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Optimal environmental taxation in response to an environmentally-unfriendly political challenger

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  • Hochman, Gal
  • Zilberman, David

Abstract

Different political parties place different values on the environment. In considering a two-party democratic system and capital-intensive technologies, we find that forward-looking governments incorporate the probability of losing power into their policy design. When the party in power values the environment, it may levy an optimal dynamic tax that is larger than the Pigouvian tax. We investigate the parameters that affect the magnitude of this gap and assess the effect of the gap on the adoption of clean technologies overtime.

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  • Hochman, Gal & Zilberman, David, 2021. "Optimal environmental taxation in response to an environmentally-unfriendly political challenger," Journal of Environmental Economics and Management, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:jeeman:v:106:y:2021:i:c:s0095069620301303
    DOI: 10.1016/j.jeem.2020.102407
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    More about this item

    Keywords

    Elections; Embodied technologies; Environmental policy; Political uncertainty; Putty-clay; tax;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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