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Is There a Rationale for Rebating Environmental Levies?

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  • Fischer, Carolyn

    ()
    (Resources for the Future)

  • Bernard, Alain
  • Vielle, Marc

Abstract

Political pressure often exists for rebating environmental levies, particularly when incomplete regulatory coverage allegedly creates an “unlevel playing field” with other, unregulated firms or industries. This paper assesses the conditions under which rebating environmental levies is justified for the regulated sector. It combines a theoretical approach based on second-best modeling with numerical simulations aimed at determining the most sensitive parameters. We find that if an adequate tax on production can be levied in the unregulated sector, no rebate is justified for the regulated sector. Moreover, even in the case of constrained taxation in the unregulated sector, a tax rebate or a subsidy in the regulated sector is not necessarily a welfare-increasing policy. The exception occurs when the goods of the competing sectors are close substitutes. We find that these kinds of policy contraints can be quite costly in terms of welfare.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-01-31-.

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Date of creation: 01 Oct 2001
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Handle: RePEc:rff:dpaper:dp-01-31-

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Related research

Keywords: environmental levy; tax rebate; fiscal distortions;

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References

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  1. Bradford, David F & Rosen, Harvey S, 1976. "The Optimal Taxation of Commodities and Income," American Economic Review, American Economic Association, vol. 66(2), pages 94-101, May.
  2. Sterner, Thomas & Hoglund, Lena, 2000. "Output-Based Refunding of Emission Payments: Theory, Distribution of Costs, and International Experience," Discussion Papers dp-00-29, Resources For the Future.
  3. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
  4. Cremer, Helmuth & Gahvari, Firouz, 2001. "Second-best taxation of emissions and polluting goods," Journal of Public Economics, Elsevier, vol. 80(2), pages 169-197, May.
  5. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
  2. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
  3. Fischer, Carolyn & Fox, Alan, 2004. "Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade," Discussion Papers dp-04-37, Resources For the Future.
  4. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
  5. Fischer, Carolyn, 2003. "Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition," Discussion Papers dp-02-60, Resources For the Future.
  6. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers dp-02-23, Resources For the Future.
  7. Fischer, Carolyn, 2003. "Combining Rate-Based and Cap-and-Trade Emissions Policies," Discussion Papers dp-03-32, Resources For the Future.
  8. Fischer, Carolyn & Hoffmann, Sandra & Yoshino , Yutaka, 2002. "Multilateral Trade Agreements and Market-Based Environmental Policies," Discussion Papers dp-02-28, Resources For the Future.
  9. Fischer, Carolyn, 2004. "Are Absolute Emissions Better for Modeling? It's All Relative," Discussion Papers dp-04-14, Resources For the Future.

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