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Externality-correcting taxes and regulation

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  • Vidar Christiansen
  • Stephen Smith

    ()
    (Institute for Fiscal Studies and University College London)

Abstract

Much of the literature on externalities has considered taxes and direct regulation as alternative policy instruments. Both instruments may in practice be imperfect, reflecting informational deficiencies and other limitations. We analyse the use of taxes and regulation in combination, to control externalities arising from individual consumption behaviour. We consider cases where taxes are either imperfectly differentiated to reflect individual differences in externalities, or where some consumption escapes taxation. In both cases we characterise the optimal instrument mix, and show how changing the level of direct regulation alters the optimal externality tax.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W09/16.

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Date of creation: Sep 2009
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Handle: RePEc:ifs:ifsewp:09/16

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Keywords: externalities; Pigouvian taxes; regulations;

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  1. Balcer, Yves, 1980. "Taxation of externalities: Direct versus Indirect," Journal of Public Economics, Elsevier, vol. 13(1), pages 121-129, February.
  2. Vidar Christiansen & Stephen Smith, 2009. "Externality-correcting Taxes and Regulation," CESifo Working Paper Series 2793, CESifo Group Munich.
  3. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Environmental Taxation and Regulation," NBER Working Papers 8458, National Bureau of Economic Research, Inc.
  4. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
  5. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  6. 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.
  7. Don Fullerton & Ann Wolverton, 1997. "The Case for a Two-Part Instrument: Presumptive Tax and Environmental Subsidy," NBER Working Papers 5993, National Bureau of Economic Research, Inc.
  8. Innes, Robert, 1996. "Regulating Automobile Pollution under Certainty, Competition, and Imperfect Information," Journal of Environmental Economics and Management, Elsevier, vol. 31(2), pages 219-239, September.
  9. Eskeland, Gunnar S, 1994. "A Presumptive Pigovian Tax: Complementing Regulation to Mimic an Emissions Fee," World Bank Economic Review, World Bank Group, vol. 8(3), pages 373-94, September.
  10. Wijkander, Hans, 1985. "Correcting externalities through taxes on/subsidies to related goods," Journal of Public Economics, Elsevier, vol. 28(1), pages 111-125, October.
  11. Hoel, Michael, 1998. " Emission Taxes versus Other Environmental Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 79-104, March.
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Cited by:
  1. Vidar Christiansen & Stephen Smith, 2012. "Externality-Correcting Taxes and Regulation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 358-383, 06.
  2. Markus Haavio and Kaisa Kotakorpi, 2012. "Sin Licenses Revisited," Discussion Papers 75, Aboa Centre for Economics.
  3. Michael Keen, 2011. "The Taxation and Regulation of Banks," IMF Working Papers 11/206, International Monetary Fund.

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