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Environmental Taxes in an Economy with Distorting Taxes and a Heterogeneous Population

  • Hoel, Michael

    ()

    (Dept. of Economics, University of Oslo)

During the last couple of decades, there has been a large literature discussing how the properties of emission taxes are affected by the existence of distortionary taxes. Most of this literature ignores distributional aspects of environmental taxes and other types of environmental policy instruments. The present paper considers a very simple model with heterogeneous households, differing in income earning ability. The tax system i s not necessarily fully optimal. Instead, a tax function is assumed the be exogenously given, but the parameters of this tax function are opmtimally chosen. The rule for the second-best opmtimal environmental tax is derived and compared with the Pigovian rule. The results derived in the present paper are related to the results from the literature on public goods provision under distortionary taxes.

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File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2008/Memo-04-2008.pdf
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Paper provided by Oslo University, Department of Economics in its series Memorandum with number 04/2008.

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Length: 26 pages
Date of creation: 01 Feb 2008
Date of revision:
Handle: RePEc:hhs:osloec:2008_004
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.htmlEmail:


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  1. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
  2. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
  3. Gilbert E. Metcalf, 2000. "Environmental Levies and Distortionary Taxation: Pigou, Taxation, and Pollution," Discussion Papers Series, Department of Economics, Tufts University 0004, Department of Economics, Tufts University.
  4. Terkla, David, 1984. "The efficiency value of effluent tax revenues," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 107-123, June.
  5. Gahvari, Firouz, 2006. "On the marginal cost of public funds and the optimal provision of public goods," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1251-1262, August.
  6. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
  7. Bovenberg, A Lans & van der Ploeg, Frederick, 1992. "Environmental Policy, Public Finance and the Labour Market in a Second-best World," CEPR Discussion Papers 745, C.E.P.R. Discussion Papers.
  8. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
  9. Cremer, Helmuth & Gahvari, Firouz, 2001. "Second-best taxation of emissions and polluting goods," Journal of Public Economics, Elsevier, vol. 80(2), pages 169-197, May.
  10. Parry, Ian W. H., 1997. "Environmental taxes and quotas in the presence of distorting taxes in factor markets," Resource and Energy Economics, Elsevier, vol. 19(3), pages 203-220, August.
  11. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
  12. Joseph E. Stiglitz & Partha Dasgupta, 1970. "Differential Taxation, Public Goods, and Economic Efficiency," Cowles Foundation Discussion Papers 299, Cowles Foundation for Research in Economics, Yale University.
  13. Feldstein, Martin, 1997. "How Big Should Government Be?," Scholarly Articles 3043427, Harvard University Department of Economics.
  14. repec:ner:tilbur:urn:nbn:nl:ui:12-73560 is not listed on IDEAS
  15. Lee, Dwight R. & Misiolek, Walter S., 1986. "Substituting pollution taxation for general taxation: Some implications for efficiency in pollutions taxation," Journal of Environmental Economics and Management, Elsevier, vol. 13(4), pages 338-347, December.
  16. Jukka Pirttilä & Matti Tuomala, 1997. "Income Tax, Commodity Tax and Environmental Policy," International Tax and Public Finance, Springer, vol. 4(3), pages 379-393, July.
  17. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-48, July.
  18. Christiansen, Vidar, 2007. "Two Approaches to Determine Public Good Provision under Distortionary Taxation," National Tax Journal, National Tax Association, vol. 60(1), pages 25-43, March.
  19. Feldstein, Martin, 1997. "How Big Should Government Be?," National Tax Journal, National Tax Association, vol. 50(2), pages 197-213, June.
  20. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
  21. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, School of Economics and Management.
  22. Christiansen, Vidar, 1981. "Evaluation of Public Projects under Optimal Taxation," Review of Economic Studies, Wiley Blackwell, vol. 48(3), pages 447-57, July.
  23. Hylland, Aanund & Zeckhauser, Richard, 1979. " Distributional Objectives Should Affect Taxes but not Program Choice or Design," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(2), pages 264-84.
  24. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
  25. repec:ner:tilbur:urn:nbn:nl:ui:12-152985 is not listed on IDEAS
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