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On green production taxes

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  • Edward Calthrop

Abstract

Proposals are often made to tax goods which are environmentally damaging. Many such goods are consumed both directly by households and industry at large: for example, carbon-intensive fuel, waste water or congested road space. This paper adopts a tax-reform setting to evaluate such a policy. The welfare impact is shown to depend on an input-substitution effect and an output effect on final consumption, where the latter effect can be conveniently analysed via the standard concept of the marginal welfare cost of a commodity tax. Finally, it is shown that raising a production tax is welfare enhancing if the current tax is below marginal external cost and revenues are recycled via the commodity tax with the highest marginal welfare cost.

Suggested Citation

  • Edward Calthrop, 2003. "On green production taxes," Economics Series Working Papers 158, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:158
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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper158.pdf
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    References listed on IDEAS

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    1. Cowan, Simon, 1998. "Water Pollution and Abstraction and Economic Instruments," Oxford Review of Economic Policy, Oxford University Press, vol. 14(4), pages 40-49, Winter.
    2. 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.
    3. 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.
    4. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December.
    5. 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, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    6. 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.
    7. Mayeres, Inge & Proost, Stef, 2001. "Marginal tax reform, externalities and income distribution," Journal of Public Economics, Elsevier, vol. 79(2), pages 343-363, February.
    8. Ballard, Charles L. & Medema, Steven G., 1993. "The marginal efficiency effects of taxes and subsidies in the presence of externalities : A computational general equilibrium approach," Journal of Public Economics, Elsevier, vol. 52(2), pages 199-216, September.
    9. Newbery, David M., 1986. "On the desirability of input taxes," Economics Letters, Elsevier, vol. 20(3), pages 267-270.
    10. Schob, Ronnie, 1996. "Evaluating Tax Reforms in the Presence of Externalities," Oxford Economic Papers, Oxford University Press, vol. 48(4), pages 537-555, October.
    11. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    12. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-253, March.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Soviet and Russian Inequality: Was the Soviet System Pro-Poor? by Mark Harrison
      by Mark Harrison in Mark Harrison's blog on 2017-10-13 13:44:00

    More about this item

    Keywords

    externality taxes; productive efficiency; tax reform;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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