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Uniform and Non-Uniform Second-Best Input Taxes

  • Roger Claassen

    ()

  • Richard Horan

    ()

We investigate second-best, input-based taxes foragricultural nonpoint pollution control when marketprices are endogenous and production isheterogeneous. Theoretically, we derive the optimalforms of taxes which take account of heterogeneity(non-uniform taxes) and a tax which does not (auniform tax). Empirically, we use a multi-factor,market-equilibrium simulation model to determineoptimal tax rates and associated equity effects,particularly differences in landowner gains/lossesacross a heterogeneous region. When market prices areendogenous, second-best tax policies result inpecuniary externalities that affect existingenvironmental externalities. In particular, thepecuniary externalities amplify the effect of producerheterogeneity on determination of sub-regionaldifferences in tax rates and returns to land,particularly for the uniform policy. With endogenousprices, the uniform tax rate is considerably higherthan any of the non-uniform rates and, ironically, thenon-uniform taxes result in less dispersion oflandowner gains across sub-regions than the uniformtax. Copyright Kluwer Academic Publishers 2001

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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 19 (2001)
Issue (Month): 1 (May)
Pages: 1-22

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Handle: RePEc:kap:enreec:v:19:y:2001:i:1:p:1-22
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  16. repec:cdl:agrebk:677080 is not listed on IDEAS
  17. Douglas M. Larson & Gloria E. Helfand & Brett W. House, 1996. "Second-Best Tax Policies to Reduce Nonpoint Source Pollution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 1108-1117.
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