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Environmental tax design with endogenous earning abilities (with applications to France)

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  • Cremer, Helmuth
  • Gahvari, Firouz
  • Ladoux, Norbert

Abstract

This paper studies environmental taxation in a Mirrlees setting with two novel features. First, energy, a polluting good, is used both as a factor of production and a final consumption good; second, the wage is determined endogenously while labor of different individual types remain homogeneous. The model is calibrated for the French economy. We show that: (i) The optimal tax is less than the marginal social damage of emissions and turns into an outright subsidy when the inequality aversion index is high; (ii) the optimal tax on energy as an input is always equal to its marginal social damage; (iii) the social welfare gain due to lowering the current energy taxes to their optimal levels, with the general income tax being set optimally in both cases, is between 17 and 32 euro per household. This hurts the rich and benefits the poor.

Suggested Citation

  • Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 2010. "Environmental tax design with endogenous earning abilities (with applications to France)," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 82-93, January.
  • Handle: RePEc:eee:jeeman:v:59:y:2010:i:1:p:82-93
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cremer Helmuth & Gahvari Firouz & Ladoux Norbert, 2015. "Energy Taxes and Oil Price Shocks," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(2), pages 475-501, April.
    2. Philippe Bontems & Estelle Gozlan, 2018. "Trade, Environment and Income Inequality: An Optimal Taxation Approach," Post-Print hal-01702525, HAL.
    3. Klenert, David & Mattauch, Linus & Combet, Emmanuel & Edenhofer, Ottmar & Hepburn, Cameron & Rafaty, Ryan & Stern, Nicholas, 2017. "Making Carbon Pricing Work," MPRA Paper 80943, University Library of Munich, Germany.
    4. Firouz Gahvari, 2014. "Second-Best Pigouvian Taxation: A Clarification," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(4), pages 525-535, December.
    5. Ladoux, Norbert & Scasny, Milan, 2014. "Energy Price and Redistribution in Czech Republic," TSE Working Papers 14-527, Toulouse School of Economics (TSE).
    6. Webster, Allan & Ayatakshi, Sukanya, 2013. "The effect of fossil energy and other environmental taxes on profit incentives for change in an open economy: Evidence from the UK," Energy Policy, Elsevier, vol. 61(C), pages 1422-1431.
    7. Roeder, Kerstin & Habla, Wolfgang, 2012. "The Political Sustainability of Germany's Environmental Tax Rate," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62060, Verein für Socialpolitik / German Economic Association.

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