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The relative efficiency of market-based environmental policy instruments with imperfect compliance

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  • Rousseau, Sandra
  • Proost, Stef

Abstract

We study how the relative cost efficiency of three market-based instruments—emission taxes, tradable permits and output taxes—is influenced by the combination of accounting for incomplete compliance and pre-existing labor taxes. First,accounting for violations makes the policy instruments less effective so that environmental damages have to be larger to justify a policy. Secondly, including fines in a second-best setting provides a new means of collecting government revenues and of lessening existing tax distortions.We show that the relative position of grandfathered tradable permits vis-à-vis emission taxes improves considerably when incomplete compliance is incorporated in a second-best setting. A simple AGE model illustrates the results.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/211396.

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Date of creation: Feb 2009
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Publication status: Published in International tax and public finance (2009-02) v.16, p.25-42
Handle: RePEc:ner:leuven:urn:hdl:123456789/211396

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Web page: http://www.kuleuven.be

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  1. Inge Mayeres & Stef Proost, 1998. "Marginal Tax Reform, Externalities and Income Distribution," Center for Economic Studies - Discussion papers ces9832, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  2. Montero, Juan-Pablo, 2002. "Prices versus quantities with incomplete enforcement," Journal of Public Economics, Elsevier, vol. 85(3), pages 435-454, September.
  3. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
  4. Sandra Rousseau & Stef Proost, 2005. "Comparing Environmental Policy Instruments in the Presence of Imperfect Compliance – A Case Study," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(3), pages 337-365, November.
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Cited by:
  1. Sandra Rousseau & Stef Proost, 2005. "Comparing Environmental Policy Instruments in the Presence of Imperfect Compliance – A Case Study," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(3), pages 337-365, November.
  2. Blondiau, Thomas & Rousseau, Sandra, 2009. "The impact of the judicial objective function on the enforcement of environmental standards," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/252662, Katholieke Universiteit Leuven.

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