IDEAS home Printed from https://ideas.repec.org/a/aea/aejpol/v10y2018i4p211-42.html
   My bibliography  Save this article

The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation

Author

Listed:
  • Christopher R. Knittel
  • Ryan Sandler

Abstract

When consumers or firms don't face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, but it may be infeasible to tax the externality directly. The alternative, taxing a related product, will be second-best. In this paper, we show that in the presence of heterogeneous externalities and elasticities, this type of indirect tax performs poorly. In our empirical application, gasoline taxes to address pollution externalities, less than a third of the deadweight loss of the externality is addressed by second-best optimal taxes.

Suggested Citation

  • Christopher R. Knittel & Ryan Sandler, 2018. "The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 211-242, November.
    • Handle: RePEc:aea:aejpol:v:10:y:2018:i:4:p:211-42
    Note: DOI: 10.1257/pol.20160508
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/pol.20160508
    Download Restriction: no
    File URL: https://www.aeaweb.org/content/file?id=8309
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=hVFMRVHB66HejKOWL2w7wiUQd2GQ6Nio
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=TcqDxkTzOFpb2NfhbhB8QXsbrRHw7hZ6
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejpol:v:10:y:2018:i:4:p:211-42. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.