On Atmosphere Externality and Corrective Taxes
Eytan Sheshinski ()
Discussion Paper Series from The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem
It has been argued that in the presence of an ’Atmosphere Externality’ and competitive behavior by households, a uniform commodity tax on the externality - generating good attains the first best. It is demonstrated, however, that if income redistribution is desirable then personalized taxes are required for a second-best optimum. Each of these taxes is the sum of a uniform (across households) tax and a component, positive or negative, which depends on the household’s income and demand elasticities. Second-best optimal indirect taxes and rules for investment in externality-reducing measures are also considered.
Keywords: atmosphere externality; optimal taxation; disributional considerations (search for similar items in EconPapers)
JEL-codes: H21 H23 (search for similar items in EconPapers)
Pages: 12 pages
New Economics Papers: this item is included in nep-mic
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Journal Article: On atmosphere externality and corrective taxes (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:huj:dispap:dp328
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