how do market reforms affect china s responsiveness to environmental policy a large percentage of total investment in china is allocated by the central government at below market interest rates in pursuit of non economic objectives this has resulted in low rates of return and a high number of non performing loans threatening the future health of the chinese economy as a result reform of capital markets is a high priority of the chinese government at the same time the country is implementing various environmental policies to deal with serious pollution issues in this paper we ask how reforms of the capital market will affect the functioning of a carbon tax this allows us to assess how china s willingness to join global efforts to reduce carbon emissions is influenced by china s current efforts to reduce investment subsidies we compare the costs of a carbon tax in a reformed economy with the costs of a carbon tax in the current subsidized economy we find that in the subsidized economy the tax interaction effect dampens the effect of a carbon tax resulting in smaller reductions in emissions than what would result in a reformed economy importantly we also find that the effect on economic welfare from a carbon tax is lower in the subsidized economy in fact for lower levels of reductions the carbon tax is actually welfare improving these results have important implications for an economy undergoing economic transition the carbon tax rate required to achieve a certain level of emission reductions will be higher in an economy with capital subsidies however the welfare implications of the tax indicate that the current system with capital subsidies is highly distorting implying that there is a high efficiency cost for the non economic objectives the government is pursuing by maintaining this system of subsidies

national co2 policy and externalities some general equilibrium results for switzerland abstract switzerland following the kyoto agreement plans to reduce co 2 emissions by 10 over the next decade with a tax on the use of fossil fuels this policy while having a marginal effect on global co 2 emission levels will have a positive effect on local environmental quality however since different sources of energy produce different local external effects a uniform co 2 tax is ill targeted this paper shows that a policy setting tax rates equal to the lower bounds of the estimated local marginal external effects would reduce the national co 2 level by 30 using a computable general equilibrium model of the swiss economy it also finds substantial efficiency gains of pigovian taxes as compared to a uniform co 2 tax

from shadow to green linking environmental fiscal reforms and the informal economy in the past few decades many papers have analysed in some depth different environmental tax reforms and the double dividend hypothesis i e the possibility of improving not only the environment but also the economy through the reduction of distortions in the tax system recently more stress has been placed on testing empirically what effects a reduction in labour taxes may have on unemployment when accompanied by a carbon or other environmental tax however such studies have not modelled the effects of the presence of a shadow economy even though informal markets account for a significant and growing part of gdp in many developed economies this paper analyses this link using an applied general equilibrium model for the case of spain which has one of the highest unemployment rates in the world and one of the biggest informal economies of any wealthy country we conclude that our analysis strengthens the case for an environmental tax reform in spain if revenues from a co2 tax are recycled via a labour tax reduction

linking permit markets multilaterally we formally study the determinants magnitude and distribution of efficiency gains generated in multilateral linkages between permit markets we provide two novel decomposition results for these gains characterize individual preferences over linking groups and show that our results are largely unaltered with strategic domestic emissions cap selection or when banking and borrowing are allowed using the paris agreement pledges and power sector emissions data of five countries which all use or considered using both emissions trading and linking we quantify the efficiency gains we find that the computed gains can be sizable and are split roughly equally between effort and risk sharing

regressive sin taxes with an application to the optimal soda tax a common objection to sin taxes corrective taxes on goods that are thought to be overconsumed such as cigarettes alcohol and sugary drinks is that they often fall disproportionately on low income consumers this paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework and delivers empirically implementable formulas for sufficient statistics for the optimal commodity tax the optimal sin tax is increasing in the price elasticity of demand increasing in the degree to which lower income consumers are more biased or more elastic to the tax decreasing in the extent to which consumption is concentrated among the poor and decreasing in income effects because income effects imply that commodity taxes create labor supply distortions contrary to common intuitions stronger preferences for redistribution can increase the optimal sin tax if lower income consumers are more responsive to taxes or are more biased as an application we estimate the optimal nationwide tax on sugar sweetened beverages using nielsen homescan data and a specially designed survey measuring nutrition knowledge and self control holding federal income tax rates constant our estimates imply an optimal federal sugar sweetened beverage tax of 1 to 2 1 cents per ounce although optimal city level taxes could be as much as 60 lower due to cross border shopping

on cost benefit rules for green taxes this paper concerns the welfare effects of a green tax reform in a dynamic general equilibrium model with preexisting taxes on labor income and capital income in comparison with previous studies on green taxes in dynamic models which have focused their main attention on long run effects of such reforms i derive cost benefit rules for a change in the tax mix by using the properties of the value function in optimal control theory this enables me to relate the welfare effect of a change in the tax mix to responses in employment the capital stock flow emissions and the stock of pollution along the whole general equilibrium path another contribution of the paper is to examine under what conditions an emission tax which is set permanently below the marginal damage of pollution is welfare superior to an emission tax path that fully internalizes the external effect

the death of the pigovian tax policy implications from the double dividend debate recently economists appear to have abandoned a central precept of environmental policy optimal environmental taxes are equal to marginal environmental damage med as a consequence of labor market distortions optimal environmental taxes are now generally argued to typically lie below med and given realistic policy constraints on optimal tax reform sometimes well below med this new consensus is reflected in over a dozen papers published without rebuttal in prestigious economics journals in important survey articles and in policy oriented manuscripts how was it possible that such a radical transformation of economic thinking occurred with essentially no debate in the literature

commuting transport tax reform and the labour market employer paid parking and the relative efficiency of revenue recycling instruments in this paper the welfare effects of a budget neutral increase in taxes on car commuters are studied in a model that takes into account the presence of employer paid parking at the workplace it is found that the presence of employer paid parking substantially increases the welfare effect of such a tax reform independent of the use of the revenues congestion taxes not only correct congestion externalities they also reduce the inefficiency caused by employer paid parking moreover different congestion effects of alternative recycling instruments and the presence of employer paid parking jointly imply that recycling the tax revenues via higher public transport subsidies may yield much more favourable welfare effects than previously believed it can easily outperform recycling the tax revenues via lower labour taxes finally cashing out parking costs to public transport users is found to generate substantial positive welfare effects numerical analysis confirms the theory

the double dividend miracle or fata morgana the discussion on an ecological tax reform has as a central element the idea of a double dividend to get a better environment a better tax system with less distortions and therefore more growth and employment with the one and same stroke is it a miracle or fata morgana in germany this discussion came to a halt when the country s comparative disadvantages within the globalization process became painfully apparent and the political emphasis shifted towards still unsuccessful attempts to social and structural reforms the article sheds some light on problems which presumably would have occurred if the strategy of the double dividend had been implemented or which could occur in the future if the occasion arises it is shown that technical progress could lead to abrupt losses in tax revenues and provoke counter strategies in the political sector to secure the economic dividend which are analyzed from welfare economic and political economic perspectives the findings are that due to political self interest only low tax solutions in the inelastic part of the marginal abatement cost curve would be chosen which implies that the double dividend strategy does not seem to be a politically feasible route to reach strict environmental goals it is further shown that these tax rates would be near to the maximum revenue rate and that this would also be the dominant strategy for all politicians irrespective of their individual value orientation the conclusion is that theoretically a double dividend policy will be far from a miracle and that the political approach to it will presumably turn it into a fata morgana

