Taxing pollution: agglomeration and welfare consequences

Abstract

This paper demonstrates that a pollution tax with a …xed cost component may lead, by itself, to segregation between clean and dirty …rms 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 strati…ed con…guration with all dirty …rms clustering in one city emerges as the only equilibrium outcome when there is a …xed cost component of the pollution tax. Moreover, a strati…ed Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax. To support such a strati…ed Pareto optimum, however, an e¤ective but unconventional policy prescription is to redistribute the pollution tax revenue from the dirty to the clean city residents. JEL Classi…cation: D62, H23, R13.

Diversified Agglomeration, Specialized Agglomeration, and Emission Reduction Effect—A Nonlinear Test Based on Chinese City Data

“…This may stimulate enterprises in agglomeration regions to adopt more advanced, environmentally friendly production technologies, which can effectively reduce pollutant emissions (Baomin et al, 2012;Pessoa, 2014;Galliano et al, 2015) [71][72][73]. Second, the production activities of the same industry within a specialized cluster typically generate the same or similar pollutants; therefore, public pollution control facilities can realize specialized operations and create a scale effect (Berliant, 2013;Costantini, 2014) [74,75]. Third, the scale effect of manufacturing agglomeration can increase residential income and fiscal revenue through improved regional labor productivity.…”

Effects of Agglomeration, Environmental Regulations, and Technology on Pollutant Emissions in China: Integrating Spatial, Social, and Economic Network Analyses

“…Previous studies have identified the determinants of pollution as economic development, environmental regulations, political transparency, R&D inputs, and ownership [8,18,19]. Environmental regulations have received the most attention [20][21][22], and the effects of industrial agglomeration and technological inputs have also been explored [3,7,8,23]. However, insufficient attention has been paid to the spillover channels among various cities.…”

Ecological Tax: an Essential Weapon in Macro-Ecological Economics

“…This reduction has also led families to substitute educational time for leisure time, which ultimately increases the long-term growth rates [31]. Besides, Berliant modified Futagam's model to analyze the impact of fiscal policy on long-term growth [32]. He also proved that pollution tax has a positive effect on economic growth because higher pollution tax revenue will increase the stock of public capital and thus will have a positive effect on growth.…”