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Atmospheric externalities and environmental taxation

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  • Sandmo, Agnar

Abstract

The paper reviews the theory of environmental taxation under first best and second best conditions. It argues that negative environmental externalities lead to reductions of the provision of public goods, while investment in abatement increases the supply of public goods. Together with optimal tax rules, the paper therefore also derives conditions for the optimal use of resources on abatement. After brief discussions of the dimensions of time and uncertainty, tax reform and the double dividend, and taxes vs. quotas, the optimal tax model is applied to the problem of global warming with a discussion of the particular incentive problems that arise in designing and implementing global climate policy.

Suggested Citation

  • Sandmo, Agnar, 2011. "Atmospheric externalities and environmental taxation," Energy Economics, Elsevier, vol. 33(S1), pages 4-12.
  • Handle: RePEc:eee:eneeco:v:33:y:2011:i:s1:p:s4-s12
    DOI: 10.1016/j.eneco.2011.07.021
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    References listed on IDEAS

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    1. Jean Tirole & Roland Bénabou, 2006. "Incentives and Prosocial Behavior," American Economic Review, American Economic Association, vol. 96(5), pages 1652-1678, December.
    2. Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W. H. Parry & William A. Pizer, 2010. "Designing Climate Mitigation Policy," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 903-934, December.
    3. Metcalf, Gilbert E., 2003. "Environmental levies and distortionary taxation:: Pigou, taxation and pollution," Journal of Public Economics, Elsevier, vol. 87(2), pages 313-322, February.
    4. Chander, Parkash & Tulkens, Henry, 1992. "Theoretical foundations of negotiations and cost sharing in transfrontier pollution problems," European Economic Review, Elsevier, vol. 36(2-3), pages 388-399, April.
    5. Elinor Ostrom, 2014. "A Polycentric Approach For Coping With Climate Change," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 71-108, May.
    6. Barrett, Scott, 2001. "International cooperation for sale," European Economic Review, Elsevier, vol. 45(10), pages 1835-1850, December.
    7. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    8. Sandmo, Agnar, 2000. "The Public Economics of the Environment," OUP Catalogue, Oxford University Press, number 9780198297987.
    9. West, Sarah E. & Williams III, Roberton C., 2007. "Optimal taxation and cross-price effects on labor supply: Estimates of the optimal gas tax," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 593-617, April.
    10. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
    11. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
    12. Agnar Sandmo, 1980. "Anomaly and Stability in the Theory of Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 799-807.
    13. Agnar Sandmo, 2002. "Efficient Environmental Policy with Imperfect Compliance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(1), pages 85-103, September.
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    Citations

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    Cited by:

    1. Alberto Gago & Xavier Labandeira & Xiral López Otero, 2014. "A Panorama on Energy Taxes and Green Tax Reforms," Hacienda Pública Española, IEF, vol. 208(1), pages 145-190, March.
    2. Andreas Löschel & Dirk Rübbelke, 2014. "On the Voluntary Provision of International Public Goods," Economica, London School of Economics and Political Science, vol. 81(322), pages 195-204, April.
    3. Kovalev, Andrey V., 2016. "Misuse of thermodynamic entropy in economics," Energy, Elsevier, vol. 100(C), pages 129-136.
    4. Tol, Richard S.J., 2013. "Targets for global climate policy: An overview," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 911-928.
    5. Chen, Zhan-Ming & Liu, Yu & Qin, Ping & Zhang, Bo & Lester, Leo & Chen, Guanghua & Guo, Yumei & Zheng, Xinye, 2015. "Environmental externality of coal use in China: Welfare effect and tax regulation," Applied Energy, Elsevier, vol. 156(C), pages 16-31.
    6. repec:eee:ecolet:v:157:y:2017:i:c:p:79-82 is not listed on IDEAS
    7. Arbex, Marcelo & Behringer, Stefan & Trudeau, Christian, 2017. "Optimal tax policy under heterogeneous environmental preferences," Economics Letters, Elsevier, vol. 157(C), pages 79-82.

    More about this item

    Keywords

    Externalities; Public goods; Optimal taxation; Climate change;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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