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Externality-correcting taxes and regulation

Author

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  • Vidar Christiansen

    (Institute for Fiscal Studies)

  • Stephen Smith

    (Institute for Fiscal Studies and University College London)

Abstract

Much of the literature on externalities has considered taxes and direct regulation as alternative policy instruments. Both instruments may in practice be imperfect, reflecting informational deficiencies and other limitations. We analyse the use of taxes and regulation in combination, to control externalities arising from individual consumption behaviour. We consider cases where taxes are either imperfectly differentiated to reflect individual differences in externalities, or where some consumption escapes taxation. In both cases we characterise the optimal instrument mix, and show how changing the level of direct regulation alters the optimal externality tax.

Suggested Citation

  • Vidar Christiansen & Stephen Smith, 2009. "Externality-correcting taxes and regulation," IFS Working Papers W09/16, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:09/16
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    References listed on IDEAS

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    1. Vidar Christiansen & Stephen Smith, 2012. "Externality‐Correcting Taxes and Regulation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 358-383, June.
    2. Richard M. Bird & Sally Wallace, 2010. "Taxing Alcohol In Africa: Reflections And Updates," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1031, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Bird,Richard M., 2015. "Tobacco and alcohol excise taxes for improving public health and revenue outcomes : marrying sin and virtue ?," Policy Research Working Paper Series 7500, The World Bank.
    4. Josten, Cecily & Lordan, Grace, 2020. "The interaction between personality and health policy: Empirical evidence from the UK smoking bans," Economics & Human Biology, Elsevier, vol. 38(C).
    5. Antimiani, Alessandro & Costantini, Valeria & Kuik, Onno & Paglialunga, Elena, 2016. "Mitigation of adverse effects on competitiveness and leakage of unilateral EU climate policy: An assessment of policy instruments," Ecological Economics, Elsevier, vol. 128(C), pages 246-259.
    6. Rebecca L. Taylor & Sofia B. Villas-Boas, 2016. "Bans vs. Fees: Disposable Carryout Bag Policies and Bag Usage," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(2), pages 351-372.
    7. Markus Haavio & Kaisa Kotakorpi, 2012. "Sin Licenses Revisited," CESifo Working Paper Series 4010, CESifo.
    8. Sijbren Cnossen, 2020. "Excise Taxation for Domestic Resource Mobilization," CESifo Working Paper Series 8442, CESifo.
    9. Vidar Christiansen & Stephen Smith, 2015. "Emissions Taxes and Abatement Regulation Under Uncertainty," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(1), pages 17-35, January.
    10. Calcott, Paul, 2019. "Minimum unit prices for alcohol," Journal of Health Economics, Elsevier, vol. 66(C), pages 18-26.
    11. Giovanni Immordino & Anna Maria C. Menichini & Maria Grazia Romano, 2020. "Taxing and Regulating Vices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 622-647, April.
    12. Mr. Michael Keen, 2011. "The Taxation and Regulation of Banks," IMF Working Papers 2011/206, International Monetary Fund.
    13. Marion Dupoux & Benjamin Ouvrard, 2023. "Harnessing social information to improve public support for Pigouvian taxes," Working Papers 2024-05, Grenoble Applied Economics Laboratory (GAEL).
    14. Zike Cao & Kai-Lung Hui & Hong Xu, 2018. "An Economic Analysis of Peer Disclosure in Online Social Communities," Information Systems Research, INFORMS, vol. 29(3), pages 546-566, September.
    15. Louis Kaplow, 2017. "Optimal Regulation with Exemptions," NBER Working Papers 23887, National Bureau of Economic Research, Inc.
    16. Taylor, Rebecca & Villas-Boas, Sofia B., 2015. "Bans versus Fees: Disposable Carryout Bag Policies and Bag Usage," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 204783, Agricultural and Applied Economics Association.
    17. Shackelford, Douglas A. & Shaviro, Daniel N. & Slemrod, Joel, 2010. "Taxation and the Financial Sector," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 781-806, December.
    18. Kaplow, Louis, 2019. "Optimal regulation with exemptions," International Journal of Industrial Organization, Elsevier, vol. 66(C), pages 1-39.
    19. Abrardi, Laura & Cambini, Carlo, 2019. "Incentivizing self-control effort," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 13-30.
    20. Rafael Laurenti & Jagdeep Singh & Rajib Sinha & Josepha Potting & Björn Frostell, 2016. "Unintended Environmental Consequences of Improvement Actions: A Qualitative Analysis of Systems' Structure and Behavior," Systems Research and Behavioral Science, Wiley Blackwell, vol. 33(3), pages 381-399, May.
    21. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.
    22. Yasser A. Al-Rawi & Mohammed Harith Imlus & Yusri Yusup & Sofri Bin Yahya, 2021. "Factors affecting vehicle exhaust emissions, driver motivations as a mediator," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(2), pages 361-407, April.

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    More about this item

    Keywords

    externalities; Pigouvian taxes; regulations;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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