Optimal control of externalities in the presence of income taxation
By: Louis Kaplow
Contributors: National Bureau of Economic Research
Series: NBER working paper series -- working paper 12339; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12339.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "A substantial literature examines second-best environmental policy, focusing particularly on how the Pigouvian directive that marginal taxes should equal marginal external harms needs to be modified in light of the preexisting distortion due to labor income taxation.  Additional literature is motivated by the possibility that distributive concerns should amend the internalization prescription.  It is demonstrated, however that simple first, best rules, unmodified for labor supply distortion or distribution, are correct in a natural, basic formulation of the problem.  Specifically, setting all commodity taxes equal to marginal harms (and subsidies equal to marginal benefits) can generate a Pareto improvement.  Likewise, a marginal reform in the direction of the first-best can yield a Pareto improvement.  For other reforms, a simple efficiency test characterizing when a Pareto improvement is possible is offered.  Qualifications and explanations for the substantial departure from results in previous work are also elaborated"-National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/28/2006.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.