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Optimal Taxation and Transboundary Externalities - Are Endogenous World Market Prices Important?

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  • Aronsson, Thomas

    () (Department of Economics, Umeå University)

  • Persson, Lars

    () (Department of Economics, Umeå University)

  • Sjögren, Tomas

    () (Department of Economics, Umeå University)

Abstract

This paper concerns income and commodity taxation in a multi-jurisdictional framework with transboundary environmental damage. We assume that each jurisdiction is large in the sense that its government is able to influence the world market prices via public policy. In such a framework, a noncooperative Nash equilibrium does not only imply that the commodity tax on the externality-generating good is inefficiently low seen from the perspective of global well-being; it also means that the marginal income tax rate is inefficiently high, and that too much resources are spent on public goods. With the noncooperative Nash equilibrium as a starting point, we also consider the welfare effects of policy coordination with respect to taxation and public expenditures.

Suggested Citation

  • Aronsson, Thomas & Persson, Lars & Sjögren, Tomas, 2006. "Optimal Taxation and Transboundary Externalities - Are Endogenous World Market Prices Important?," Umeå Economic Studies 699, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0699
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    References listed on IDEAS

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    Keywords

    Trade and Environment; Optimal Taxation; Externalities;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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