on the trade offs of regulating multiple unpriced externalities with a single instrument evidence from biofuel policies abstract we develop an analytical and numerical model that integrates land fuel and food markets to evaluate the welfare implications of the u s renewable fuel standard rfs each dollar reduction in the external costs of oil dependency comes at the expense of additional environmental external costs of 0 53 conditional on the categories of external benefits we consider the rfs fails a benefit cost test when excluding the change in the trade balance with net costs totaling 1 4 billion in 2015 further policymakers would have to value the external costs of oil dependency at 1 05 per gallon of gasoline in order for the rfs to pass a benefit cost test which is nearly five times larger than central estimates of the oil premium

climate policy and fiscal constraints do tax interactions outweigh carbon leakage climate policymaking faces twin challenges of carbon leakage and public sector revenue requirements a large literature advocates the use of carbon dioxide co2 pricing and recycling the revenues to lower distorting taxes as a way to minimize costs in this paper we explore the implications of labor tax interactions for the cost effectiveness of border adjustments and other measures to cope with leakage we find that for plausible values of labor supply elasticities the cost savings from revenue recycling are significant from 15 to 25 percent the cost savings from anti leakage measures are generally smaller but also significant particularly for small coalitions or more binding reduction targets tax interactions further enhance the cost savings from border adjustments but make other measures like rebates or exemptions less attractive

designing economic instruments for the environment in a decentralized fiscal system designing economic instruments for the environment when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

the canadian oil sands industry under carbon constraints abstract we investigate the impact of climate policies on canada s oil sands industry the largest of its kind in the world deriving petroleum products such as gasoline and diesel from oils sands involves significant amounts of energy and that contributes to a high level of co2 emissions we apply the mit emissions prediction and policy analysis eppa model a computable general equilibrium model of the world economy augmented to include detail on the oil sands production processes including the possibility of carbon capture and storage ccs we find 1 without climate policy annual canadian bitumen production increases almost 4 fold from 2010 to 2050 2 with climate policies implemented in developed countries canadian bitumen production drops by 32 to 68 from the reference 4 fold increase depending on the viability of large scale ccs implementation and bitumen upgrading capacity moves to the developing countries 3 with climate policies implemented worldwide the canadian bitumen production is significantly reduced even with ccs technology which lowers co2 emissions at an added cost this is mainly because upgrading bitumen abroad is no longer economic with the global climate policies

is there an energy efficiency gap many analysts have argued that energy efficiency investments offer an enormous win win opportunity to both reduce negative externalities and save money this overview paper presents a simple model of investment in energy using capital stock with two types of market failures first uninternalized externalities from energy consumption and second forces such as imperfect information that cause consumers and firms not to exploit privately profitable energy efficiency investments the model clarifies that only if the second type of market failure cannot be addressed directly through mechanisms such as information provision energy efficiency subsidies and standards may be merited this chapter therefore reviews the empirical work on the magnitude of profitable unexploited energy efficiency investments a literature which frequently does not meet modern standards for credibly estimating the net present value of energy cost savings and often leaves other benefits and costs unmeasured these problems notwithstanding recent empirical work in a variety of contexts implies that on average the magnitude of profitable unexploited investment opportunities is much smaller than engineering accounting studies suggest finally there is tremendous opportunity and need for policy relevant research that utilizes randomized controlled trials and quasi experimental techniques to estimate the returns to energy efficiency investments and the welfare effects of energy efficiency programs

fiscal interactions and the case for carbon taxes over grandfathered carbon permits this paper provides simple formulas for adjusting the costs of carbon taxes and tradable carbon permits to account for interactions with pre existing tax distortions in the labour market both policies reduce labour supply as they increase product prices and reduce real household wages the resulting efficiency losses in the labour market can be substantial relative to partial equilibrium abatement costs however much of this added cost can be offset and perhaps more than offset when additional distortions from the tax system are considered if revenues from carbon taxes or auctioned permits are used to reduce distortionary taxes consequently there can be a strong case on efficiency grounds for using carbon taxes or auctioned permits over grandfathered carbon permits copyright 2003 oxford university press

second best taxation of emissions and polluting goods abstract this paper studies the problem of the design of an integrated system of second best emission and output taxes in a model where production costs are negatively correlated with their emissions it shows that i the first best pigouvian rule of equating the marginal private benefit of emissions in production to the marginal social damage of emissions must be modified in the second best ii implementation of the modified pigouvian rule requires all firms to face the same marginal emission tax equal to the marginal social damage of emissions plus an adjustment term reflecting optimal tax objectives iii it may not be necessary to directly tax the polluting goods the latter taxes can be subsumed in the emission tax function iv output taxes must be set solely on the basis of optimal tax objectives no pigouvian adjustment is required v if emission taxes are restricted to be proportional and commodity taxes are constrained the modified pigouvian rule will no longer be optimal vi if preferences are weakly separable in emissions and other goods the pigouvian rule remains valid the marginal emission tax is pigouvian and emission and commodity tax instruments can be set separately to address different objectives a proportional emission tax corrects for externalities while commodity taxes are determined solely on the basis of optimal tax considerations

computable general equilibrium model analysis of economywide cross effects of social and environmental policies in chile abstract the analysis of the linkages between development policies and social and environmental variables is a neglected area within the development literature this paper focuses on the key interrelations among the economic social and environmental elements of the sustainable development triangle a thorough review is undertaken of both social and environmental policies in chile underlining important economic growth and reforms using the static cge model ecogem chile the economywide impacts of several environmental social and combined policies are simulated for the chilean economy six different policies are simulated three environmental policies that impose different taxes on pm10 so 2 and no 2 emissions respectively the same tax on pm10 in a context of high unemployment one social policy that increases government transfers to households and a mixed social environmental policy package where the environmental tax on pm10 and the social transfer policy are simulated simultaneously the results show that environmental tax policies may have negative social effects using real disposable income by quintiles as proxy the impacts depend on the use of the new revenues and the status of employment taxing pm10 emission yields better environmental results than taxing so 2 and no 2 social policies do not show negative environmental impacts combined environmental and social policies improve results thus specific compensating social policies would improve environmental policy acceptance while also reducing poverty or strong income distribution disparities the evidence suggests that environmental policies may have social impacts but not vice versa the results show that the ecogem chile model is useful for analyzing systematically and holistically different economywide policies and their impact on the chilean economy winners and losers may be identified as well as the potential magnitude of gains and losses the results obtained are not all straightforward due to indirect effects

the double dividend second best worlds and real world environmental policy abstract the recent series of papers by bovemberg goulder parry and others argue that the double dividend is unlikely to exist because of second best problems they argue that the imposition of environmental tax in an economy already distorted by income taxes will further distort the economy by reducing incentives to supply labor our paper argues that this is not likely to be the case because of the restrictive assumptions made by these models and because of the role of the environment as a factor of production

