The relative efficiency of market-based environmental policy instruments with imperfect compliance

Sandra Rousseau () and Stef Proost

Open Access publications from Katholieke Universiteit Leuven from Katholieke Universiteit Leuven

Abstract: We study how the relative cost efficiency of three market-based instruments—emission taxes, tradable permits and output taxes—is influenced by the combination of accounting for incomplete compliance and pre-existing labor taxes. First,accounting for violations makes the policy instruments less effective so that environmental damages have to be larger to justify a policy. Secondly, including fines in a second-best setting provides a new means of collecting government revenues and of lessening existing tax distortions.We show that the relative position of grandfathered tradable permits vis-à-vis emission taxes improves considerably when incomplete compliance is incorporated in a second-best setting. A simple AGE model illustrates the results.

Date: 2009-02
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Published in International tax and public finance (2009-02) v.16, p.25-42

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Related works:
Journal Article: The relative efficiency of market-based environmental policy instruments with imperfect compliance (2009)
Working Paper: The Relative Efficiency of Market-based Environmental Policy Instruments with Imperfect Compliance (2004)
Working Paper: The relative efficiency of market-based environmental policy instruments with imperfect compliance (2004)
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