Taxing pollution: agglomeration and welfare consequences
AbstractThis paper demonstrates that a pollution tax with a fixed cost component may lead, by itself, to segregation between clean and dirty firms without heterogeneous preferences or increasing returns. We construct a simple model with two locations and two industries (clean and dirty) where pollution is a by-product of dirty good manufacturing. Under proper assumptions, a completely stratified configuration with all dirty firms clustering in one city emerges as the only equilibrium outcome when there is a fixed cost component of the pollution tax. Moreover, a stratified Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax. To support such a stratified Pareto optimum, however, an effective but unconventional policy prescription is to redistribute the pollution tax revenue from the dirty to the clean city residents.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34982.
Date of creation: 23 Nov 2011
Date of revision:
Pollution Tax; Agglomeration of Polluting Producers; Endogenous Stratification;
Other versions of this item:
- Berliant, Marcus & Peng, Shin-Kun & Wang, Ping, 2012. "Taxing pollution: agglomeration and welfare consequences," MPRA Paper 40250, University Library of Munich, Germany.
- Berliant, Marcus & Peng, Shin-Kun & Wang, Ping, 2013. "Taxing Pollution: Agglomeration and Welfare Consequences," MPRA Paper 45520, University Library of Munich, Germany.
- Marcus Berliant & Shin-Kun Peng & Ping Wang, 2012. "Taxing Pollutuion: Agglomeration and Welfare Consequences," ERSA conference papers ersa12p94, European Regional Science Association.
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-ENV-2011-12-13 (Environmental Economics)
- NEP-URE-2011-12-13 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marc J. Melitz, 2003.
"The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,"
Econometric Society, vol. 71(6), pages 1695-1725, November.
- Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
- Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
- Baumol, William J, 1972. "On Taxation and the Control of Externalities," American Economic Review, American Economic Association, vol. 62(3), pages 307-22, June.
- Hartwick, John & Schweizer, Urs & Varaiya, Pravin, 1976. "Comparative statics of a residential economy with several classes," Journal of Economic Theory, Elsevier, vol. 13(3), pages 396-413, December.
- Carlton, Dennis W & Loury, Glenn C, 1980. "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 559-66, November.
- Pierre Picard & Takatoshi Tabuchi, 2007.
"Self-organized Agglomerations and Transport Costs,"
The School of Economics Discussion Paper Series
0712, Economics, The University of Manchester.
- Benabou, R., 1992.
"Heterogeneity, Stratification, and Growth,"
93-4, Massachusetts Institute of Technology (MIT), Department of Economics.
- Berliant, Marcus & Peng, Shin-Kun & Wang, Ping, 2002.
"Production Externalities and Urban Configuration,"
Journal of Economic Theory,
Elsevier, vol. 104(2), pages 275-303, June.
- Marcus Berliant & Shin-Kun Peng & Ping Wang, 2000. "Production Externalities and Urban Configuration," Vanderbilt University Department of Economics Working Papers 0011, Vanderbilt University Department of Economics.
- Been-Lon Chen & Chien-Chieh Huang & Ping Wang, 2012. "Locational Stratification by Environment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(5), pages 711-735, October.
- Bergstrom, Theodore C & Cornes, Richard C, 1983. "Independence of Allocative Efficiency from Distribution in the Theory of Public Goods," Econometrica, Econometric Society, vol. 51(6), pages 1753-65, November.
- Benchekroun, Hassan & van Long, Ngo, 1998.
"Efficiency inducing taxation for polluting oligopolists,"
Journal of Public Economics,
Elsevier, vol. 70(2), pages 325-342, November.
- Hassan Benchekroun & Ngo Van Long, 1997. "Efficiency Inducing Taxation for Polluting Oligopolists," CIRANO Working Papers 97s-21, CIRANO.
- Thomas J. Nechyba, 1996.
"Existence of Equilibrium and Stratification in Local and Hierarchical Tiebout Economies with Property Taxes and Voting,"
NBER Technical Working Papers
0190, National Bureau of Economic Research, Inc.
- Thomas. J. Nechyba, 1997. "Existence of equilibrium and stratification in local and hierarchical Tiebout economies with property taxes and voting," Economic Theory, Springer, vol. 10(2), pages 277-304.
- Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
- Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
- Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
- Shin-Kun Peng & Ping Wang, 2005. "Sorting by foot: `travel-for' local public goods and equilibrium stratification," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1224-1252, November.
- Larry Karp, 2005.
"Nonpoint Source Pollution Taxes and Excessive Tax Burden,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 31(2), pages 229-251, 06.
- Karp, Larry, 1998. "Nonpoint Source Pollution Taxes and Excessive Tax Burden," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4z62b52k, Department of Agricultural & Resource Economics, UC Berkeley.
- Chen, Been-Lon & Peng, Shin-Kun & Wang, Ping, 2009. "Intergenerational human capital evolution, local public good preferences, and stratification," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 745-757, March.
- Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.