fees and the efficiency of tradable permit systems an experimental approach the paper presents the results of an economic experiment in which the effects of fees on allocative efficiency of tradable utilization permits e g pollution permits are explored laboratory subjects university students play the roles of firms whose generic product requires a specific input or permits scarcity is exogenously introduced by a fixed supply of tradable production permits three treatments are compared no fee imposed n a fixed tax per permit t and partial retraction of permits and subsequent redistribution by auction a treatments t and a represent two different ways of imposing fees which are designed to be revenue equivalent our results indicate that after controlling for deviation of permit prices from a prediction based on fundamentals fees have an impact on distribution of permits interestingly a fixed tax enhances efficiency compared to the case of no fees while retraction and reallocation by auction tends to reduce efficiency apparently subjects decision making is affected by the imposition of fees but how and to what extent depends on the method used

carbon tax simulations using a household demand model abstract the main objective of this paper is to analyse consumer response and welfare effects due to changes in energy or environmental policy to achieve this objective we formulate and estimate an econometric model for non durable consumer demand in sweden that utilises micro and macro data in the simulations we consider two revenue neutral scenarios that both imply a doubling of the co2 tax one that returns the revenues in the form of a lower vat and one that subsidise public transport one conclusion from the simulations is that the co2 tax has regional distribution effects in the sense that household living in sparsely populated areas carry a larger share of the tax burden

how robust is the uniform emissions pricing rule to social equity concerns abstract this paper examines pollution tax differentiation across industries in light of social equity concerns using theoretical and numerical general equilibrium analyses in an optimal tax framework we characterize the drivers for non uniform optimal taxes stemming from the interaction of household heterogeneity with social preferences quantitatively assessing the case of price based co2 emissions control in the u s economy we find that uniform emissions pricing is approximately optimal when social concerns are defined over inequity induced by the environmental tax the deviation from uniform emissions pricing however becomes non negligible when pollution tax rebates deviate much from optimal transfer schemes or when social concerns are defined over both policy induced impacts and inequity unrelated to environmental policy our results are robust to a number of model extensions including the stringency of the environmental target downstream vs upstream taxation pre existing distortionary taxes and parametric uncertainty in firms and households equilibrium tax responses

what do we know about carbon taxes an inquiry into their impacts on competitiveness and distribution of income abstract the kyoto protocol to the united nations framework convention on climate change unfccc has set legally binding emissions targets for a basket of six greenhouse gases and timetables for industrialised countries it has also incorporated three international flexibility mechanisms however the articles defining the flexibility mechanisms carry wording that their use must be supplemental to domestic actions this has led to the open debates on interpretations of these supplementarity provisions such debates ended at the resumed sixth conference of the parties cop to the unfccc held in bonn july 2001 and at the subsequent cop 7 in marrakesh november 2001 the final wording in the bonn agreement reaffirmed in the marrakesh accords at least indicates that domestic policies will have an important role to play in meeting annex b countries emissions commitments carbon taxes have long been advocated because of their cost effectiveness in achieving a given emissions reduction in this paper the main economic impacts of carbon taxes are assessed based on a review of empirical studies on existing carbon energy taxes it is concluded that competitive losses and distributive impacts are generally not significant and definitely less than often perceived however given the ultimate objective of the framework convention future carbon taxes could have higher rates than those already imposed and thus the resulting economic impacts could be more acute in this context it has been shown that how to use the generated fiscal revenues will be of fundamental importance in determining the final economic impacts of carbon taxes finally we briefly discuss carbon taxes in combination with other domestic and international instruments

marginal tax reform externalities and income distribution the paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods it considers three types of policy instruments the indirect taxes the uniform poll transfer and public abatement this extends the framework set up by ahmad and stern 1984 bovenberg and de mooij 1994 and schob 1996 the theoretical model is illustrated for a specific externality namely congestion caused by peak car transport

are carbon taxes good for the poor a general equilibrium analysis for vietnam summary we evaluate effects of an environmental tax using a general equilibrium model linked to a household database the burden of the tax applied mainly to energy is passed forward by non tradable industries and backward by tradable industries facing fixed world prices the tax is thus equivalent to a real exchange rate appreciation and since export industries are labor intensive reduces employment and increases poverty especially when labor supply is responsive to wages the use of revenues to increase transfers to households can offset poverty increases but does not create jobs thus the tax will likely conflict with other development policy objectives

carbon taxation when climate affects productivity optimal carbon taxation is evaluated in a model where climate change affects productivity with a numerical us economy model with preexisting taxes the optimal carbon tax is found to exceed marginal social damage by 53 percent and marginal private damage the sum of households marginal willingness to pay by 73 percent the welfare gain from optimal carbon taxation is estimated at 3 58 billion per year when marginal damages are 40 ton employment also increases setting the carbon tax at the pigouvian rate raises welfare by only 3 17 billion the contrasting results in the tax interaction literature are due to the use of marginal private damage when applied to amenity externalities

optimal environmental taxation from society s perspective much has been made recently of comparisons between the optimal environmental tax and the marginal social damage from pollution when moving from a first best setting to a second best setting involving distortionary taxes bovenberg and de mooij parry bovenberg and goulder generally speaking the recent literature observes that results for a first best setting may not be valid in a secondbest setting the present analysis finds that this same general theme applies when defining social values and in particular when expressing the social marginal rate of substitution mrs between the environment and income on which the definition of marginal social damage msd is based we find that a commonly used expression for msd involving the sum of individuals private marginal rates of substitution between the environment and income is only equal to the social mrs at the first best optimum in a second best setting with distortionary taxes this expression is no longer equal to the social mrs and thus does not provide a consistent measure of relative values from society s perspective when msd is defined based on general analytical expressions for the social mrs ones that are valid in both first best and secondbest settings the optimal environmental tax is found generally to rise above msd as we move from a first best to a second best setting these results are fully consistent with the intuition of revenue recycling and the double dividend

optimal gasoline tax in developing oil producing countries the case of mexico this paper uses the methodology of parry and small 2005 to estimate the optimal gasoline tax for a less developed oil producing country the relevance of the estimation relies on the differences between less developed countries ldcs and industrial countries we argue that lawless roads general subsidies on gasoline poor mass transportation systems older vehicle fleets and unregulated city growth make the tax rates in ldcs differ substantially from the rates in the developed world we find that the optimal gasoline tax is 1 90 per gallon at 2011 prices and show that the estimate differences are in line with the factors hypothesized in contrast to the existing literature on industrial countries we show that the relative gasoline tax incidence may be progressive in mexico and more generally in ldcs

carbon abatement in the fuel market with biofuels implications for second best policies a carbon tax on fuel would penalize carbon intensive fuels like gasoline and shift fuel consumption to less carbon intensive alternatives like biofuels since biofuel production competes for land with agricultural production a carbon tax could increase land rents and raise food prices this paper analyzes the welfare effect of a carbon tax on fuel consisting of gasoline and biofuel in the presence of a labor tax with and without a biofuel subsidy the market impacts of a carbon tax are also compared with that of a subsidy findings show that if a carbon tax increases biofuel demand the tax interaction effect due to higher fuel prices is exacerbated by higher land rent and food prices and greater erosion of the carbon tax base thus the second best optimal carbon tax for fuel is lower with biofuel in the fuel mix especially if biofuel is subsidized

