Optimal Taxation of Externalities Interacting through Markets: A Theoretical General Equilibrium Analysis

Xiaolin Ren, Don Fullerton (dfullert@illinois.edu) and John Braden (jbb@illinois.edu)

No 3259, CESifo Working Paper Series from CESifo

Abstract: This study develops a theoretical general equilibrium model to examine optimal externality tax policy in the presence of externalities linked to one another through markets rather than technical production relationships. Analytical results reveal that the second-best externality tax rate may be greater or less than the first-best rate, depending largely on the elasticity of substitution between the two externality-generating products. These results are explored empirically for the case of greenhouse gas from fossil fuel and nitrogen emissions associated with biofuels.

Keywords: second-best tax; multiple externalities; biofuel; GHG emissions; nitrogen leaching (search for similar items in EconPapers)
JEL-codes: D50 H23 Q58 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Optimal taxation of externalities interacting through markets: A theoretical general equilibrium analysis (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3259

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