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Tax uniformity: A commitment device for restraining opportunistic behaviour

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Author Info
Gerda Dewit () (Economics, National University of Ireland, Maynooth)
Dermot Leahy () (Economics, National University of Ireland, Maynooth)

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Abstract

We investigate whether and to what extent uniform and differentiated tax systems diverge in their propensity to create distortionary opportunistic behavoiur. The set-up in which we carry out our analysis features polluting firms that are confronted with existence a Pigovian emission tax. Firms can invest in pollution abatement. We first show that the existence of emmission taxes, although optimally chosen, create strategic incentives for firms to distort their abatement investment. Second, we find that a system of differentiated emission taxes has a greater propensity to foster strategic distortions in abatement investment than a uniform emission tax regime.

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Publisher Info
Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1971108.pdf.

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Length: 28 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:may:mayecw:n1971108.pdf

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Postal: Maynooth, Co. Kildare
Phone: 353-1-7083728
Fax: 353-1-7083934
Web page: http://www.may.ie/academic/economics/
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Related research
Keywords: Uniform tax; Differentiated taxes; Emission tax; Short-run policy commitment; Pollution-abating investment; Strategic investment.;

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Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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  7. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier. [Downloadable!] (restricted)
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