Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155557
Authors: 
Eichner, Thomas
Pethig, Rüdiger
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6315
Abstract: 
Oates and Schwab (1988) consider an economy with mobil capital and jurisdictions that suffer from local pollution. They show that welfare-maximizing jurisdictions implement the first-best, if they take prices as given and have at their disposal a capital tax and an environmental standard. Petchey (2015) claims that the efficiency result of Oates and Schwab can be extended to a large price-influencing jurisdiction. In the present note we show that the concept of Pareto efficiency cannot be applied in Petchey’s model. Next, we expand his model by a second jurisdiction and prove that Petchey’s claim is false, i.e. we show that the allocation implemented by a large price-influencing jurisdiction that sets an environmental standard and a capital tax fails to be (Pareto) efficient.
Subjects: 
pollution
environmental standards
mobile capital
taxes
JEL: 
H23
H71
Document Type: 
Working Paper

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