Climate Policy with Tied Hands: Optimal Resource Taxation Under Implementation Lags

Corrado Di Maria, Sjak Smulders () and Edwin Werf ()
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Edwin Werf: Wageningen University

Environmental & Resource Economics, 2017, vol. 66, issue 3, No 7, 537-551

Abstract: Abstract In the presence of implementation lags, announced Pigouvian taxation leads to fossil fuel prices that are too low from society’s perspective. This results in excessive emissions and reduced incentives for green innovation. Such effects are compounded by the presence of pre-existing subsidies to fossil fuel use. We show that the intertemporal resource tax path may need to be modified to optimally take into account the perverse incentives from policy lags and pre-existing policies. We find that it might be optimal to subsidize, rather than tax resource extraction at the instant of implementation.

Keywords: Climate policy; Second-best; Carbon tax; Non-renewable resources; Resource taxation; Implementation lag; Green Paradox (search for similar items in EconPapers)
JEL-codes: Q31 Q41 Q54 Q58 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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Working Paper: Climate policy with tied hands optimal resource taxation under implementation lags (2016)
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DOI: 10.1007/s10640-016-0091-6

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