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A classroom game on a negative externality correcting tax: Revenue return, regressivity, and the double dividend

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  • Joshua M. Duke
  • David M. Sassoon

Abstract

The concept of negative externality is central to the teaching of environmental economics, but corrective taxes are almost always regressive. How exactly might governments return externality-correcting tax revenue to overcome regressivity and not alter marginal incentives? In addition, there is a desire to achieve a double dividend in the use of externality-correcting taxes, that is, to use the revenue to offset existing distortionary taxes, such as those on labor that produce a dead weight loss. In this article, the authors explain a classroom game that was developed for students to understand the theory of externalities, taxation dead weight loss, and regressivity. Then, the problem helps students explore the actual design of a policy that satisfies the double dividend hypothesis and corrects for regressivity.

Suggested Citation

  • Joshua M. Duke & David M. Sassoon, 2017. "A classroom game on a negative externality correcting tax: Revenue return, regressivity, and the double dividend," The Journal of Economic Education, Taylor & Francis Journals, vol. 48(2), pages 65-73, April.
  • Handle: RePEc:taf:jeduce:v:48:y:2017:i:2:p:65-73
    DOI: 10.1080/00220485.2017.1285736
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    References listed on IDEAS

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    1. Rae Goodman, 2010. "Problem-based learning: merging of economics and mathematics," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(4), pages 477-483, October.
    2. Kelly L. Giraud & Mark Herrmann, 2002. "Classroom Games: The Allocation of Renewable Resources Under Different Property Rights and Regulation Schemes," The Journal of Economic Education, Taylor & Francis Journals, vol. 33(3), pages 236-253, September.
    3. Lynne Y. Lewis, 2011. "A Virtual Field Trip to the Real World of Cap and Trade: Environmental Economics and the EPA SO 2 Allowance Auction," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(4), pages 354-365, October.
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    5. Amy W. Ando & Donna Ramirez Harrington, 2006. "Tradable Discharge Permits: A Student-Friendly Game," The Journal of Economic Education, Taylor & Francis Journals, vol. 37(2), pages 187-201, April.
    6. Thomas P. Andrews, 2002. "The Paper River Revisited: A Common Property Externality Exercise," The Journal of Economic Education, Taylor & Francis Journals, vol. 33(4), pages 327-332, December.
    7. Jay R. Corrigan, 2011. "The Pollution Game: A Classroom Game Demonstrating the Relative Effectiveness of Emissions Taxes and Tradable Permits," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(1), pages 70-78, January.
    8. James J. Murphy & Juan-Camilo Cardenas, 2004. "An Experiment on Enforcement Strategies for Managing a Local Environment Resource," The Journal of Economic Education, Taylor & Francis Journals, vol. 35(1), pages 47-61, January.
    9. Nan L. Maxwell & John R. Mergendoller & Yolanda Bellisimo, 2005. "Problem-Based Learning and High School Macroeconomics: A Comparative Study of Instructional Methods," The Journal of Economic Education, Taylor & Francis Journals, vol. 36(4), pages 315-329, October.
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    Cited by:

    1. Stefano Carattini & Eli P. Fenichel & Alexander Gordan & Patrick Gourley, 2020. "For want of a chair: Teaching price formation using a cap and trade game," The Journal of Economic Education, Taylor & Francis Journals, vol. 51(1), pages 52-66, January.
    2. Stefano Carattini & Eli P. Fenichel & Alexander Gordan & Patrick Gourley, 2019. "For want of a chair: teaching price formation using a cap and trade game," CESifo Working Paper Series 7583, CESifo Group Munich.

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