Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses
Year: 1994
Type: report
Abstract: This paper examines the optimal setting of environmental taxes in economies where other, distortionary taxes are present We employ analytical and numerical models to explore the degree to which, in a second best economy, optimal environmental tax rates differ from the rates implied by the Pigovian principle (according to which the optimal tax rate equals the marginal environmental damages).Both models indicate, contrary to what several analysts have suggested, that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the Pigovian principle.Moreover, the optimal rate is lower the larger are the distortions posed by ordinary taxes.Numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding .pre-existingtaxes.
DOI: 10.3386/w4897
Authors: A. Lans Bovenberg, Lawrence Goulder
Institutions: Tilburg University, Stanford University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2118746119