Environmental Taxation and Financial Frictions in Green Lending

Joshua Greubel and Fabian Herweg

No 12828, CESifo Working Paper Series from CESifo

Abstract: We study polluting firms that require loans from a monopolistic bank to invest in abatement technology. Firms differ in the effectiveness of abatement investment, and this effectiveness is private information. The bank offers a screening contract under which high-cost firms receive too little capital and therefore emit excessively. A regulator restricted to tax policy responds by setting an environmental tax above marginal environmental damage, i.e., above the Pigouvian level. The first-best allocation can be restored by combining the Pigouvian tax, which ensures efficient abatement, with tailored, type-specific loan subsidies that correct the credit-market distortion.

Keywords: abatement investment; asymmetric information; environmental taxation; financial frictions; screening (search for similar items in EconPapers)
JEL-codes: D82 G21 H23 Q58 (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ifo.de/DocDL/cesifo1_wp12828.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12828

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().