on revenue recycling and the welfare effects of second best congestion pricing in a monocentric city abstract this paper examines congestion taxes in a monocentric city with pre existing labor taxation when road toll revenue is used to finance labor tax cuts 35 of the optimal road tax in our numerical model does not reflect marginal external congestion costs but rather functions as a ramsey mirrlees tax i e an efficiency enhancing mechanism allowing for an indirect spatial differentiation of the labor tax this adds a quite different motivation to road pricing since welfare gains can be produced even in absence of congestion we find that the optimal road tax is non monotonic across space reflecting the different impacts of labor supply elasticity and marginal utility of income which both vary over space the relative efficiencies of some archetype second best pricing schemes cordon toll flat kilometer tax are high 84 and 70 respectively when road toll revenue is recycled lump sum the optimal toll lies below its pigouvian level extensions in a bimodal framework show that the optimality of using road toll revenue to subsidize public transport depends on the initial inefficiency in public transport pricing

the stern review a dual critique the stern review described as the most comprehensive review ever carried out on the economics of climate change was published on 30 october 2006 the twin papers from a combined team of scientists and economists present a critique in two parts of the stern review part i focuses on scientific issues and their treatment in the review it forms the point of departure for part ii which deals with economic aspects each paper has its own list of authors in relation to both scientific and economic issues the authors question the accuracy and completeness of the stern review s analysis and the objectivity of its treatment they conclude that the review fails to present an accurate picture of scientific understanding of climate change issues and will reinforce ill informed alarm about climate change two interrelated features of the stern review are that it greatly understates the extent of uncertainty as to possible developments in highly complex systems that are not well understood over a period of two centuries or more and its treatment of sources and evidence is persistently selective and biased these twin features have combined to make the review a vehicle for speculative alarmism in the judgement of the authors of the dual critique the stern review mishandles data gives too little attention to actual observation and evidence as distinct from the results of model based exercises and takes no account of the failures of due disclosure and the chronic limitations of peer reviewing that have been characteristic of work relating to climate change which governments have commissioned and drawn on as to specifically economic aspects the authors note among other weaknesses that the review systematically overstates projected costs of climate change partly though by no means wholly as a result of its failure to acknowledge the scope for long term adaptation to possible global warming underestimates the likely cost including to the world s poor of the drastic global mitigation programme that it calls for and proposes worldwide adoption of a specially low rate of interest for discounting the costs and benefits of mitigation on the basis of inadequate analysis and without regard for the problems and risks that would result so far from being an authoritative guide to the economics of climate change the stern review is deeply flawed it does not provide a basis for informed and responsible policies

the present value criterion and environmental taxation the suboptimality of first best decision rules this paper examines the links between environmental taxes and distortionary taxation in a dynamic model of climate change and economic growth under first best conditions labor and capital would remain untaxed and carbon dioxide emissions would be taxed at a rate equal to the present value marginal cost they impose on future society setting the discount rate equal to the marginal productivity of capital under secondbest conditions however this decision rule substantially understates optimal emissions taxes when the resulting revenues are used to provide targeted cuts in distortionary taxes conversely relatively low emissions taxes are economically justified given lump sum revenue recycling

environmental policy on the back of an envelope a cobb douglas model is not just a teaching tool abstract to clarify and interpret the workings of a large computable general equilibrium cge model of environmental policy we build an aggregated cobb douglas cd model that can be solved easily and analytically its closed form expressions show exactly how key parameters determine the sign and size of effects from a large new carbon tax on emissions revenue prices output and welfare data and parameters from the detailed dynamic cge model of goulder and hafstead 2018 are used in the cd model to calculate results that can be compared with theirs results from the cd model track aggregates from the large cge model quite closely even though the cd model omits much detail such as the number of sectors intermediate inputs and international trade a cge model is quite useful to generate detailed numerical results and to reflect on particular aspects of environmental policy but the simpler cd model provides a transparent view of exactly how the policy affects key outcomes

the problem of the commons still unsettled after 100 years the problem of the commons is more important to our lives and thus more central to economics than a century ago when katharine coman led off the first issue of the american economic review as the us and other economies have grown the carrying capacity of the planet in regard to natural resources and environmental quality has become a greater concern particularly for commonproperty and open access resources the focus of this article is on some important unsettled problems of the commons within the realm of natural resources there are special challenges associated with renewable resources which are frequently characterized by open access an important example is the degradation of openaccess fisheries critical commons problems are also associated with environmental quality a key contribution of economics has been the development of market based approaches to environmental protection these instruments are key to addressing the ultimate commons problem of the twenty first century global climate change jel q15 q21 q22 q25 q54

north south investment flows and optimal environmental policies abstract in the context of a simple north south model that focuses on the international movement of capital we show how neglect of pollution generating effects of foreign investment may lead to distorted and misleading policy recommendations such a neglect has recently received emphasis in the empirical literature on east asian economies as in bello and rosenfeld 1990 dragons in distress asia s miracle economics in crisis food first san francisco and was shown to overlook resulting tendencies in these economies toward specialization away from agriculture and toward manufacturing our simple model formalizes this observation and allows us to show that even for an unspecialized capital poor resource rich south such pollution generating effects provide incentives for the north to encourage rather than to discourage foreign investment abroad and strengthen southern incentives to restrict foreign investment more sharply than is conventionally assumed in a nutshell it brings out the implications of northern capital creating its own demand as a consequence of its adverse impact on the southern resource base despite its simplicity the model thus sheds light on three interrelated aspects of international trading relations production asymmetry incomplete markets and monopolistic advantage

income distribution impacts of climate change mitigation policy in the susquehanna river basin economy we examine the cost side income distribution impacts of a carbon tax in the susquehanna river basin srb region of the united states utilizing a computable general equilibrium model we find the aggregate impacts of a 25 ton carbon tax on the srb economy are likely to be negative but modest an approximately one third of 1 reduction in gross regional product grp in the short run and double that amount in the long run however unlike many previous studies we find that the carbon tax is mildly progressive as measured by income bracket changes per capita equivalent variation and gini coefficient changes based on expenditure patterns the dominant factors affecting the distributional impacts are the pattern of output income and consumption impacts that affect lower income groups relatively less than higher income ones an increase in transfer payments favoring lower income groups and decreased corporate profits absorbed primarily by higher income groups

