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Environmental Taxes, Inequality and Technical Change

Author

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  • Fabrizio Patriarca
  • Francesco Vona

Abstract

Environmental innovations heavily depend on government policies and consumers? behaviour. This paper addresses the issue of how these two factors interact in shaping the transition to a green technology. We extend models of technological selection with heterogeneous agents and learning by including a weak hierarchy between green and polluting goods. For general distributions of agents? income and the explicit inclusion of a carbon tax, the model is not analytically tractable so we derive our results using numerical simulations. Given the level of income, carbon taxes are more effective when technological improvements brought about by wealthy pioneer consumers suffice in inducing the remaining population to buy the green good. In this case, a negative relationship between income inequality and tax effectiveness emerges. Taxes on polluting production have a regressive effect since they are mainly paid by poorer people who consume less of the green good. For these people, a negative wealth effect strongly contrasts the standard substitution effect of the tax. Finally, both lower inequality and taxes have the expected effect for intermediate levels of the learning parameter.

Suggested Citation

  • Fabrizio Patriarca & Francesco Vona, 2012. "Environmental Taxes, Inequality and Technical Change," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 389-413.
  • Handle: RePEc:cai:reofsp:reof_124_0389
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    Citations

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    Cited by:

    1. Piero Esposito & Fabrzio Patriarca & Luigi Perini & Luca Salvati, 2016. "Land degradation, economic growth and structural change: evidences from Italy," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 18(2), pages 431-448, April.
    2. Jean-Luc Gaffard & Mauro Napoletano, 2012. "Improving the toolbox. New advances in Agent-based and Computational Models," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 7-13.
    3. Esposito, Piero & Patriarca, Fabrizio & Perini, Luigi & Salvati, Luca, 2013. "Economic Convergence with Divergence in Environmental Quality? Desertification Risk and the Economic Structure of a Mediterranean Country (1960-2010)," MPRA Paper 52601, University Library of Munich, Germany.
    4. Jean-Luc Gaffard & Mauro Napoletano, 2012. "Introduction. Improving the Toolbox," Post-Print hal-01053562, HAL.

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