Emission Taxes when Pollution Depends on Location
18 Pages Posted: 22 Jan 2009 Last revised: 4 Oct 2014
Date Written: November 3, 2009
It is well-known that an efficient pollution taxation scheme should charge each source according to its specific marginal contribution to social damages. Despite significant advances in environmental assessment and data analysis, this requirement would impose technical, informational and administrative expenses that most regulators - notably in developing countries - seem unable to afford. This paper shows it can actually be less demanding than it seems. If polluters are price-takers, for instance, in a context where the affected population concentrates at a given location, then the optimal emission tax will disregard a source's location. Otherwise, the adjustment of the optimal tax to location will depend on the extent of a polluter's market power.
Keywords: Pigouvian tax, spatial information, market structure
JEL Classification: D62, H23, Q58, R38
Suggested Citation: Suggested Citation