Pigouvian Income Taxation

Lassi Ahlvik, Matti Liski and Mäkimattila, Mikael

No 19117, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper develops a mechanism design approach to study externalities and redistribution. The mechanism screens individuals’ social weights to strike a balance among broad distributional objectives, incentives to work, and incentives to reduce externalities. The welfare-optimal allocation can be decentralized through income taxation, defining income-dependent externality payments. Two applications use individual-level administrative data on incomes, pollution measures, and financial burdens to demonstrate how population characteristics shape the optimal policy on carbon emissions.

Keywords: Pigouvian taxation; Optimal income taxation; Inequality (search for similar items in EconPapers)
JEL-codes: D82 Q52 Q54 (search for similar items in EconPapers)
Date: 2024-05
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Working Paper: Pigouvian Income Taxation (2024)
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