On Atmosphere Externality and Corrective Taxes
It has been argued that in the presence of an ’Atmosphere Externality’ and competitive behavior by households, a uniform commodity tax on the externality - generating good attains the first best. It is demonstrated, however, that if income redistribution is desirable then personalized taxes are required for a second-best optimum. Each of these taxes is the sum of a uniform (across households) tax and a component, positive or negative, which depends on the household’s income and demand elasticities. Second-best optimal indirect taxes and rules for investment in externality-reducing measures are also considered.
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- Sheshinski, Eytan & Green, Jerry, 1976.
"Direct Versus Indirect Remedies for Externalities,"
3204666, Harvard University Department of Economics.
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Econometric Society, vol. 39(1), pages 35-53, January.
- Masahiko Aoki, 2013. "Marshallian External Economies And Optimal Tax-Subsidy Structure," Chapters, in: Comparative Institutional Analysis, chapter 2, pages 5-17 Edward Elgar Publishing.
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