Health Effects in a Model of Second-Best Environmental Taxation or Reconsidering "Reconsidering the Tax-Interaction Effect"
The literature on environmental taxation in the presence of pre-existing distortionary taxes has shown that the interactions with pre-existing taxes tend to raise the cost of an environmental tax, and thus that the optimal environmental tax in that context is less than marginal environmental damages. A recent paper by Schwartz and Repetto (2000) challenges this finding, arguing that the health benefits from reduced pollution will also interact with pre-existing taxes, possibly causing the optimal environmental tax to exceed marginal environmental damages. Schwartz and Repetto's analysis aimed to account for health effects by representing environmental quality and leisure as substitutes in utility. The present paper employs an analytically tractable general equilibrium model that, in contrast with Schwartz and Repetto's analysis, explicitly considers health effects. It shows that interactions with health effects from pollution actually will tend to reduce the optimal environmental tax. This result contradicts Schwartz and Repetto's conclusion. This demonstrates the usefulness of explicitly modeling health effects, and it reinforces the general notion that tax-interactions tend to raise the costs of an environmental tax.
|Date of creation:||Dec 2000|
|Date of revision:|
|Publication status:||published as Williams, Roberton C., III. "Health Effects And Optimal Environmental Taxes," Journal of Public Economics, 2003, v87(2,Feb), 323-335.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
- 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.
- 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.
- Victor R. Fuchs & Alan B. Krueger & James M. Poterba, 1998. "Economists' Views about Parameters, Values, and Policies: Survey Results in Labor and Public Economics," Journal of Economic Literature, American Economic Association, vol. 36(3), pages 1387-1425, September.
- 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.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8048. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.