Emission Taxes and the Design of Refunding Schemes

24 Pages Posted: 2 Apr 2001

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Till Requate

University of Kiel - Department of Economics

Date Written: August 2000

Abstract

We examine how emission taxes should be refunded to firms in order to create optimal incentives to invest in cleaner technologies. Since refunds cannot be made dependent on investments, an alternative way is to give back taxes to firms according to market shares. We show that universally applicable refunding schemes must be linear in market shares. Moreover, a socially optimal tax/tax refunding scheme exists if pollution is proportional to output and firms compete a la Cournot. If short-term abatement technologies exist, tax/tax refunding schemes can still provide second-best allocations. If firms are price takers, however, refunding taxes according to market shares is harmful. Since imperfect competition is a prominent phenomenon in many polluting industries, the design of socially optimal refunding schemes is an essential part of environmental regulation.

JEL Classification: L5, Q2, Q28

Suggested Citation

Gersbach, Hans and Requate, Till, Emission Taxes and the Design of Refunding Schemes (August 2000). CESifo Working Paper Series No. 325. Available at SSRN: https://ssrn.com/abstract=263349

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Till Requate (Contact Author)

University of Kiel - Department of Economics ( email )

Olshausenstrasse 40
24098 Kiel, 24098
Germany
+49 431 880-4424 (Phone)
+49 431 880-1618 (Fax)

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