Optimal Environmental Regulation in the Presence of Other Taxes: The Role of Non-separable Preferences and Technology

Kim, Seung-Rae

doi:10.2202/1538-0645.1025

Cited by 4 publications

(4 citation statements)

References 41 publications

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“…8 These assumptions are typical in the literature about second-best taxes on pollution, following Bovenberg and de Mooij (1994), Schöb (1997), and many others. Exceptions include Parry (1995), Ballard, Goddeeris and Kim (2000), , , West and Williams (2002), and Kim (2002). These exceptions look at taxes on a polluting good.…”

Section: Interpretations and Applicationsmentioning

confidence: 99%

The Two-Part Instrument in a Second-Best World

Fullerton¹,

Wolverton²

2003

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The standard theory that the first-best tax on pollution is equal to marginal environmental damages has been extended in two directions. First, many polluting activities are difficult to tax because they are not market transactions, and so recent papers have shown that the same effects can be achieved by use of a two-part instrument n a tax on one market transaction such as output or income and a subsidy to a different market transaction that is a clean alternative to pollution. It is a generalization of a deposit-refund system. Second, a different literature concerns the second-best optimal pollution tax in the presence of other tax distortions. Here, we combine the two extensions by looking at the second-best two-part instrument (2PI). When government needs revenue, is the deposit larger and the rebate smaller? We find explicit solutions for each tax and subsidy in a general equilibrium model with other tax distortions, and we compare these to the rates in a first-best model. The taxsubsidy combination is explained in terms of a tax effect, an environmental effect, and a revenue effect. The model allows for flexible interpretation, to show various applications of the 2PI. We also discuss important caveats, cases where the 2PI may not be appropriate.

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Section: Interpretations and Applicationsmentioning

confidence: 99%

The Two-Part Instrument in a Second-Best World

Fullerton¹,

Wolverton²

2003

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“…Recent papers that use a similar model, but assume homotheticity and separability in deriving optimal taxes includeGoulder et al (1999),Parry et al (1999), andWilliams (2001) Parry and Small (2002). andBallard et al (2000) relax the assumption of homotheticity, but maintain separability Kim (2002). provides a theoretical model that derives an expression for the optimal pollution tax without imposing separability or homotheticity, but does not include any empirical estimates using that expression.…”

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confidence: 99%

Empirical Estimates for Environmental Policy Making in a Second-Best Setting

West¹,

Williams²

2004

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This study estimates parameters necessary to calculate the optimal second-best gasoline tax, most notably the cross-price elasticity between gasoline and leisure. Prior work indicates that in a secondbest setting with distortionary income taxes, both the cost of environmental regulation and the optimal environmental tax rate depend crucially on the cross-price elasticity between a polluting good and leisure. However, no prior study on second-best environmental regulation has estimated this elasticity. Using household data, we find that gasoline is a relative complement to leisure, and thus that the optimal gasoline tax is significantly higher than marginal damages-the opposite of the result suggested by the prior literature. Following this approach to estimate cross-price elasticities with leisure for other major polluting goods could strongly influence estimates of optimal environmental taxes.

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“…25 Under this assumption, there is a marginal welfare cost due to labor income taxation, that is, ρ 2 > 0.…”

Section: Interaction Of Labor and Environmental Taxation Under Wage Umentioning

confidence: 99%

Uncertainty and the Double Dividend Hypothesis

Sartzetakis

Tsigaris

2007

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Uncertainty and the Double Dividend Hypothesis SummaryThis paper examines the double dividend hypothesis in the presence of labour income uncertainty. Empirical evidence shows that uncertainty over labour income is particularly significant in developing, while not negligible in developed countries. Under uncertainty, and assuming incomplete capital markets, the tax system plays a role in providing social insurance and a green tax reform influences its effectiveness. We show that the increase in environmental tax reduces consumption risk while the balanced budget decrease in labour income tax increases income risk. We find that the total welfare effect of a green tax reform differs substantially from the case of certainty. The critical parameters determining the existence of a second dividend are the lump sum transfers, the relative substitutability of the two goods for leisure and the initial tax rates relative to their optimal that determine also the response of labour supply to a change in the tax mix.

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Optimal Environmental Regulation in the Presence of Other Taxes: The Role of Non-separable Preferences and Technology

Cited by 4 publications

References 41 publications

The Two-Part Instrument in a Second-Best World

The Two-Part Instrument in a Second-Best World

Empirical Estimates for Environmental Policy Making in a Second-Best Setting

Uncertainty and the Double Dividend Hypothesis

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