Tax Normalizations, the Marginal Cost of Funds, and Optimal Environmental Taxes
|
 |
|
Post a Comment
|
|
|
|
|
CONTRIBUTORS:
|
|
|
JOURNAL:
|
|
|
YEAR:
|
2001
|
|
PUB TYPE:
|
Journal Article
|
|
SUBJECT(S):
|
None
|
|
DISCIPLINE:
|
Economics
|
|
HTTP:
|
|
|
LANGUAGE:
|
English
|
|
PUB ID:
|
103-396-485
(Last edited on
2003/11/08 23:44:19 US/Mountain)
|
|
SPONSOR(S):
|
|
|
ABSTRACT:
Theoretical work in second-best environmental taxation indicates that the optimal environmental tax in the presence of a pre-existing distortionary labor tax is below marginal environmental damages. However, it has been suggested that this is an artifact of the tax system normalization used by that literature, rather than a genuine result.
This paper investigates the effect of different tax system normalizations in this context. It finds that the prior literature’s result that the optimal environmental tax differential equals marginal environmental damages divided by the marginal cost of funds does not hold for alternative normalizations. However, this paper also shows that the ratio of the optimal environmental tax differential to marginal environmental damages does not vary as the tax normalization varies, and that this ratio is less than one. Thus, the essential aspect of the prior literature’s result–that the optimal environmental tax lies below marginal damages in a second-best setting–holds for any tax normalization.
This result is partly explained by the fact that the marginal cost of funds varies with the tax normalization. This point has not been recognized by the prior literatures on either the marginal cost of funds or on optimal environmental taxation, and has substantial importance for other issues in taxation.
|
|
|
|
STATISTICS
|
|
Click on # to view
|
|
Citations
|
|
0
|
|
References
|
|
0
|
|
Comments
|
|
0
|
|
Quality
|
|
0/0.00
|
|
Interest
|
|
0/0.00
|
|
View(er)s
|
|
1/153
|
|
|
|
|
|
|
| Prev |
Next |
|