Optimal Taxation and Transboundary Externalities - Are Endogenous World Market Prices Important?

Thomas Aronsson (), Lars Persson () and Tomas Sjögren
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Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Lars Persson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 699, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper concerns income and commodity taxation in a multi-jurisdictional

framework with transboundary environmental damage. We assume that each jurisdiction

is large in the sense that its government is able to influence the world

market prices via public policy. In such a framework, a noncooperative Nash equilibrium

does not only imply that the commodity tax on the externality-generating

good is inefficiently low seen from the perspective of global well-being; it also

means that the marginal income tax rate is inefficiently high, and that too much

resources are spent on public goods. With the noncooperative Nash equilibrium

as a starting point, we also consider the welfare effects of policy coordination with

respect to taxation and public expenditures.

Keywords: Trade and Environment; Optimal Taxation; Externalities (search for similar items in EconPapers)
JEL-codes: F18 H21 H23 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-11-20
New Economics Papers: this item is included in nep-env and nep-pbe
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