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On atmosphere externality and corrective taxes

  • Sheshinski, Eytan

It has been argued that in the presence of an ’Atmosphere Externality’ and competitive behavior by households, a uniform commodity tax on the externality - generating good attains the first best. It is demonstrated, however, that if income redistribution is desirable then personalized taxes are required for a second-best optimum. Each of these taxes is the sum of a uniform (across households) tax and a component, positive or negative, which depends on the household’s income and demand elasticities. Second-best optimal indirect taxes and rules for investment in externality-reducing measures are also considered.

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File URL: http://www.sciencedirect.com/science/article/B6V76-4840YVT-3/2/c063a1f032d86351daa07d314c7b7a04
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 88 (2004)
Issue (Month): 3-4 (March)
Pages: 727-734

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Handle: RePEc:eee:pubeco:v:88:y:2004:i:3-4:p:727-734
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Chipman, John S, 1970. "External Economies of Scale and Competitive Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 347-85, August.
  2. Aoki, Masahiko, 1971. "Marshallian External Economies and Optimal Tax-Subsidy Structure," Econometrica, Econometric Society, vol. 39(1), pages 35-53, January.
  3. Green, Jerry & Sheshinski, Eytan, 1976. "Direct versus Indirect Remedies for Externalities," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 797-808, August.
  4. Peter A. Diamond, 1973. "Consumption Externalities and Imperfect Corrective Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 526-538, Autumn.
  5. Lau, Lawrence J & Sheshinski, Eytan & Stiglitz, Joseph E, 1978. "Efficiency in the Optimum Supply of Public Goods," Econometrica, Econometric Society, vol. 46(2), pages 269-84, March.
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