A Many-Person Corlett-Hague Tax Rule with Externalities

Jukka Pirttilä

Oxford Economic Papers, 2000, vol. 52, issue 3, 595-605

Abstract: This study addresses environmental tax reforms in a many-person economy. Starting from a situation of uniform commodity taxation, a tax reform raising the tax on a good complementary to leisure or on a good that is environmentally harmful may be seen as welfare-improving as long as environmental externalities do not affect commodity demand. When environmental quality reduces commodity demand, a trade-off arises between the direct beneficial impact of the higher environmental tax and its indirect, harmful impact caused by reduced tax revenues. A second trade-off may also arise from a conflict between efficiency and distributional equity. Copyright 2000 by Oxford University Press.

Date: 2000
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