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Externality‐Correcting Taxes and Regulation

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  • Vidar Christiansen
  • Stephen Smith

Abstract

In much of the literature on externalities, taxes and direct regulation have been considered as alternative policy instruments. Both instruments might be imperfect in practice, reflecting informational deficiencies and other limitations. We analyse the use of taxes and regulation in combination, to control externalities arising from individual consumption behaviour. We consider the cases either where taxes are imperfectly differentiated to reflect individual differences in externalities, or where some consumption escapes taxation. In both cases, we characterize the optimal instrument mix, and we show how changing the level of direct regulation alters the optimal externality tax.

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  • Vidar Christiansen & Stephen Smith, 2012. "Externality‐Correcting Taxes and Regulation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 358-383, June.
    • Handle: RePEc:bla:scandj:v:114:y:2012:i:2:p:358-383
    DOI: j.1467-9442.2012.01701.x
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    11. Louis Kaplow, 2017. "Optimal Regulation with Exemptions," NBER Working Papers 23887, National Bureau of Economic Research, Inc.
    12. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.
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