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Pigouvian Taxes in General Equilibrium with a Fixed Tax Redistribution Rule

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  • Andreas Lange
  • Till Requate

Abstract

This paper establishes existence of a first‐best emission tax in a general equilibrium model with pollution, when the redistribution rule of the tax income is chosen fixed and independently of the Pigouvian tax rate. It is known that under standard convexity assumptions each Pareto efficient allocation can be implemented by simultaneously choosing a Pigouvian tax rate and an appropriate lump sum redistribution of income. In real politics, however, tax redistribution schemes are often restricted to a small feasible set. Nonetheless we show that for any given lump sum redistribution rule, being continuous in overall tax income, an emission tax rate exists that leads to a Pareto efficient equilibrium.

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  • Andreas Lange & Till Requate, 2000. "Pigouvian Taxes in General Equilibrium with a Fixed Tax Redistribution Rule," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(1), pages 25-42, January.
    • Handle: RePEc:bla:jpbect:v:2:y:2000:i:1:p:25-42
    DOI: 10.1111/1097-3923.00028
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    1. You, Wen & Mitchell, Paul D. & Davis, George C., 2004. "Sweet Persuasion: Soft Drinks, School Funding, And Children'S Health," 2004 Annual meeting, August 1-4, Denver, CO 20129, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Wang, Mingxi & Hu, Yi & Wang, Shouyang & Dang, Chuangyin, 2023. "The optimal carbon tax mechanism for managing carbon emissions," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).
    3. Kakeu, Johnson & Agbo, Maxime, 2022. "International transfer to reduce global inequality and transboundary pollution," Energy Economics, Elsevier, vol. 114(C).
    4. Baumgärtner, Stefan & Drupp, Moritz A. & Meya, Jasper N. & Munz, Jan M. & Quaas, Martin F., 2016. "Income inequality and willingness to pay for public environmental goods," Economics Working Papers 2016-04, Christian-Albrechts-University of Kiel, Department of Economics.
    5. Athanasios Kampas & Laurent Franckx, 2005. "On the Regulatory Choice of Refunding Rules to Reconcile the ‘Polluter Pays Principle’ and Pigovian Taxation: An Application," Environment and Planning C, , vol. 23(1), pages 141-152, February.
    6. Baumgärtner, Stefan & Drupp, Moritz A. & Meya, Jasper N. & Munz, Jan M. & Quaas, Martin F., 2017. "Income inequality and willingness to pay for environmental public goods," Journal of Environmental Economics and Management, Elsevier, vol. 85(C), pages 35-61.

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