A note on optimal taxation in the presence of externalities

Tomoichi Shinotsuka and Ko Sumino

ビジネス創造センターディスカッション・ペーパー (Discussion papers of the Center for Business Creation) from Otaru University of Commerce

Abstract: In this paper, we reexamine the optimal tax problem with identical consumers in the presence of externalities by taking explicitly the interrelationship between externality and consumption into account. In setting out the optimal tax conditions in the presence of externalities, it is standard to follow Sandmo (1975) to employ the following assumptions: (i) separable externalities; and (ii) independent demands. We dispense with these restrictive assumptions and show the Sandmo’s “additivity property” where externalities only affect the tax formula for an externality generating good and do not affect other tax formulas.

Keywords: Optimal taxation; Externalities; Separability; Demand independence; Interrelationship (search for similar items in EconPapers)
Pages: 7 pages
Date: 2005-02-16
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Published in Discussion paper series (2005), 99: 1-7

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Persistent link: https://EconPapers.repec.org/RePEc:ota:busdis:10252/956

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