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The role of information provision as a policy instrument to supplement environmental taxes: Empowering consumers to choose optimally

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  • Sartzetakis, Eftichis
  • Xepapadeas, Anastasios
  • Petrakis, Emmanuel

Abstract

The present paper examines, within a dynamic framework, the use of information provision as a policy instrument to supplement environmental taxation. We assume that at least a fraction of consumers do not posses the required information to make the optimal choices, and that their behavior at each time period depends on the accumulated stock of information. We show that, as the accumulated stock of information provision increases, both the optimal level of information provided at each period of time and the optimal tax rate decline over time. Our results provide strong evidence in support of information campaigns as a policy instrument to supplement traditional environmental policies. Information provision can sift the demand towards environmentally friendly products over time and thus, reduce the required level of the tax rate.

Suggested Citation

  • Sartzetakis, Eftichis & Xepapadeas, Anastasios & Petrakis, Emmanuel, 2008. "The role of information provision as a policy instrument to supplement environmental taxes: Empowering consumers to choose optimally," MPRA Paper 12083, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:12083
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    Cited by:

    1. Christopher Jeffords, 2014. "Preference-directed regulation when ethical environmental policy choices are formed with limited information," Empirical Economics, Springer, vol. 46(2), pages 573-606, March.
    2. Sengupta, Aditi, 2012. "Investment in cleaner technology and signaling distortions in a market with green consumers," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 468-480.
    3. Sengupta, Aditi, 2015. "Competitive investment in clean technology and uninformed green consumers," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 125-141.
    4. Aditi Sengupta, 2010. "Signaling environmental quality to green consumers and the incentive to invest in cleaner technology: Effect of environmental regulation," Departmental Working Papers 1001, Southern Methodist University, Department of Economics.

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    More about this item

    Keywords

    Information provision; environmental taxes; policy instruments;
    All these keywords.

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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