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- Title
Climate Policy with Tied Hands: Optimal Resource Taxation Under Implementation Lags.
- Authors
Di Maria, Corrado; Smulders, Sjak; Werf, Edwin
- Abstract
In the presence of implementation lags, announced Pigouvian taxation leads to fossil fuel prices that are too low from society's perspective. This results in excessive emissions and reduced incentives for green innovation. Such effects are compounded by the presence of pre-existing subsidies to fossil fuel use. We show that the intertemporal resource tax path may need to be modified to optimally take into account the perverse incentives from policy lags and pre-existing policies. We find that it might be optimal to subsidize, rather than tax resource extraction at the instant of implementation.
- Subjects
TAXATION of natural resources; PIGOVIAN tax; FOSSIL fuels; GREEN technology; IMPLEMENTATION (Social action programs); PRICES
- Publication
Environmental & Resource Economics, 2017, Vol 66, Issue 3, p537
- ISSN
0924-6460
- Publication type
Article
- DOI
10.1007/s10640-016-0091-6