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Environmental protection and optimal taxation

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  • Eskeland, Gunnar S.

Abstract

Struck by the fact that economists did not have a plausible model for why emissions standards, and mandated technologies, play a dominant role in pollution control, the author sought answers to two questions: 1) Should one stimulate emissions reductions by firms, and households, rich and poor, in the same way? 2) How should one combine instruments that make activities cleaner, with instruments that shift the economy toward less-polluting activities? Using clean air as an example of a pure public good, he shows the role of emissions taxes, or such surrogate instruments, as emissions standards, and presumptive Pigouvian taxes. To illustrate the combination of demand management, and technical controls, he computes a marginal cost curve for emissions reductions in the form of cleaner cars, and fuels. And he estimates a demand model for cars, and driving. The result: under the assumption that revenue, and re-distributive transfers bear no premia, the cost of reducing pollution in Mexico City increases forty four percent if an emissions standards program is used, and the presumptive Pigouvian tax on gasoline is not. The important finding, as costly redistribution, and revenue generation are introduced, is that this influences the general scheme of taxation (in well-known ways), and it influences the conditions for optimal environmental quality in accordance with Pigou's conjecture. However, it does not change, or invalidate the rankings of technologies, and interventions on the control cost curve, nor does it change the role of demand management in environmental protection.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2510.

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Date of creation: 31 Dec 2000
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Handle: RePEc:wbk:wbrwps:2510

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Related research

Keywords: Environmental Economics&Policies; Energy and Environment; Pollution Management&Control; Economic Theory&Research; Carbon Policy and Trading;

References

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Citations

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Cited by:
  1. Parry, Ian & Walls, Margaret & Sigman, Hilary & Williams III, Roberton, 2005. "The Incidence of Pollution Control Policies," Discussion Papers dp-05-24, Resources For the Future.
  2. Blomquist, Sören & Christiansen, Vidar, 2001. "The Role of Prices on Excludable Public Goods," Working Paper Series 2001:14, Uppsala University, Department of Economics.
  3. Eskeland, Gunnar S., 2000. "Public expenditures and environmental protection : when is the cost of funds irrelevant?," Policy Research Working Paper Series 2507, The World Bank.
  4. Eskeland, Gunnar & Chingying Kong, 1998. "Protecting the environment and the poor - a public goods framework applied to Indonesia," Policy Research Working Paper Series 1961, The World Bank.

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