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Pigouvian Taxation with Administrative Costs

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  • A. Mitchell Polinsky
  • Steven Shavell

Abstract

This paper examines how the optimal Pigouvian tax should be adjusted to reflect administrative costs. Several cases are examined, depending on whether the administrative costs are fixed per firm taxed or are a function of the amount of tax collected, and on whether such costs are borne by the government or by the taxed firm. In some cases, the presence of administrative costs increases the optimal tax above the external cost, while in other cases it leads to a decrease in the tax.

Suggested Citation

  • A. Mitchell Polinsky & Steven Shavell, 1981. "Pigouvian Taxation with Administrative Costs," NBER Working Papers 0742, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0742 Note: LE
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    1. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, vol. 69(3), pages 475-480, June.
    2. Heller, Walter P & Shell, Karl, 1974. "On Optimal Taxation with Costly Administration," American Economic Review, American Economic Association, vol. 64(2), pages 338-345, May.
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    Cited by:

    1. Coria, Jessica & Jaraite, Jurate, 2015. "Carbon Pricing: Transaction Costs of Emissions Trading vs. Carbon Taxes," Working Papers in Economics 609, University of Gothenburg, Department of Economics.
    2. Dieter Schmidtchen & Jenny Helstroffer & Christian Koboldt, 2015. "Replacing the Polluter Pays Principle by the Cheapest Cost Avoider Principle: On the Efficient Treatment of External Costs," Working Papers of BETA 2015-08, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Rajeev Goel & Edward Hsieh, 1997. "Market structure, pigouvian taxation, and welfare," Atlantic Economic Journal, Springer;International Atlantic Economic Society, pages 128-138.
    4. Athanasios Kampas & Richard Horan, 2016. "Second-best pollution taxes: revisited and revised," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 18(4), pages 577-597, October.
    5. David M. McEvoy & Todd Cherry & John K. Stranlund, 2011. "The Endogenous Formation of Coalitions to Provide Public Goods: Theory and Experimental Evidence," Working Papers 11-01, Department of Economics, Appalachian State University.
    6. Jon Harford, 1998. "Pollution and the firm Robert E. Kohn Edward Elgar, 1998, 251 pp," Atlantic Economic Journal, Springer;International Atlantic Economic Society, pages 317-324.
    7. Polinsky, A Mitchell & Shavell, Steven, 1992. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 133-148, April.
    8. Calel, Raphael, 2011. "Climate change and carbon markets: a panoramic history," LSE Research Online Documents on Economics 37397, London School of Economics and Political Science, LSE Library.
    9. Chung-Huang Huang, 1996. "Effectiveness of environmental regulations under imperfect enforcement and the firm's avoidance behavior," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 183-204.
    10. Louis Kaplow, 2017. "Optimal Regulation with Exemptions," NBER Working Papers 23887, National Bureau of Economic Research, Inc.
    11. Sjak Smulders & Herman R. J. Vollebergh, 2001. "Green Taxes and Administrative Costs: The Case of Carbon Taxation," NBER Chapters,in: Behavioral and Distributional Effects of Environmental Policy, pages 91-130 National Bureau of Economic Research, Inc.
    12. repec:gam:jsusta:v:9:y:2017:i:11:p:2046-:d:118042 is not listed on IDEAS
    13. Gilbert Metcalf & David Weisbach, 2008. "The Design of a Carbon Tax," Discussion Papers Series, Department of Economics, Tufts University 0727, Department of Economics, Tufts University.
    14. Herath, Deepananda P.B. & Weersink, Alfons, 1999. "Transaction Costs, Economic Instruments And Environmental Policies," 1999 Annual meeting, August 8-11, Nashville, TN 21588, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Kampas, Athanasios, 2001. "Identifying Common Fallacies in the Choice of Environmental Taxes for Agricultural Pollution Control: The Absence of Transaction Costs and the Normality of Agricultural Pollutants," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 2(2), August.
    16. Ko, Il-Dong, 1988. "Issues in the control of stock externality problems with inflexible policy measures," ISU General Staff Papers 198801010800009859, Iowa State University, Department of Economics.
    17. Athanasios Kampas & Ben White, 2004. "Administrative Costs and Instrument Choice for Stochastic Non-point Source Pollutants," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 109-133.
    18. John Stranlund & Carlos Chávez, 2013. "Who should bear the administrative costs of an emissions tax?," Journal of Regulatory Economics, Springer, vol. 44(1), pages 53-79, August.
    19. Don Fullerton & Andrew Leicester & Stephen Smith, 2008. "Environmental Taxes," NBER Working Papers 14197, National Bureau of Economic Research, Inc.

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