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Optimal Taxation of Intermediate Goods in the Presence of Externalities: A Survey Towards the Transport Sector

The paper surveys the literature on optimal taxation with emphasis on intermediate goods, or, more specific, freight (road) transport. There are two models frequently used, first, the one emanated from Diamond & Mirrlees' (1971) paper, where the production efficiency lemma made it clear that intermediate goods was not to be taxed. And, second, the Ramsey-Boiteux model where a cost-of-service regulation imposes a budget constraint for the regulated firm. In the latter model, in contrast to the first, freight transports (intermediate goods) are to be taxed in the Ramsey tradition, and thus trades the production efficiency lemma against a budget restriction. The paper also discusses welfare effects due to environmental tax reforms, with emphasis to what has become to known as the double dividend hypothesis. Finally, administrative costs in the context of optimal taxation is touched upon, a subject that is to a large degree repressed in optimal tax theory.

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File URL: http://www.transportportal.se/SWoPEc/Optax.pdf
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Paper provided by Swedish National Road & Transport Research Institute (VTI) in its series Working Papers with number 2006:3.

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Length: 43 pages
Date of creation: 01 Jun 2006
Date of revision:
Handle: RePEc:hhs:vtiwps:2006_003
Contact details of provider: Postal:
VTI, Transport Economics, P.O. Box 6056, SE-171 06 Solna, Sweden

Phone: +46-13-20 40 00
Fax: +46-13-14 14 36
Web page: http://www.vti.se/tek
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  1. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
  2. Inge Mayeres & Stef Proost, 1998. "Marginal Tax Reform, Externalities and Income Distribution," Center for Economic Studies - Discussion papers ces9832, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  3. Wilson, John Douglas, 1989. "On the Optimal Tax Base for Commodity Taxation," American Economic Review, American Economic Association, vol. 79(5), pages 1196-1206, December.
  4. Parry, Ian W H & Bento, Antonio, 2001. " Revenue Recycling and the Welfare Effects of Road Pricing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 645-71, December.
  5. Bovenberg, A. L. & van der Ploeg, F., 1994. "Environmental policy, public finance and the labour market in a second-best world," Journal of Public Economics, Elsevier, vol. 55(3), pages 349-390, November.
  6. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-53, March.
  7. Partha Dasgupta & Joseph Stiglitz, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 87-103.
  8. Edward Calthrop & Bruno De Borger & Stef Proost, 2003. "Tax reform for dirty intermediate goods: theory and an application to the taxation of freight transport," Energy, Transport and Environment Working Papers Series ete0302, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  9. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  10. Myles, G.D., 1989. "Imperfect Competition And The Taxation Of Intermediate Goods," The Warwick Economics Research Paper Series (TWERPS) 315, University of Warwick, Department of Economics.
  11. Peter Hammond, 2000. "Reassessing the Diamond/Mirrlees Efficiency Theorem," Working Papers 00006, Stanford University, Department of Economics.
  12. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, vol. 43(2), pages 221-236, November.
  13. Bovenberg, A.L. & de Mooij, R.A., 1994. "Environmental levies and distortionary taxation," Other publications TiSEM 4b32deaa-ec2f-4de7-b59b-9, Tilburg University, School of Economics and Management.
  14. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, vol. 69(3), pages 475-80, June.
  15. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-78, Winter.
  16. Heller, Walter P & Shell, Karl, 1974. "On Optimal Taxation with Costly Administration," American Economic Review, American Economic Association, vol. 64(2), pages 338-45, May.
  17. Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 261-79, June.
  18. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
  19. Yitzhaki, Shlomo & Vakneen, Yitzhak, 1988. "The shadow price of a tax inspector," Policy Research Working Paper Series 76, The World Bank.
  20. Joel Slemrod & Shlomo Yitzhaki, 1996. "The Costs of Taxation and the Marginal Efficiency Cost of Funds," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 172-198, March.
  21. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  22. 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, Tilburg University, School of Economics and Management.
  23. Partha Dasgupta & Joseph Stiglitz, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 87-103.
  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. Ng, Yew-Kwang, 1980. "Optimal Corrective Taxes or Subsidies When Revenue Raising Imposes an Excess Burden," American Economic Review, American Economic Association, vol. 70(4), pages 744-51, September.
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