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Optimal Taxation, Redistribution, and Environmental Externalities
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2017 (English)In: International Review of Environmental and Resource Economics, ISSN 1932-1465, E-ISSN 1932-1473, Vol. 11, no 3, p. 233-308Article in journal (Refereed) Published
Abstract [en]

This paper surveys research on optimal redistributive taxation in economies with environmental externalities. A key question is whether externality correction only motivates an adjustment of the tax policy rule for the externality-generating activity, or whether the marginal value of the externality directly enters the policy rules for other tax instruments as well. In a static benchmark model with an atmospheric consumption externality, where the government uses a mix of a nonlinear income tax and linear commodity taxes, one can show that Sandmo's (1975) additivity property applies. This means that externality correction leads to an additional term (measuring the marginal value of the externality) in the commodity tax formula for the externality-generating good, while the policy rules for commodity taxation of clean goods and marginal income taxation take the same form as in the absence of any externality. We also extend this benchmark model to capture a number of scenarios (such as non-atmospheric externalities, border trade in the externality-generating good, and competition between governments in a multi-country framework), where the additivity property no longer applies. We end by examining an intertemporal model of optimal taxation with a stock-externality, allowing us to integrate the study of optimal redistributive taxation with literature on environmental economics and policy based on dynamic models.

Place, publisher, year, edition, pages
Now Publishers Inc., 2017. Vol. 11, no 3, p. 233-308
Keywords [en]
Environmental externalities, optimal taxation, redistribution, income taxation, commodity taxation
National Category
Economics
Identifiers
URN: urn:nbn:se:umu:diva-151804DOI: 10.1561/101.00000095ISI: 000443208300002OAI: oai:DiVA.org:umu-151804DiVA, id: diva2:1248211
Funder
Swedish Research Council, 2016-02371Available from: 2018-09-14 Created: 2018-09-14 Last updated: 2018-09-14Bibliographically approved

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Aronsson, ThomasSjögren, Tomas

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CiteExportLink to record
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