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Optimal Tax and Public Investment Rules for Congestion Type of Externalities

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  • Mayeres, Inge
  • Proost, Stef

Abstract

Optimal government policy is considered in a second-best framework where consumers and producers cause an externality of the congestion type and income distribution issues are taken into account. The theoretical results of the optimal tax literature are adapted using the concept of the net social Pigouvian tax. An illustrative AGE model uncovers the relative importance of its components. The model demonstrates that the level of the externality tax does not depend strongly on distribution concerns, as reoptimization of the other taxes ensures that the income distribution objective is reached. The model also allows the authors to study the interaction between externality taxes and public abatement. Copyright 1997 by The editors of the Scandinavian Journal of Economics.

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  • Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 261-279, June.
  • Handle: RePEc:bla:scandj:v:99:y:1997:i:2:p:261-79
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