Behavioral and Distributional Effects of Environmental by Carlo Carraro, Gilbert E. Metcalf

By Carlo Carraro, Gilbert E. Metcalf

Most folks may agree that it is sensible to tax a firm that pollutes in a manner that at once displays the volume of environmental and social harm it has performed. but in perform, such taxes are fraught with trouble and feature far-reaching implications. a firm dealing with a brand new tax could lay off staff, for instance, exacerbating an unemployment challenge. This quantity specializes in such exterior concerns and examines intimately the trade-offs fascinated about designing regulations to house environmental difficulties. Reflecting the large nature of the topic, the individuals comprise major economists within the parts of public finance, commercial association, and alternate conception, in addition to environmental economists. Integrating either theoretical and empirical tools, they research environmental coverage layout because it pertains to position judgements, compliance expenditures, administrative expenses, results on learn and improvement, and overseas issue pursuits. laying off mild on an awfully advanced and significant subject, this assortment should be of curiosity to all these occupied with designing potent environmental coverage.

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36 Don Fullerton, Inkee Hong, and Gilbert E. 6 Conclusion A tax on pollution has been suggested by Pigou (1932) and thoroughly analyzed in the economics literature ever since, but a true Pigouvian tax is essentially never employed by actual policy. Most actual environmental taxes apply to the output of a polluting industry or to an input that is correlated with emissions, rather than directly to emissions. Perhaps policymakers think that the “polluter pays” principle is satisfied, since the polluters bear the burden of the output tax, but this paper shows the loss in welfare from missing the target in this fashion.

30 Don Fullerton, Inkee Hong, and Gilbert E. Metcalf second-best emissions tax (t*Z ϭ ␮/␺) would raise production costs by (␮/␺)Z. 19 In other words, the fact that the output tax cannot achieve the desired substitution effect should not deter policymakers from its use to achieve the desired output effect. The optimal t*Y is the damage per unit of output—calculated as the desired tax per unit of emissions (t*Z ) times emissions per unit output (Z/Y ). If the ideal t*Z were unavailable, could the authorities set t*Y and enforce it?

For the special case where Y ϭ Z, equation (26) collapses to (23Ј). 30 Don Fullerton, Inkee Hong, and Gilbert E. Metcalf second-best emissions tax (t*Z ϭ ␮/␺) would raise production costs by (␮/␺)Z. 19 In other words, the fact that the output tax cannot achieve the desired substitution effect should not deter policymakers from its use to achieve the desired output effect. The optimal t*Y is the damage per unit of output—calculated as the desired tax per unit of emissions (t*Z ) times emissions per unit output (Z/Y ).

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