupta, Ramprasad & Bhardwaj, Geetesh, 2004. "Consumption pattern, trade, and greenhouse gas leakage in India," Environment and Development Economics, Cambridge University Press, vol. 9(03), pages 335-352, July.
    12. Caplan, Arthur J. & Silva, Emilson C. D., 1999. "Federal Acid Rain Games," Journal of Urban Economics, Elsevier, vol. 46(1), pages 25-52, July.
    13. Clemens Fuest & Bernd Huber, 1997. "Wage bargaining, labor-tax progression, and welfare," Journal of Economics, Springer, vol. 66(2), pages 127-150, June.
    14. Helmuth Cremer & Firouz Gahvari, 2005. "Environmental Taxation in Open Economies: Unilateralism or Partial Harmonization," Southern Economic Journal, Southern Economic Association, vol. 72(2), pages 352–371, October.
    15. Nicole Gürtzgen & Michael Rauscher, 2000. "Environmental Policy, Intra-Industry Trade and Transfrontier Pollution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(1), pages 59-71, September.
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