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Government Incentives When Pollution Permits Are Durable Goods

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  • Haucap, Justus
  • Kirstein, Roland

Abstract

This paper analyzes the incentive effects of pollution taxes versus pollution permits for a budget oriented Government. Pollution permits are analyzed as durable goods, and a pollution tax is seen as being equivalent to leasing out pollution permits. First, a general model is developed, and then four stylized types of Government are discussed (a benevolent dictator, a pure Leviathan, a green and a business-friendly Government). We show that all types of Government prefer a pollution tax system, but this regime is not necessarily the best in social welfare terms. The intuition is that a tax or leasing system makes it easier for the Government to credibly commit to the budget maximizing level of pollution permits which is good for Government revenues, but not necessarily for social welfare. Copyright 2003 by Kluwer Academic Publishers

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  • Haucap, Justus & Kirstein, Roland, 2003. "Government Incentives When Pollution Permits Are Durable Goods," Public Choice, Springer, vol. 115(1-2), pages 163-183, April.
    • Handle: RePEc:kap:pubcho:v:115:y:2003:i:1-2:p:163-83
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    Cited by:

    1. Haucap, Justus & Kirstein, Roland, 2002. "Warum Staaten Ökosteuern statt Lizenzen einführen, und wann das schlecht für die Wohlfahrt ist," CSLE Discussion Paper Series 2002-07, Saarland University, CSLE - Center for the Study of Law and Economics.
    2. Rajeev K. Goel & Edward W. T. Hsieh, 2004. "Durable Emissions and Optimal Pigouvian Taxes," Public Finance Review, , vol. 32(4), pages 441-449, July.
    3. Rajeev Goel, 2006. "Uncertain innovation with uncertain product durability," Applied Economics Letters, Taylor & Francis Journals, vol. 13(13), pages 829-834.
    4. Eva Schliephake, 2013. "Risk Weighted Capital Regulation and Government Debt," FEMM Working Papers 130011, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    5. Leon Vinokur, 2009. "Environmental Policy under Ambiguity," Working Papers 638, Queen Mary University of London, School of Economics and Finance.
    6. Kirchgassner, Gebhard & Schneider, Friedrich, 2003. "On the Political Economy of Environmental Policy," Public Choice, Springer, vol. 115(3-4), pages 369-396, June.
    7. Leon Vinokur, 2009. "Environmental Policy under Ambiguity," Working Papers 638, Queen Mary University of London, School of Economics and Finance.
    8. Halkos, George, 2009. "A Differential game approach in the case of a polluting oligopoly," MPRA Paper 23742, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • K3 - Law and Economics - - Other Substantive Areas of Law
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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