Discussion Paper

No. 2013-29 | April 23, 2013
Environmental Taxes in the Long Run

Abstract

The efficiency of the Pigouvian tax suggests that price-based regulation is the proper benchmark for efficient regulation. However, results due to Carlton and Loury (1980, 1986) question this; when harm depends on scale effects a pure Pigou tax is inefficient regulation in the long run. In this note we make precise that there is an efficient tax scheme for controlling harm as long as social optimum exists. In particular, the efficient tax scheme is based on a tax rate equal to marginal harm. Hence, price regulation is the right benchmark for regulation even in the presence of scale effects in the harm function.

JEL Classification

D61 D62

Cite As

Henrik Vetter (2013). Environmental Taxes in the Long Run. Economics Discussion Papers, No 2013-29, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-29

Assessment



Comments and Questions


Anonymous - Referee Report 1
April 30, 2013 - 10:23

See attached file


Henrik Vetter - Response
May 03, 2013 - 08:39

Attached, please, find my response.


Anonymous - Referee Report 2
April 30, 2013 - 10:24

See attached file


Henrik Vetter - Response
May 03, 2013 - 08:40

Attached, please, find my response.


Henrik Vetter - New version
May 03, 2013 - 08:43

Here is an updated version as mentioned in the response to the reports.