the welfare effects of environmental taxation recent literature has investigated whether the welfare gains from environmental taxation are larger or smaller in a second best setting than in a first best setting this question has mainly been addressed indirectly by asking whether the second best optimal environmental tax is higher or lower than the first best pigouvian rate even this indirect question has itself been approached indirectly comparing the second best optimal environmental tax to a proxy for its first best value marginal social damage msd on closer examination however msd becomes ambiguously defined and variable in a second best setting making it an unreliable proxy for the pigouvian rate given these observations the current analysis reevaluates these welfare questions and finds that when compared directly to its first best value the second best optimal environmental tax generally rises with increased revenue requirements even in cases where the second best environmental tax is lower than its first best value the welfare gains may be greater than in a first best setting these results suggest that the marginal fiscal benefit revenue recycling effect exceeds the marginal fiscal cost tax base effect over a range of environmental tax rates that for benchmark models extends above the first best pigouvian rate these findings reinforce the intuition that environmental policy complements rather than competes with the provision of other public goods

externalities and optimal taxation this paper reexamines the optimal tax design problem income and commodities in the presence of externalities the nature of the second best and the choice of the tax instruments are motivated by the informational structure in the economy the main results are i environmental levies linear or nonlinear differ in formula from pigouvian taxes by the expressions for the optimal tax on private goods ii externalities do not affect commodity tax formulas linear and nonlinear for private goods iii externalities do not affect the income tax structure if commodity taxes are nonlinear and affect it if commodity taxes are linear and iv a general income tax plus strictly pigouvian taxes are sufficient for efficient taxation if individuals of different types have identical marginal rates of substitution at any given consumption bundle

double dividend with trade distortions analytical results and evidence from chile abstract the double dividend debate evolves around the possibility or not of substituting environmental taxes for more distortionary taxes to reduce both pollution degradation and or damages the first dividend and the excess burden of existing taxes the second dividend without eroding tax revenues this paper contributes to the double dividend debate with a formal analysis and some numerical evidence emphasizing trade and environmental distortions the substitution of environmental taxes for trade distortions has been neglected in the double dividend debate which has centered on labor market distortions conditions for the existence of a double dividend are derived for different characterizations of preferences and policy menus we empirically explore the trade environment double dividend with an applied general equilibrium model of the chilean economy the model includes many distortions and a vector of six air pollution effluents their health incidences and associated damages which are assumed nonseparable from market goods findings suggest solid evidence of a trade environment double dividend in the case of chile swapping environmental taxes for trade distortions improves welfare the swap would even pay for itself under the assumption of separable pollution damages from market good consumption

pollution taxes and revenue recycling abstract discussions of environmental policy and the tax system have emphasized the value of pollution tax revenues which can be used to reduce other tax distortions in the economy however by raising private marginal production costs environmental taxes also tend to reduce gdp and exacerbate the welfare costs of conventional taxes for environmental taxes in consumption goods industries the net welfare change from these two effects is negative unless this good is a relatively weak substitute for leisure an estimate for the optimal pollution tax with full revenue recycling is 63 to 78 of marginal environmental damages

joint trade liberalization and tax reform in a small open economy the case of egypt abstract we develop a cge model of the egyptian economy to analyze the impact of various trade liberalization scenarios allowing distortionary domestic taxes to vary endogenously in order to satisfy a fixed real government revenue target we decompose computed welfare gains into effects from tax reform trade reform and their interaction scenarios include removal or unification of the consumption tax capital tax or both and tariff unification a free trade agreement with the european union and unilateral tariff elimination welfare effects depend critically on the type of revenue replacement tax while both are important neither trade policy reform nor tax reform dominates

nonseparable utility and the double dividend debate reconsidering the tax interaction effect the literature on the use of environmental taxes inthe presence of distortionary labor taxes warns thata partial equilibrium pigouvian tax analysis is notappropriate because increasing the price of dirtygoods can futher aggravate the prexisting distortions this argument is most frequently made assuming thatlabor is taxed to meet a fixed revenue requirement when a dirty good is also taxed others argue thatthis lowers workers real wages causing people toreduce their labor supply below its already suboptimallevel aggravating labor market distortions however most papers ignore the effect that a cleanerenvironment can have on labor supply that is mostpast work has assumed that the quality of theenvironment is weakly separable in the utilityfunction we argue that a cleaner environment canincrease labor supply at least partially offsettingany incentive for workers to decrease their laborsupply further we show explicitly how relaxing theseparability assumption affects the standardresults

marginal abatement costs of co2 emission reductions geographical flexibility and concrete ceilings an assessment using the poles model abstract the kyoto protocol envisage the setting up of flexibility mechanisms allowing annex b countries to fulfil their commitments to reducing greenhouse gases with respect for the principle of economic efficiency the current negotiations relate in particular to the possibility of setting up a system of tradable emissions permits for annex b countries and also of introducing ceilings to trade this paper analyses the stakes and economic potential of adopting this instrument both for those countries that made commitments in kyoto and for developing countries it is based on a formal approach that allows for a consistent framework of analysis the emission permit market is in fact simulated on the basis of a reference scenario and of marginal abatement cost curves and estimated by the poles model after analysing these marginal abatement cost curves and comparing them with those produced by other models we explore two different configurations for a competitive market a market limited to the annex b countries and a world market the results produced by the model show that widening the market to include developing countries is more effective than the annex b market solution it reduces the cost of implementing kyoto for oecd countries and at the same time allows the countries of the south to benefit from selling the permits this research also shows that introducing restrictions on exchanges for annex b countries could have a counter productive redistribution effect with the ethical argument that underlies that particular measure

biofuel subsidies versus the gas tax the carrot or the stick abstract this paper provides an analytical framework to examine the relative efficiencies of a revenue neutral biofuel subsidy and a gas tax in the presence of pre existing distortions and growing substitutability between fuels both policies are set to achieve a targeted reduction in gasoline use at the state level the model is then calibrated for a small open economy such as illinois which is one of the largest producers of biofuels such as ethanol in the u s the main result of the paper shows that raising the biofuel subsidy use reduces overall welfare by more than a higher gas tax both aimed to achieve a targeted reduction in pure gasoline the relative efficiency of the higher gas tax is primarily due to it exacerbating the pre existing distortion in the biofuel market by less than the subsidy moreover for current parameter estimates welfare improving policy combinations for achieving a targeted amount of energy security are higher gas taxes combined with lower biofuel subsidies and a lower tax on income however the preference for a gasoline labor tax swap shrinks as the elasticity of substitution between the two fuels rises

central bank communication in the financial crisis evidence from a survey of financial market participants in this paper we investigate the relationship between market participants perception of central bank communication and their evaluation of central banks i credibility ii unorthodox measures and iii independence we utilise a survey of more than 550 financial market participants from around the world who answered questions in reference to the bank of england boe the bank of japan boj the european central bank ecb and the federal reserve fed we find that market participants believe that the fed communicates best followed by the boe ecb and boj similar rankings are found on the issues of credibility satisfaction with unconventional monetary policy and level of independence using ordered probit models we show that perception of central bank communication is positively related to i evaluation of central bank credibility ii satisfaction with unorthodox measures and iii perceived level of central bank independence

