Environmental taxes and quotas in the presence of distorting taxes in factor markets

Abstract Environmental quotas tend to compound the welfare cost of pre-existing tax distortions in the labor market. Under plausible parameters, this source of welfare loss can easily be large enough to outweigh the entire partial equilibrium welfare gain from the quota. Environmental taxes induce the same interaction effect, however they also raise government revenues. If the revenues are used to reduce distortionary taxes, then most of this interaction effect can be offset. Therefore, revenue-raising can be a necessary condition for environmental policies to increase welfare.

[1]  Arnold C. Harberger.  Taxation and Welfare , 1974 .

[2]  Lans Bovenberg,et al.  Environmental Policy, Public Finance and the Labour Market in a Second-best World , 1994 .

[3]  Edgar K. Browning.  On the Marginal Welfare Cost of Taxation , 1987 .

[4]  William D. Nordhaus,et al.  Optimal Greenhouse-Gas Reductions and Tax Policy in the "Dice" Model , 1993 .

[5]  L. Goulder,et al.  Effects of Carbon Taxes in an Economy with Prior Tax Distortions: An Intertemporal General Equilibrium Analysis , 1995 .

[6]  L. Goulder,et al.  Costs of Environmentally Motivated Taxes in the Presence of Other Taxes:General Equilibrium Analyses , 1995 .

[7]  L. Goulder,et al.  Environmental taxation and the double dividend: A reader's guide , 1995 .

[8]  L. Goulder,et al.  Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses , 1994 .

[9]  Y. Ng.  Optimal Corrective Taxes or Subsidies When Revenue Raising Imposes an Excess Burden , 1980 .

[10]  J. Muellbauer,et al.  Economics and consumer behavior , 1980 .

[11]  N. Stern,et al.  The Theory of Taxation for Developing Countries. , 1988 .

[12]  R. Lipsey,et al.  The General Theory of Second Best , 1956 .

[13]  Peter A. Diamond,et al.  Optimal Taxation and Public Production II: Tax Rules , 1971 .

[14]  Ian W. H. Parry,et al.  Pollution Taxes and Revenue Recycling , 1995 .

[15]  W. Oates.  Green Taxes: Can We Protect the Environment and Improve the Tax System at the Same Time?* , 1995 .

[16]  R. Lucas,et al.  SUPPLY-SIDE ECONOMICS: AN ANALYTICAL REVIEW , 1990 .

[17]  R. Mooij,et al.  Environmental Levies and Distortionary Taxation. , 1994 .

[18]  Arnold C. Harberger.  Taxation, Resource Allocation, and Welfare , 1964 .

[19]  D. Wisecarver.  The Social Costs of Input-Market Distortions , 1974 .

[20]  Edgar K. Browning.  The non-tax wedge , 1994 .

[21]  Wallace E. Oates,et al.  Effluent fees and market structure , 1984 .