How to Internalize Pollution Externalities Through 'Excess Burdening' Taxes
AbstractIn the double dividend debate following Bovenberg and de Mooij (1994) the definition of ‘tax efficiency dividend’ is implicitly based on the claim that by its very nature any corrective tax, and therefore any emission tax, imposes an excess burden, a claim that is also shared, e.g., by the advisory board of the German Ministry of Finance. We content that this view reflects inappropriate welfare economic reasoning, and offer an analytical concept for avoiding this deficiency. Our basic approach is to look at environmental externalities as synonymous with non-existence of markets and to take as the relevant point of reference for all taxes and subsidies an economy with a full set of markets. This common benchmark for all taxes is established by introducing fictitious markets to eliminate the market failure that gave rise to the pollution externality in the first place. Our main conclusion is that emission taxes replace (negative) producer prices on non-existing markets for pollutants generated in the process of production, and if the emission tax rates fall short of their Pigovian levels, if they are zero, in particular, those producer prices involve distortive – and non-corrective! - emission subsidies. Internalization of environmental externalities means to set these virtual emission subsidies equal to zero. It is also shown that distortive taxes on 'dirty' consumer goods may turn out to be corrective, if no waste abatement technology is available.
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 Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht in its series Volkswirtschaftliche Diskussionsbeiträge with number 102-02.
Length: 19 pages
Date of creation: 2002
Date of revision:
Contact details of provider:
Postal: Hölderlinstr. 3, D - 57068 Siegen
Phone: ++49 (0)271 740-3139
Fax: ++49 (0)271 740-2590
Web page: http://www.uni-siegen.de/fb5/vwl/research/diskussionsbeitraege/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-06-13 (All new papers)
- NEP-ENE-2002-06-13 (Energy Economics)
- NEP-MIC-2002-06-18 (Microeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Tuerpitz, Katharina, 2003. "The Determinants and Effects of Environmental Product Innovations - An Analysis on the Basis of Case Studies," ZEW Discussion Papers 04-02, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael Gail).
If references are entirely missing, you can add them using this form.