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Optimal Taxation and Environmental Policy in a Decentralized Economic Federation with Environmental and Labor Market Externalities

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  • Sjögren, Tomas

    ()
    (Department of Economics, Umeå University)

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    Abstract

    This paper concerns optimal taxation and environmental policy in the presence of transboundary environmental damage and labour market distortions, where the latter gives rise to wage bargaining externalities between countries. I consider a decentralized economic federation where the federal government chooses emission targets to be implemented by the national governments. The results show that the labour market externality will influence the target levels for emissions chosen by the central government. I then proceed to characterize the optimal tax policy at the national level. The decentralized federation structure produces incentives for the national governments to use the tax policy to influence the policies chosen by the federal level. It is shown how these objectives interact with the additional objective to minimize the distortion on the national labour market.

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    Bibliographic Info

    Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 785.

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    Length: 34 pages
    Date of creation: 02 Oct 2009
    Date of revision:
    Handle: RePEc:hhs:umnees:0785

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    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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    Related research

    Keywords: Transboundary Externalities; Labour Market Distortions; Economic Federation; Optimal Taxation;

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