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Tax compliance and workability of the pricing and standards approach

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  • Naoki Shiota

    (Dokkyo University)

Abstract

It is demonstrated that the effectiveness of the pricing and standards approach (PSA) to emission control is seriously impaired by imperfect tax compliance of regulated firms, contrary to literature reports. If there exists a firm that attempts to commit 100% tax evasion, PSA fails to minimize the social abatement cost, and when all firms take the risk of total tax evasion, PSA no longer reduces emissions. Heavy taxes give firms incentive to cheat, so the government is only able to adopt PSA when target levels of total emission reductions are relatively small.

Suggested Citation

  • Naoki Shiota, 2008. "Tax compliance and workability of the pricing and standards approach," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 9(3), pages 193-211, September.
    • Handle: RePEc:spr:envpol:v:9:y:2008:i:3:d:10.1007_bf03353990
    DOI: 10.1007/BF03353990
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    References listed on IDEAS

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    1. William J. Baumol & Wallace E. Oates, 1971. "The Use of Standards and Prices for Protection of the Environment," Palgrave Macmillan Books, in: Peter Bohm & Allen V. Kneese (ed.), The Economics of Environment, pages 53-65, Palgrave Macmillan.
    2. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
    3. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
    4. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
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