Health Effects in a Model of Second-Best Environmental Taxation or Reconsidering "Reconsidering the Tax-Interaction Effect"

Roberton Williams

No 8048, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The literature on environmental taxation in the presence of pre-existing distortionary taxes has shown that the interactions with pre-existing taxes tend to raise the cost of an environmental tax, and thus that the optimal environmental tax in that context is less than marginal environmental damages. A recent paper by Schwartz and Repetto (2000) challenges this finding, arguing that the health benefits from reduced pollution will also interact with pre-existing taxes, possibly causing the optimal environmental tax to exceed marginal environmental damages. Schwartz and Repetto's analysis aimed to account for health effects by representing environmental quality and leisure as substitutes in utility. The present paper employs an analytically tractable general equilibrium model that, in contrast with Schwartz and Repetto's analysis, explicitly considers health effects. It shows that interactions with health effects from pollution actually will tend to reduce the optimal environmental tax. This result contradicts Schwartz and Repetto's conclusion. This demonstrates the usefulness of explicitly modeling health effects, and it reinforces the general notion that tax-interactions tend to raise the costs of an environmental tax.

JEL-codes: H21 H23 (search for similar items in EconPapers)
Date: 2000-12
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Williams, Roberton C., III. "Health Effects And Optimal Environmental Taxes," Journal of Public Economics, 2003, v87(2,Feb), 323-335.

Downloads: (external link)
http://www.nber.org/papers/w8048.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:nbr:nberwo:8048

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8048

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.
Bibliographic data for series maintained by ().