The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes

Abstract

This paper examines, within a dynamic framework, the role of information provision as a policy instrument to supplement environmental taxation. Several products are responsible for health as well as environmental damages. Many consumers do not possess the required information to optimally substitute away from these products. However, as the stock of information regarding the negative effects of these products builds up, an increasing fraction of consumers behaves optimally. The government uses two policy instruments, environmental taxation and information provision. We show that as the accumulated stock of information increases, the optimal tax rate declines over time. Information provision can shift market demand towards environmentally friendly goods over time, and thus reduce the required level of the tax rate. Our results provide strong evidence in support of information campaigns as a policy instrument to supplement traditional environmental policies.

Environmental vs hedonic quality: which policy can help in lowering pollution emissions?

“…They are available in section 1 of the online appendix, available at https://doi.org/10.1017/S1355770X16000371, together with C S * * E L and C S * * E H , which are the corresponding expressions for the taxation case. 14 This cost specification is congruent with the literature; see, inter alia, van der Made and Schoonbeek (2009) and Sartzetakis et al (2012). Alternatively, we can think of the environmental campaign as a sort of social innovation since it creates an extra-value for the green good by making consumers aware of the relative environmental impact of the goods.…”

Is There Any Evidence on the Existence of an Environmental Taxation Kuznets Curve? The Case of European Countries under Their Rule of Law Enforcement

“…One of the first examples is Finland, which, in January, 1990, as an ad hoc reaction to the international discussion on sustainable development, was the first European country to implement a tax on carbon dioxide emissions in the form of an additional excise duty on energy products, shortly followed by the Netherlands, Sweden, Norway and Denmark. Other examples are: Germany's introduction of a tax on leaded petrol, which led to the rapid substitution of this polluting fuel with a less damaging one; the decrease in the amount of waste delivered to landfill sites in Denmark and the U.K., after the introduction of taxes on waste disposal; the shift away from high-emission petrol engine vehicles towards diesel as a result of the application of a vehicle excise duty in U.K.; the reduction in demand of products containing PVCs after the Danish government's tax on this plastic; traffic reduction in urban centres after a congestion charge was introduced in various European cities [30,[34][35][36].…”

Green Alliances and the Role of Taxation

“…The idea of environmentalists conflicting with firms and how this antagonistic relationship can affect environmental quality and social welfare have already been investigated by a large strand of literature (see e.g., Friehe 2013; Sartzetakis et al 2012;Petrakis et al 2005;Heyes and Maxwell 2004;Liston-Heyes 2001). The present paper is closest to Heijnen and Schoonbeek (2008) who examine a market in which a monopolistic firm supplies an environmentally unfriendly good.…”