environmental taxes with heterogeneous consumers an application to energy consumption in france abstract this paper constructs a model with four groups of households who have preferences over labor supply consumption of polluting energy related and non polluting non energy goods and emissions it quantifies the model for the french economy and computes its optimal tax equilibria under nine second best tax regimes we find that the redistributive role of environmental taxes requires the polluting goods to be taxed at a rate much below their marginal social damage these goods may even require an outright subsidy if the society values equality a lot secondly if environmental taxes that have an exclusively externality correcting role they benefit all types although the gains are rather modest the gains and losses become more substantial when environmental taxes have a redistributive role as well third setting the environmental tax at its pigouvian level rather than its optimal externality correcting cum redistributive level benefits the high income group at the expense of the low income groups fourth nonlinear taxation of polluting goods and nonlinear commodity taxation in general is a powerful redistributive mechanism fifth introducing environmental taxes in the current french tax system with its suboptimal income taxes results in substantial welfare gains for the highest income group and a sizable loss for the least well off persons

a future for carbon taxes abstract carbon taxes have been frequently advocated as a cost effective instrument for reducing emissions however in the practice of environmental policies only six countries have implemented taxes based on the carbon content of the energy products in this paper we evaluate carbon taxes with regard to their competitiveness distributional and environmental impacts the evidence shows that carbon taxes may be an interesting policy option and that their main negative impacts may be compensated through the design of the tax and the use of the generated fiscal revenues

evolution and kantian morality what kind of preferences should one expect evolution to favor we propose a definition of evolutionary stability of preferences in interactions in groups of arbitrary finite size groups are formed under random matching that may be assortative individuals preferences are their private information the set of potential preferences are all those that can be represented by continuous functions we show that a certain class of such preferences that combine self interest with morality of a kantian flavor are evolutionarily stable and that preferences resulting in other behaviors are evolutionarily unstable we also establish a connection between evolutionary stability of preferences and a generalized version of maynard smith s and price s 1973 notion of evolutionary stability of strategies

optimal dynamic carbon taxes in a climate economy model with distortionary fiscal policy how should carbon be taxed as a part of fiscal policy the literature on optimal carbon pricing often abstracts from other taxes however when governments raise revenues with distortionary taxes carbon levies have fiscal impacts while they raise revenues directly they may shrink the bases of other taxes e g by decreasing employment this article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate economy model with distortionary fiscal policy first this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income this link arises because carbon emissions destroy natural capital they accumulate in the atmosphere and decrease future output consequently this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments second this article characterizes optimal climate policy in sub optimal fiscal settings where income taxes are constrained to remain at their observed levels third this article presents a detailed calibration that builds on the seminal dice approach but adds features essential for a setting with distortionary taxes such as a differentiation between climate change production impacts e g on agriculture and direct utility impacts e g on biodiversity existence value the central quantitative finding is that optimal carbon tax schedules are 8 24 lower when there are distortionary taxes compared to the setting with lump sum taxes considered in the literature

the synthesis of bottom up and top down approaches to climate policy modeling electric power technologies and the cost of limiting us co2 emissions abstract in the us the bulk of co 2 abatement induced by carbon taxes comes from electric power this paper incorporates technology detail into the electricity sector of a computable general equilibrium model of the us economy to characterize electric power s technological margins of adjustment to carbon taxes and to elucidate their general equilibrium effects compared to the top down production function representation of the electricity sector the technology rich hybrid specification produces less abatement at a higher welfare cost suggesting that bottom up models do not necessarily generate lower costs of abatement than top down models this result is shown to be sensitive to the elasticity with which technologies generating capacities adjust to relative prices

labour supply and commuting abstract we examine the effect of commuting distance on workers labour supply patterns distinguishing between weekly labour supply number of workdays per week and daily labour supply we account for endogeneity of distance by using employer induced changes in distance in germany distance has a slight positive effect on daily and weekly labour supply but no effect on the number of workdays the effect of distance on labour supply patterns is stronger for female workers but it is still small

evaluating policy interventions with general equilibrium externalities abstract we report on the results of analytical and numerical models that describe the effects of non separable externalities or public goods on public policies with important general equilibrium consequences in the numerical exercise we calibrate a general equilibrium model with non separable air quality benefits in order to measure the excess burden and total net benefits of transportation and energy taxes in the 1995 u s economy the change in the physical level and the economic value in air quality associated with a given policy is a function of the substitution patterns between air quality and market goods that we assume the size of the deadweight loss due to pre existing distortions such as a tax on labor income is substantially affected by these substitution patterns

putting firms into optimal tax theory firms are for the most part absent from the modern theory of optimal taxation their disappearance dates from the foundational models developed by peter a diamond and james a mirrlees 1971 in which firms are simply mechanical vehicles for combining productive inputs into output in cost minimizing proportions in contrast firms play a central role in all modern tax systems mostly for a reason stated by richard m bird 1996 the key to effective taxation is information and the key to information in the modern economy is the corporation in most countries firms remit the majority of tax revenues to the government either with regard to taxes legally owed by businesses or through withholding of taxes legally owed by employees or other businesses even when businesses are not required to remit taxes they are often required to file information reports that can facilitate monitoring of tax liabilities the lack of a theoretical framework that features firms impedes rigorous welfare analysis of a number of important policy issues one such example is the comparative evaluation of a uniform retail sales tax rst versus a value added tax vat in the standard model these two taxes both remitted entirely by businesses are equivalent consumption taxes but most experts consider the vat to be clearly superior on administrative grounds a view echoed in the recent report of the president s advisory panel on federal tax reform 2005 we propose a simple framework in which these and other issues can be analyzed the new framework recognizes that a tax code must be backed up by an administrative and enforcement structure

self regulation taxation and public voluntary environmental agreements an increasingly popular instrument for solving environmental problems is the public voluntary agreement va in which government offers technical assistance and positive publicity to firms that reach certain environmental goals prior papers treat such agreements as a superior low cost instrument that can be used to preempt a threat of traditional inefficient regulation we present a more general model in which public vas may instead be weak tools used when political opposition makes environmental taxes infeasible we explore the conditions under which taxes public vas and unilateral industry actions are to be expected and the welfare implications of the various instruments notably we also show that welfare may be reduced by the introduction of public vas 2002 elsevier b v all rights reserved

targeted carbon tax reforms abstract in the presence of intersectoral linkages sector specific carbon tax changes can have complex general equilibrium effects in particular a carbon tax on the emissions of a sector can lead to an increase in aggregate emissions we analytically characterise how incremental taxes on the emissions of any set of sectors affect aggregate emissions we show that carbon tax reforms that target sectors based on their position in the production network can achieve a greater reduction in aggregate emissions than reforms that target sectors based on their direct emissions alone we illustrate the effects of carbon tax reforms by calibrating our intersectoral network model to the economies of two countries

optimal environmental taxation in the presence of other taxes general equilibrium analyses this paper examines the optimal setting of environmental taxes in economies where other distortionary taxes are present we employ analytical and numerical models to explore the degree to which in a second best economy optimal environmental tax rates differ from the rates implied by the pigovian principle according to which the optimal tax rate equals the marginal environmental damages both models indicate contrary to what several analysts have suggested that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the pigovian principle moreover the optimal rate is lower the larger are the distortions posed by ordinary taxes numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre existing taxes this abstract was borrowed from another version of this item

