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Corrective Taxation versus Liability

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  • Steven Shavell

Abstract

Taxation and liability are compared as means of controlling harmful externalities, with a view toward explaining why the use of liability predominates over taxation. Taxation suffers from a disadvantage in the analysis: because taxes do not reflect all the variables affecting expected harm, inefficiency results, whereas efficiency under liability requires only assessment of actual harm. However, liability also suffers from a disadvantage: incentives are diluted because injurers escape suit. Joint use of taxation and liability is examined, and it is shown that liability should be employed fully, with taxation taking up the slack due to escape from suit.

Suggested Citation

  • Steven Shavell, 2011. "Corrective Taxation versus Liability," American Economic Review, American Economic Association, vol. 101(3), pages 273-276, May.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:273-76
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.273
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    References listed on IDEAS

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    1. Bovenberg, A. Lans & Goulder, Lawrence H., 2002. "Environmental taxation and regulation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545, Elsevier.
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    Cited by:

    1. Friehe, Tim & Langlais, Eric, 2017. "Prevention and cleanup of dynamic harm under environmental liability," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 107-120.
    2. Indranil Chakraborty & R. Preston Mcafee, 2014. "Let the Punishment Fit the Crime: Enforcement with Error," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(2), pages 274-292, April.
    3. Justin Leroux, 2014. "Curbing Emissions through a Carbon Liabilities Market: A note from a climate skeptic's perspective," CIRANO Working Papers 2014s-20, CIRANO.
    4. Steven Shavell, 2010. "The Corrective Tax versus Liability As Solutions to the Problem of Harmful Externalities," NBER Working Papers 16235, National Bureau of Economic Research, Inc.
    5. Steven Shavell, 2012. "A Fundamental Enforcement Cost Advantage of the Negligence Rule over Regulation," NBER Working Papers 18418, National Bureau of Economic Research, Inc.
    6. Florian Baumann & Tim Friehe & Pascal Langenbach, 2020. "Fines versus Damages: Experimental Evidence on Care Investments," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2020_08, Max Planck Institute for Research on Collective Goods, revised Mar 2024.
    7. Giovanni Immordino & Anna Maria C. Menichini & Maria Grazia Romano, 2020. "Taxing and Regulating Vices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 622-647, April.
    8. De Chiara, Alessandro & Elizalde, Idoia & Manna, Ester & Segura-Moreiras, Adrian, 2021. "Car accidents in the age of robots," International Review of Law and Economics, Elsevier, vol. 68(C).
    9. Justin Leroux, 2015. "Track-and-Trade: A liability approach to climate policy," CIRANO Working Papers 2015s-18, CIRANO.
    10. Yayun Shen & Michael Faure, 0. "Green building in China," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 0, pages 1-17.
    11. Billette de Villemeur, Etienne & Leroux, Justin, 2013. "Curbing emissions through (efficient) carbon liabilities: A note from a climate skeptic's perspective," MPRA Paper 46953, University Library of Munich, Germany.
    12. Yayun Shen & Michael Faure, 2021. "Green building in China," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 21(2), pages 183-199, June.
    13. Yasser A. Al-Rawi & Mohammed Harith Imlus & Yusri Yusup & Sofri Bin Yahya, 2021. "Factors affecting vehicle exhaust emissions, driver motivations as a mediator," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(2), pages 361-407, April.

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