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Distortionary, Non-Distortionary, and Distributional Properties of Environmental Taxes: Extension of Sandmo's Observation

Author

Listed:
  • Talbot Page

    (Dept. of Economics, Brown University)

  • Qinghua Zhang

    (Dept. of Applied Economics, Guanghua School of Management, Peking University)

Abstract

We find a limited parallel between lump-sum taxes and environmental taxes. Corollary 2, which extends Sandmo's observation, shows that appropriated corrective revenues have the same non-distortionary effects as lump-sum taxes, the result reducing to the original observation when the appropriated corrective revenues meet the revenue need and achieve first-best efficiency with other taxes set at zero. Corollary 1 finds that when the corrective part of environmental taxes is used as marginal damage compensation, the non-corrective part is distortionary and symmetric with ordinary proportional labor taxes in second-best equilibria. The extension of Sandmo¡¯s observation suggests that environmental taxes may be among the least distortionary taxes in the tax system.

Suggested Citation

  • Talbot Page & Qinghua Zhang, 2006. "Distortionary, Non-Distortionary, and Distributional Properties of Environmental Taxes: Extension of Sandmo's Observation," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 157-183, May.
    • Handle: RePEc:cuf:journl:y:2006:v:7:i:1:p:157-183
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    References listed on IDEAS

    as
    1. Don Fullerton & Gilbert E. Metcalf, 2002. "Environmental Controls, Scarcity Rents, and Pre-existing Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 26, pages 504-522, Edward Elgar Publishing.
    2. Bovenberg, A. Lans & Goulder, Lawrence H., 2002. "Environmental taxation and regulation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545, Elsevier.
    3. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    4. Lawrence H. Goulder & Ian W.H. Parry & Roberton C. Williams III & Dallas Burtraw, 2002. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 27, pages 523-554, Edward Elgar Publishing.
    5. Ian W.H. Parry, 2002. "Pollution Taxes and Revenue Reycling," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 15, pages 235-248, Edward Elgar Publishing.
    6. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
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    More about this item

    Keywords

    Environmental taxes; Pigovian taxes; Lindahl prices; Second-best taxes; Distortionary taxes; Lump-sum taxes;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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