A Many-Person Corlett-Hague Tax Rule with Externalities
Oxford Economic Papers 52(3):595-605, 2001, DOI: 10.1093/oep/52.3.595
Posted: 8 Sep 2014
Date Written: January 1, 2001
This study addresses environmental tax reforms in a many-person economy. Starting from a situation of uniform commodity taxation, a tax reform raising the tax on a good complementary to leisure or on a good that is environmentally harmful may be seen as welfare-improving as long as environmental externalities do not affect commodity demand. When environmental quality reduces commodity demand, a trade-off arises between the direct beneficial impact of the higher environmental tax and its indirect, harmful impact caused by reduced tax revenues. A second trade-off may also arise from a conflict between efficiency and distributional equity.
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