Environmental Taxation and Redistribution Concerns

42 Pages Posted: 23 Jul 2011 Last revised: 1 Jul 2014

See all articles by Rafael Aigner

Rafael Aigner

University of Bonn - The Bonn Graduate School of Economics

Date Written: June 2013

Abstract

How is the optimal level of Pigouvian taxation influenced by distributive concerns? With second-best instruments, a higher level of income redistribution calls for a lower level of Pigouvian taxation. More redistribution implies higher distortions from income taxation. Pigouvian tax revenues become more valuable and the optimal level of environmental taxation decreases. With first-best instruments, however, the relation between levels of redistribution and Pigouvian taxation is reversed. So second-best Pigouvian taxes are very different from their first-best counterpart – despite apparently identical first order conditions.

Keywords: Optimal Income Taxation, Pigouvian taxation, comparative statics, externalities, second-best

JEL Classification: H21, D62, H23

Suggested Citation

Aigner, Rafael, Environmental Taxation and Redistribution Concerns (June 2013). MPI Collective Goods Preprint, No. 2011/17, Available at SSRN: https://ssrn.com/abstract=1892772 or http://dx.doi.org/10.2139/ssrn.1892772

Rafael Aigner (Contact Author)

University of Bonn - The Bonn Graduate School of Economics ( email )

Adenauerallee 24-26
Bonn, D-53113
Germany

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