The Political Economy of Emission Tax Design in Environmental Policy

38 Pages Posted: 19 Nov 2002

Date Written: November 2002

Abstract

In actual environmental policy, the design of actual pollution emission taxes differs significantly with the optimal Pigovian tax. In particular, earmarking prevails and actual taxes are usually combined with regulation. Furthermore tax rates are generally too low to significantly influence polluters' behavior. The paper develops a political economy model to explain these design parameters: The tax rate, earmarking pattern and whether the tax is combined with a regulation. An incumbent government selects these parameters under the influence of a green and a polluters' lobby groups. An earmarked tax is introduced in equilibrium which rate is lower than the regulatory shadow price when the status quo regulation is imperfectly enforced and if the green lobby is sufficiently weak.

Keywords: Environmental Tax, Political Economy, Earmarking, Tax Design, Common Agency Politics, Lobbying, Public Choice

JEL Classification: D72, D78, H23, Q28

Suggested Citation

Glachant, Matthieu, The Political Economy of Emission Tax Design in Environmental Policy (November 2002). Available at SSRN: https://ssrn.com/abstract=351604 or http://dx.doi.org/10.2139/ssrn.351604

Matthieu Glachant (Contact Author)

MINES ParisTech ( email )

60, boulevard Saint Michel
75272 Paris cedex 06, 75006
France
+33 1 40 51 9229 (Phone)

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