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Environmental Taxation and Redistribution Concerns

  • Rafael Aigner

How is the optimal level of Pigouvian taxation influenced by distributive concerns? With second-best instruments, a higher level of income redistribution calls for a lower level of Pigouvian taxation. More redistribution implies higher distortions from income taxation. Pigouvian tax revenues become more valuable, and the optimal level of environmental taxation decreases. With first-best instruments, however, the relation between levels of redistribution and Pigouvian taxation is reversed. So second-best Pigouvian taxes are very different from their first-best counterpart --- despite apparently identical first-order conditions.

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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 70 (2014)
Issue (Month): 2 (June)
Pages: 249-277

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201406)70:2_249:etarc_2.0.tx_2-o
DOI: 10.1628/001522108X681379
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