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A note on optimal taxation in the presence of externalities

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  • Shinotsuka, Tomoichi
  • Sumino, Ko

Abstract

In this paper, we reexamine the optimal tax problem with identical consumers in the presence of externalities by taking explicitly the interrelationship between externality and consumption into account. In setting out the optimal tax conditions in the presence of externalities, it is standard to follow Sandmo (1975) to employ the following assumptions: (i) separable externalities; and (ii) independent demands. We dispense with these restrictive assumptions and show the Sandmo’s “additivity property” where externalities only affect the tax formula for an externality generating good and do not affect other tax formulas.

Suggested Citation

  • Shinotsuka, Tomoichi & Sumino, Ko, 2005. "A note on optimal taxation in the presence of externalities," ビジネス創造センターディスカッション・ペーパー (Discussion papers of the Center for Business Creation) 10252/956, Otaru University of Commerce.
    • Handle: RePEc:ota:busdis:10252/956
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    References listed on IDEAS

    as
    1. Sheshinski, Eytan, 2004. "On atmosphere externality and corrective taxes," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 727-734, March.
    2. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    3. Helmuth Cremer & Firouz Gahvari & Norbert Ladoux, 2002. "Externalities and Optimal Taxation," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 14, pages 210-232, Edward Elgar Publishing.
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