Taxing Pollution: Agglomeration and Welfare Consequences
This paper demonstrates that a pollution tax with a fixed cost component may lead, by itself, to stratification between clean and dirty firms without heterogeneous preferences or increasing returns. We construct a simple model with two locations and two industries (clean and dirty) where pollution is a by-product of dirty good manufacturing. Under proper assumptions, a completely stratified configuration with all dirty firms clustering in one city emerges as the only equilibrium outcome when there is a fixed cost component of the pollution tax. Moreover, a stratified Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax that encompasses Pigouvian taxation as a special case. To support such a stratified Pareto optimum, however, an effective but unconventional policy prescription is to redistribute the pollution tax revenue from the dirty to the clean city residents.
|Date of creation:||25 Mar 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
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.:
- Hartwick, John & Schweizer, Urs & Varaiya, Pravin, 1976. "Comparative statics of a residential economy with several classes," Journal of Economic Theory, Elsevier, vol. 13(3), pages 396-413, December.
- Romer, Paul M, 1986.
"Increasing Returns and Long-run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 94(5), pages 1002-37, October.
- Pierre Picard & Takatoshi Tabuchi, 2010.
"Self-organized agglomerations and transport costs,"
Springer, vol. 42(3), pages 565-589, March.
- Pierre Picard & Takatoshi Tabuchi, 2007. "Self-organized Agglomerations and Transport Costs," The School of Economics Discussion Paper Series 0712, Economics, The University of Manchester.
- PICARD, Pierre M. & TABUCHI, Takatoshi, . "Self-organized agglomerations and transport costs," CORE Discussion Papers RP -2182, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
- Buchanan, James M & Tullock, Gordon, 1975. "Polluters' Profits and Political Response: Direct Controls Versus Taxes," American Economic Review, American Economic Association, vol. 65(1), pages 139-47, March.
- Marcus Berliant & Shin-Kun Peng & Ping Wang, 2000.
"Production Externalities and Urban Configuration,"
Vanderbilt University Department of Economics Working Papers
0011, Vanderbilt University Department of Economics.
- Thomas J. Nechyba, 1996.
"Existence of Equilibrium and Stratification in Local and Hierarchical Tiebout Economies with Property Taxes and Voting,"
NBER Technical Working Papers
0190, National Bureau of Economic Research, Inc.
- Thomas. J. Nechyba, 1997. "Existence of equilibrium and stratification in local and hierarchical Tiebout economies with property taxes and voting," Economic Theory, Springer, vol. 10(2), pages 277-304.
- Bergstrom, Theodore C & Cornes, Richard C, 1983. "Independence of Allocative Efficiency from Distribution in the Theory of Public Goods," Econometrica, Econometric Society, vol. 51(6), pages 1753-65, November.
- Chen, Been-Lon & Peng, Shin-Kun & Wang, Ping, 2009. "Intergenerational human capital evolution, local public good preferences, and stratification," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 745-757, March.
- Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
- Shin-Kun Peng & Ping Wang, 2005. "Sorting by foot: `travel-for' local public goods and equilibrium stratification," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1224-1252, November.
- Mark J. Melitz, 2002.
"The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,"
NBER Working Papers
8881, National Bureau of Economic Research, Inc.
- Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
- Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
- Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
- Roland Benabou, 1993.
"Heterogeneity, Stratification, and Growth,"
NBER Working Papers
4311, National Bureau of Economic Research, Inc.
- Benchekroun, Hassan & van Long, Ngo, 1998.
"Efficiency inducing taxation for polluting oligopolists,"
Journal of Public Economics,
Elsevier, vol. 70(2), pages 325-342, November.
- Hassan Benchekroun & Ngo Van Long, 1997. "Efficiency Inducing Taxation for Polluting Oligopolists," CIRANO Working Papers 97s-21, CIRANO.
- Carlton, Dennis W & Loury, Glenn C, 1980. "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 559-66, November.
- Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
- Baumol, William J, 1972. "On Taxation and the Control of Externalities," American Economic Review, American Economic Association, vol. 62(3), pages 307-22, June.
- Larry Karp, 2005.
"Nonpoint Source Pollution Taxes and Excessive Tax Burden,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 31(2), pages 229-251, 06.
- Karp, Larry, 1998. "Nonpoint Source Pollution Taxes and Excessive Tax Burden," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4z62b52k, Department of Agricultural & Resource Economics, UC Berkeley.
- John Chipman & Guoqiang Tian, 2012. "Detrimental externalities, pollution rights, and the “Coase theorem”," Economic Theory, Springer, vol. 49(2), pages 309-327, February.
- Been-Lon Chen & Chien-Chieh Huang & Ping Wang, 2012. "Locational Stratification by Environment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(5), pages 711-735, October.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:45520. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.