 Second-Best Pollution TaxesNo 5511, NBER Working Papers from National Bureau of Economic Research, Inc Abstract: When government needs more revenue than is available from a pollution tax rate equal to marginal environmental damage, our intuition tells us to raise the tax on the clean good above zero and to raise the tax on the dirty good above that first-best Pigouvian rate. Yet new results suggest that the second-best pollution tax is below the Pigouvian rate. This note reconciles these views by pointing out that these new results use a labor tax to acquire additional revenue, and that the labor tax is equivalent to a uniform tax on both clean and dirty goods. Thus, depending on the normalization, the total tax on the dirty good can be above the Pigouvian rate. These recent results are meant to show that the difference between the tax on the dirty good and the tax on the clean good is less than the Pigouvian rate. Any one tax rate can be set to zero as a conceptual matter, but implementation of some taxes might be easier than others as a practical matter. JEL-codes: H23 Q28 (search for similar items in EconPapers) Published as Enviromenmental Levies and Distortionary Taxation: Comment," American Economic Review, Vol. 87, no. 1 (March 1997): 245-251. Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:5511 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC. |
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