optimal green tax reforms yielding double dividend in an stylized endogenous growth economy with a negative externality created by co2 emissions and in which abatement activities are made by private firms we find a wide range of dynamically feasible green tax reforms yielding the double dividend without any need to assume a complex production structure or tax system or a variety of externalities in production as a remarkable finding we obtain certain scenarios in which increasing the emissions tax up to the pigouvian level and removing completely the income tax is dynamically feasible and also it is the second best reform hence as a difference to previous literature in these scenarios the first best tax mix is implementable allowing for the elimination of both environmental and non environmental inefficiencies our result arises because of the consideration of public debt issuing and the management of the government budget balance with an intertemporal perspective the result is obtained for an intermediate range of environmental bearing in preferences the valid range being contingent on the pre existing income tax rate the type of tax reform that we propose could also be implemented for different energy taxes

environmental quality medical care demand and environmental tax interactions assuming that improvements in environmental quality lead to lower demand for medical care it has been shown that general equilibrium interactions with the tax distorted labor market reduce the benefits from such improvements and thus lower the second best optimal environmental tax this paper provides some insights on how the link between environmental quality individual s health capital and the demand for medical care affects the analysis of pollution taxes the paper develops structural conditions under which improvements in environmental quality decrease increase the demand for medical care and discusses their implications for environmental tax interactions

second best renewable subsidies to de carbonize the economy commitment and the green paradox climate change must deal with two market failures global warming and learning by doing in renewable energy production the first best policy consists of an aggressive renewables subsidy in the near term and a gradually rising and falling carbon tax given that global carbon taxes remain elusive policy makers might have to rely on a second best subsidy only with credible commitment the second best subsidy is higher than the social benefit of learning to cut the transition time and peak warming close to first best levels at the cost of higher fossil fuel use in the short run weak green paradox without commitment the second best subsidy is set to the social benefit of learning it generates smaller weak green paradox effects but the transition to the carbon free takes longer and cumulative carbon emissions are higher under first best and second best with pre commitment peak warming is 2 1 2 3 circ c under second best without commitment 3 5 circ c and without any policy 5 1 circ c above pre industrial levels not being able to commit yields a welfare loss of 95 of initial gdp compared to first best being able to commit brings this figure down to 7

tax evasion and optimal environmental taxes abstract this paper introduces a new argument to the debate about the role of environmental taxes in modern tax systems some environmental taxes particularly taxes on gasoline or electricity are more difficult to evade than taxes on labor or income when the tax base is shifted in a revenue neutral manner toward these environmental taxes the result is a net reduction in the amount of tax evasion using a carbon tax as a motivating example the tax evasion effect is shown to sharply reduce the welfare cost of controlling emissions a simple computable general equilibrium model suggests that the impact of considering tax evasion can be large costs are lowered by 28 in the united states by 89 in china and by 97 in india in countries with high levels of pre existing tax evasion a carbon tax will pay for itself through improvements in the efficiency of the tax system

impact of cap and trade policies for reducing greenhouse gas emissions on u s households abstract proposals being considered by the u s congress would establish a cap and trade system to cut greenhouse gas ghg emissions approximately 2 annually through 2050 past cap and trade policies for other pollutants have distributed allowances free to the regulated companies leaving consumers uncompensated for passed through costs needed to achieve the required reductions social equity concerns were not a major issue because the total costs were relatively small however americans currently spend about 1 trillion year on energy directly and indirectly via the goods and services they consume if a cap on carbon emissions results in significant increases in energy prices social equity concerns could quickly dominate the debate over climate policy this paper confirms earlier studies that a traditional cap and trade policy is regressive and would cause the cost of reducing ghg emissions to fall disproportionately on low income households this paper explores ways to ameliorate those effects using highly disaggregated data available on consumer expenditures and energy input output analyses of the u s economy emissions are estimated based on direct and embodied energy use at the household level social equity concerns are taken into account and the consequences of cap and trade policies are assessed by quantifying the extent to which the expenditure patterns of the poor are significantly more energy intensive than those of the rich

second best pollution taxes and the structure of preferences we characterize optimal taxes on polluting and nonpolluting goods in ramsey and mirrlees second best environments the polluting good tax differs from the pigouvian tax by ramsey terms in the first and by stiglitz mirrlees plus another adjustment term in the second these terms can be positive negative or zero if preferences are weakly separable in public and private goods with the private good subutility weakly separable in labor and produced goods nonpolluting goods are taxed uniformly and the concept of a tax differential between polluting and nonpolluting goods is well defined the differential is then less than the pigouvian tax in the ramsey framework but it can be greater equal to or smaller than the pigouvian tax in the mirrlees second best in mirrlees second best if preferences are separable in labor supply and other goods the second best tax differential is identical to the pigouvian tax

government failure and market failure on the inefficiency of environmental and energy policy in this article we describe some important themes in energy and environmental policy there are two main reasons for our interest in these policies first such policies will likely be important in the coming decades as issues related to climate change and energy security come to the fore second there are important lessons to be learned from a careful review of the actual performance of energy and environmental policies we undertake a selective survey of the literature to highlight what is known about the efficiency of particular kinds of policies laws and regulations in these areas this paper makes three key contributions the first is to synthesize a large literature on energy and environmental policy in a way that can be easily digested by both non experts and experts the second contribution is to suggest that if history is a guide then we should not expect many interventions in these policy areas to come close to maximizing net economic benefits the third is to suggest what might be needed for the development of more efficient energy and environmental policies copyright 2010 oxford university press

on environmental taxation under uncertain environmental damage this paper addresses optimal taxation when therelationship between the consumption of a dirty good and the resulting environmentaldamage is uncertain and treated as a randomvariable by policy makers the main purpose isto analyze how increased uncertainty measuredas a mean preserving increase in the spread ofthis random variable affects the optimalcommodity tax on the dirty consumption good incase the only task of government is to correctthe environmental externality and if thepreferences are characterized by nondecreasingabsolute risk aversion we find that thecommodity tax on the dirty consumption goodincreases in response to additionaluncertainty if on the other hand thegovernment provides a public good and uses alump sum tax in addition to the commodity tax it is possible that the commodity tax decreasesas a response to additional uncertainty evenif the preferences are characterized bynondecreasing absolute risk aversion a similarresult emerges although for different reasons if the lump sum tax is replaced by a laborincome tax

environmental tax interactions when pollution affects health or productivity abstract recent studies indicate that interactions with the tax distorted labor market increase the cost of pollution regulation however these studies make restrictive assumptions regarding preferences and ignore key links between pollution human health and labor productivity together these assumptions imply that pollution does not affect labor supply this paper develops an analytical general equilibrium model that considers several potential benefits from reduced pollution including improved health or productivity it shows that these benefits affect labor supply and thus create a benefit side tax interaction effect that can be of the same magnitude as the familiar cost side interaction when reduced pollution boosts labor productivity the effect substantially magnifies such benefits in contrast when pollution affects consumer health the effect tends to diminish the benefits of reduced pollution the paper considers only environmental regulation but these concepts apply equally to other policies affecting productivity or health such as research subsidies or occupational safety regulations

