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On Atmosphere Externality and Corrective Taxes

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  • Eytan Sheshinski

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Abstract

It has been argued that in the presence of an ’Atmosphere Externality’ and competitive behavior by households, a uniform commodity tax on the externality - generating good attains the first best. It is demonstrated, however, that if income redistribution is desirable then personalized taxes are required for a second-best optimum. Each of these taxes is the sum of a uniform (across households) tax and a component, positive or negative, which depends on the household’s income and demand elasticities. Second-best optimal indirect taxes and rules for investment in externality-reducing measures are also considered.

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Bibliographic Info

Paper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp328.

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Length: 12 pages
Date of creation: Feb 2002
Date of revision:
Handle: RePEc:huj:dispap:dp328

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Keywords: atmosphere externality; optimal taxation; disributional considerations;

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References

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  1. Green, Jerry & Sheshinski, Eytan, 1976. "Direct versus Indirect Remedies for Externalities," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 797-808, August.
  2. Peter A. Diamond, 1973. "Consumption Externalities and Imperfect Corrective Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 526-538, Autumn.
  3. Chipman, John S, 1970. "External Economies of Scale and Competitive Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 347-85, August.
  4. Lau, Lawrence J & Sheshinski, Eytan & Stiglitz, Joseph E, 1978. "Efficiency in the Optimum Supply of Public Goods," Econometrica, Econometric Society, vol. 46(2), pages 269-84, March.
  5. Aoki, Masahiko, 1971. "Marshallian External Economies and Optimal Tax-Subsidy Structure," Econometrica, Econometric Society, vol. 39(1), pages 35-53, January.
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Cited by:
  1. Dirk T.G. Ruebbelke & Eytan Sheshinski, 2005. "Transfers as a Means to Combat European Spillovers," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 225(6), pages 699-710, November.
  2. Jukka Pirttilä & Matti Tuomala, 1997. "Income Tax, Commodity Tax and Environmental Policy," International Tax and Public Finance, Springer, vol. 4(3), pages 379-393, July.
  3. Shinotsuka, Tomoichi & Sumino, Ko, 2005. "A note on optimal taxation in the presence of externalities," ビジネス創造センターディスカッション・ペーパー (Discussion papers of the Center for Business Creation) 10252/956, Otaru University of Commerce.
  4. Anil Markandya & Dirk T.G. Rübbelke, 2012. "Impure public technologies and environmental policy," Journal of Economic Studies, Emerald Group Publishing, vol. 39(2), pages 128-143, May.
  5. David Meintrup & Chang Woon Nam, 2009. "Shadow market area for air pollutants," Environment and Planning B: Planning and Design, Pion Ltd, London, vol. 36(4), pages 664-681, July.
  6. Susanne Dröge & Philipp J. H. Schröder, 2005. "Corrective Ad Valorem and Unit Taxes: A Welfare Comparison," Discussion Papers of DIW Berlin 534, DIW Berlin, German Institute for Economic Research.
  7. CANTA, Chiara & LEROUX, Marie-Louise, 2013. "Public and private hospitals, congestion, and redistribution," CORE Discussion Papers 2013041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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