Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67755
Authors: 
Boadway, Robin
Tremblay, Jean-Francois
Year of Publication: 
2008
Series/Report no.: 
Queen's Economics Department Working Paper 1167
Abstract: 
This paper studies the optimal Pigouvian tax for correcting pollution when the government also uses distortionary taxes to raise revenues. When preferences are quasilinear in leisure and additive, the Pigovian tax can be separated from the Ramsey revenue-raising tax. We characterize the relationship between the Pigouvian tax and marginal social damages in a variety of circumstances. In a setting with homogeneous households, the Pigouvian tax exceeds marginal damages if goods have inelastic demands, and vice versa. When households are heterogeneous so taxes can be redistributive, the Pigouvian tax gives more weight to damages suffered by low-income persons. The analysis is extended to allow for costly abatement. In general corrective taxes have to be applied to both emissions and output of the polluting good.
Subjects: 
pigouvian tax
optimal taxes
pollution tax
JEL: 
H21
H23
Document Type: 
Working Paper

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