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- Title
Environmental levies and distortionary taxation: Reply.
- Authors
Bovenberg, A. Lans; de Mooij, Ruud A.
- Abstract
Economist Don Fullerton points out that the magnitude of the optimal pollution tax depends on the particular way the tax system is normalized. He shows that depending on the normalization-in particular the choice of the untaxed good-the optimal tax on pollution can lay either above or below the Pigovian tax. This suggests that one of the results authors derived from authors' model is rather specific, namely that the optimal pollution tax typically lies below the Pigovian level if preexisting distortioriary taxes are present. However, Fullerton confirms the main economic message of authors paper are in the presence of distortionary taxes, environmental taxes tend to be more, rather than less, distortionary than other taxes. Indeed, environmental taxes typically exacerbate, rather than alleviate, preexisting tax distortions-even if revenues are employed to cut distortionary taxes. Fullerton also argues that other normalizations are equally valid and sometimes preferable.
- Subjects
POLLUTION; FULLERTON, Don; TAXATION; PUBLIC finance; ENVIRONMENTAL protection; ENVIRONMENTAL policy
- Publication
American Economic Review, 1997, Vol 87, Issue 1, p252
- ISSN
0002-8282
- Publication type
Article