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Environmental Taxation and Redistribution Concerns

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Aigner,  Rafael
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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Citation

Aigner, R. (2011). Environmental Taxation and Redistribution Concerns.


Cite as: http://hdl.handle.net/11858/00-001M-0000-0028-6C7D-3
Abstract
How is the optimal level of Pigouvian taxation influenced by distributive concerns? With second-best instruments, a higher level of income redistribution calls for a lower level of Pigouvian taxation. More redistribution implies higher distortions from income taxation. Pigouvian tax revenues become more valuable and the optimal level of environmental taxation decreases. With first-best instruments, however, the relation between levels of redistribution and Pigouvian taxation is reversed. So second-best Pigouvian taxes are very different from their first-best counterpart – despite apparently identical first order conditions.