Citation:
Sheshinski, Eytan . “On Atmosphere Externality And Corrective Taxes”. Discussion Papers 2003. Web.
Abstract:
It has been argued that in the presence of an Atmosphere Externality and competitive behavior by households, a uniform commodity tax on the externality - generating good attains the first best. It is demonstrated, however, that if income redistribution is desirable then personalized taxes are required for a second-best optimum. Each of these taxes is the sum of a uniform (across households) tax and a component, positive or negative, which depends on the household s income and demand elasticities. Second-best optimal indirect taxes and rules for investment in externality - reducing measures are also considered.