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The Optimal Number of Polluters and Victims and the Inadequacy of Pigouvian Taxes


  • Uimonen, S.


The paper analyzes in a general equilibrium model the local and global pollution externality problems in which one firm pollutes and another firm in another industry suffer from pollution. Assuming that polluters and victims are located near each other (otherwise there is no local pollution problem) in identical cities, it is shown that there is in the local case always a corner solution with respect to the number of polluters, victims or both in a city, whereas in the global case, an interior solution always exits. The optimal pollution control instrument is a two-part Pigouvian tax-emissions rights scheme in which the firm pays emission taxes only for those emissions which exceed its emission rights.

Suggested Citation

  • Uimonen, S., 1999. "The Optimal Number of Polluters and Victims and the Inadequacy of Pigouvian Taxes," University of Helsinki, Department of Economics 468, Department of Economics.
  • Handle: RePEc:fth:helsec:468

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    References listed on IDEAS

    1. Rehme, G., 1999. "Public Policies and Education, Economic Growth and Income Distribution," Economics Working Papers eco99/14, European University Institute.
    2. Antonio Ciccone & Giovanni Peri & Douglas Almond, "undated". "Capital, Wages, and Growth: Theory and Evidence," Working Papers 152, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March.
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    5. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Journal of Public Economics, Elsevier, vol. 66(2), pages 247-274, November.
    6. Wildasin, David E, 1995. " Factor Mobility, Risk and Redistribution in the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 527-546, December.
    7. Panu Poutvaara, 2000. "Education, Mobility of Labour and Tax Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(6), pages 699-719, December.
    8. Bhagwati, Jagdish N. & Hamada, Koichi, 1982. "Tax policy in the presence of emigration," Journal of Public Economics, Elsevier, vol. 18(3), pages 291-317, August.
    9. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins of Technology-Skill Complementarity," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 693-732.
    10. Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-388, June.
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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General


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