Uniform and Non-Uniform Second-Best Input Taxes

Roger Claassen () and Richard Horan

Environmental & Resource Economics, 2001, vol. 19, issue 1, 22 pages

Abstract: We investigate second-best, input-based taxes foragricultural nonpoint pollution control when marketprices are endogenous and production isheterogeneous. Theoretically, we derive the optimalforms of taxes which take account of heterogeneity(non-uniform taxes) and a tax which does not (auniform tax). Empirically, we use a multi-factor,market-equilibrium simulation model to determineoptimal tax rates and associated equity effects,particularly differences in landowner gains/lossesacross a heterogeneous region. When market prices areendogenous, second-best tax policies result inpecuniary externalities that affect existingenvironmental externalities. In particular, thepecuniary externalities amplify the effect of producerheterogeneity on determination of sub-regionaldifferences in tax rates and returns to land,particularly for the uniform policy. With endogenousprices, the uniform tax rate is considerably higherthan any of the non-uniform rates and, ironically, thenon-uniform taxes result in less dispersion oflandowner gains across sub-regions than the uniformtax. Copyright Kluwer Academic Publishers 2001

Keywords: equity; fertilizer tax; heterogeneity; input-based tax; nutrient runoff; nonpoint pollution; second-best (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (18)

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DOI: 10.1023/A:1011192110429

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