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Optimal tax policy under heterogeneous environmental preferences

Marcelo Arbex (), Stefan Behringer and Christian Trudeau ()

Economics Letters, 2017, vol. 157, issue C, 79-82

Abstract: We model an economy of K heterogeneous regions where agents value consumption vs. nature differently. Consumption obtained through pollution-inducing production also generates a negative externality on neighbors. We show that even with a decentralized policy we can obtain first-best efficiency by choosing a combination of pollution taxes in both regions and lump-sum transfers. Moreover, we show that optimal pollution taxes are determined only by the externality parameters, independent of agents’ preferences for consumption and nature.

Keywords: Externalities; Environmental preferences; Optimal taxation (search for similar items in EconPapers)
JEL-codes: D62 H23 H87 Q58 (search for similar items in EconPapers)
Date: 2017
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