Uncertainty over future environmental taxes

Bruce Larson and George Frisvold ()

Environmental & Resource Economics, 1996, vol. 8, issue 4, 471 pages

Abstract: Besides static efficiency properties, environmental policies should be evaluated in terms of their longer-run impacts on investment and technological change to reduce pollution and degradation of natural resources. Using a stochastic dynamic programming approach, this paper analyzes how uncertainty about a future environmental tax on a polluting input alters investment in resource conservation and how such investment affects future demand for the polluting input. The impact on investment depends crucially on price elasticities of demand and on the manner in which investment shifts and rotates the demand schedule for the polluting input in the future. The expectation of a higher tax does not necessarily create stronger incentives for investment in resource conservation. More uncertainty about future policies does encourage investment if it makes a firm more responsive to future price changes and discourages investment if it makes a firm less responsive to price changes. Copyright Kluwer Academic Publishers 1996

Keywords: environmental tax; policy uncertainty; sequential investment (search for similar items in EconPapers)
Date: 1996
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/BF00357414

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