the two part instrument in a second best world abstract standard pigovian tax theory 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 2pi a tax on output or income and a subsidy for clean alternatives to pollution it is a generalization of a deposit refund system drs second a different literature concerns the second best pollution tax in the presence of other tax distortions here we combine the two extensions by looking at the second best 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 tax subsidy 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

the impact of economics on environmental policy abstract environmental economists have seen their ideas translated into the rough and tumble policy world for over two decades they have witnessed the application of economic instruments to several environmental issues including preserving wetlands lowering lead levels and curbing acid rain this essay examines the impact of the rise of economics in the policy world on the making of environmental policy i focus on two related but distinct phenomena the increasing interest in the use of incentive based mechanisms such as tradable permits to achieve environmental goals and the increasing interest in the use of analytical tools such as benefit cost analysis in regulatory decision making i argue that economists and economic instruments have had a modest impact on shaping environmental health and safety regulation but that economists will play an increasingly important role in the future although the role of economics is becoming more prominent it does not follow that environmental policy will become more efficient this apparent inconsistency can be explained by the political economy of environmental policy

labor supply and the double dividend abstract a series of recent articles have argued that environmental taxes and cap and trade permit systems generate large distortions in the labor market the claim is made that the higher prices for dirty goods induced by these incentive based systems generate a tax interaction effect leading to reductions in labor supply that are generally on net welfare reducing for this reason it is argued a double dividend seldom exists however price level increases both by lowering family income and by reducing cross spousal wage substitution effects will tend to have offsetting positive impacts on labor supply these effects are large enough to convert negative labor supply responses to rising prices into positive ones the empirical literature also supports a positive relationship between price level increases and labor supply these observations cast doubt on a central critical assumption underlying the critique of the double dividend in the tax interaction effect literature

environmental tax design with endogenous earning abilities with applications to france abstract this paper studies environmental taxation in a mirrlees setting with two novel features first energy a polluting good is used both as a factor of production and a final consumption good second the wage is determined endogenously while labor of different individual types remain homogeneous the model is calibrated for the french economy we show that i the optimal tax is less than the marginal social damage of emissions and turns into an outright subsidy when the inequality aversion index is high ii the optimal tax on energy as an input is always equal to its marginal social damage iii the social welfare gain due to lowering the current energy taxes to their optimal levels with the general income tax being set optimally in both cases is between 17 and 32 euro per household this hurts the rich and benefits the poor

pricing the ecosystem and taxing ecosystem services a general equilibrium approach abstract in an integrated dynamic general equilibrium model of the economy and the ecosystem humans and other species compete for land and prey biomass each submodel exhibits a price driven competitive allocation mechanism and the endogenously determined habitat is either openly accessible or privately owned in both scenarios specific corrective taxes or subsidies are needed to internalize ecosystem externalities an open access habitat causes additional inefficiencies through diverging prices for biomass and land in both subsystems values of all ecosystem components are determined in an efficient steady state clarifying the role and the interplay of ecosystem prices and economic prices

regulating environmental threats environmental consequences of natural resource exploitation often entail threats of future occurrences of detrimental abrupt events rather than or in addition to inflicting a damage gradually the possibility of abrupt occurrence of climate change related calamities is a case in mind the uncertainty associated with the realization of these threats and their public bad nature complicate the design of optimal economic response we derive a pigouvian hazard tax schedule that implements the socially optimal outcome the tax is based on the expected cost of the hazard generating activities and serves to reduce hazardous emissions well in advance of the catastrophic occurrence a numerical example illustrates possible effects of the proposed regulation scheme implications for climate policy are discussed

climate change policy s interactions with the tax system abstract this paper presents a range of insights from recent literature on how climate change policies and other environmental policies interact with the fiscal system it explores four issues associated with fiscal interactions first it examines how these interactions influence the prospects for a double dividend both an environmental improvement and a reduction in the costs of the tax system second it analyzes how the use of revenues from a carbon tax or from a cap and trade system involving auctioned emissions allowances influences these policies economic costs third it addresses the question whether carbon taxes or cap and trade programs represent more efficient sources of government revenue than other more traditional revenue sources such as income sales or payroll taxes finally it analyzes how fiscal interactions affect the choice between co 2 emissions pricing instruments carbon taxes and cap and trade and other climate policy instruments

a note on optimal taxation in the presence of externalities abstract i consider the problem of optimal taxation with externalities in a general setup encompassing most of optimal taxation models found in the literature it is demonstrated that when direct taxation of externalities is possible optimal taxes can be expressed as the sum of the optimal pigouvian taxes and the optimal taxes in a related problem without externalities regardless of what other tax instruments are available this result generalizes the so called principle of targeting

in praise of frank ramsey s contribution to the theory of taxation frank ramsey s brilliant 1927 paper modestly entitled a contribution to the theory of taxation is a landmark in the economics of public finance nearly a half century later through the work of diamond and mirrlees 1971 and mirrlees 1971 his paper can be thought of as launching the field of optimal taxation and revolutionising public finance ramsey f p 1927 a contribution to the theory of taxation economic journal vol 37 145 pp 47 61

taxation unemployment and growth dynamic welfare effects of green policies abstract this paper analyzes the effects of environmental tax reforms on a small open economy the labor market is characterized by union wage setting the carbon tax acts as an implicit tariff which gives rise to terms of trade gains the terms of trade effect together with the union wage setting leads to a positive relationship between the capital labor ratio and net foreign wealth in the short run the disinvestments in real and financial capital give temporary room for higher consumption and instantaneous utility the long run effect on instantaneous utility is more uncertain a strong double dividend may exist

commuting and labour supply revisited according to theory road pricing may reduce welfare when labour supply is negatively distorted by an income tax this effect particularly occurs when commuting costs reduce labour supply we examine the hypothesis that commuting costs reduce labour supply in the short run in particular we estimate the effect of commuting time on labour supply in the uk we account for endogeneity of commuting time by employing exogenous changes in commuting time resulting from firm relocations and changes in infrastructure our results cast doubt on the idea that increases in commuting cost reduce labour supply at least in the short run more precisely we find that females labour supply reacts positively to or is unaffected by increases in commuting time whereas males labour supply is unaffected

revisiting the cost of protectionism abstract most studies of the welfare impacts of trade policy have ignored interactions between these policies and pre existing distortions from the income tax this paper demonstrates that when these interactions are taken into account the potential gains or losses from tariffs import quotas or voluntary export restrictions are significantly magnified however as long as the trade barrier doesn t generate rents for domestic households the optimal level of the trade barrier is unchanged from the first best case trade policies which do increase domestic rents either in the form of quota rents or rents to fixed factors in production suffer an additional efficiency cost and the optimal policy in this case is less strict than in the first best case