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Regulation versus taxation

  • Alesina, Alberto
  • Passarelli, Francesco

We study which policy tool and at what level a majority chooses in order to reduce activities with negative externalities. We consider three instruments: a rule, that sets an upper limit to the activity which produces the negative externality, a quota that forces a proportional reduction of the activity, and a proportional tax on it. For all instruments the majority chooses levels which are too restrictive when the activity is performed mainly by a small fraction of the population, and when costs for reducing activities or paying taxes are sufficiently convex. Also a majority may prefer an instrument different than what a social planner would choose; for instance a rule when the social planner would choose a tax.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 110 (2014)
Issue (Month): C ()
Pages: 147-156

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Handle: RePEc:eee:pubeco:v:110:y:2014:i:c:p:147-156
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