Pollution and Capital Tax Competition within a Regional Block

Costas Hadjiyiannis (), Panos Hatzipanayotou and Michael Michael

No 1208, CESifo Working Paper Series from CESifo

Abstract: The paper examines the interaction among taxes on factors income, environmental quality and welfare. We construct a two-country regional block model with capital mobility and cross-border pollution. Pollution in the two countries is simultaneously abated by the private sector, in response to a pollution tax and by the public sector utilizing income and pollution tax revenue. We demonstrate, among other things, that due to the existence of cross-border pollution in many cases the Nash optimal policy on capital income is a positive tax, even if taxes on the income of immobile factors are chosen optimally. This tax rate increases with the degree of cross-border pollution.

Keywords: optimal income taxes; public pollution abatement; cross-border pollution; capital mobility (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-env, nep-pbe and nep-pub
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1208

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