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Excess burden of taxation and environmental policy mix with a consumer-friendly firm

Mariel Leal, Arturo Garcia and Sang-Ho Lee ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines environmental policy mix of tradable emission permits and emission taxes in a duopoly model with a consumer-friendly firm. In the presence of excess burden of taxation, we analyze the interplay of the two policies in the non-equivalent conditions for welfare consequences. We show that emission tax can be redundant and thus policy mix is degenerated when both the excess burden of taxation and the degree of consumer-friendliness are insignificant. However, when the excess burden of taxation is significant, tradable permits policy with tax treatment should be accompanied to enhance welfare in the presence of a consumer-friendly firm. Finally, under the tax revenue-neutral case where the excess burden of taxation does not matter, environmental policy mix is also efficient if the degree of consumer-friendliness is sufficiently high.

Keywords: consumer-friendly firm; environmental policy mix; excess burden of taxation; tradable emission permits; emission tax (search for similar items in EconPapers)
JEL-codes: L13 L31 Q5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env
Date: 2018-07, Revised 2018
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