Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82949
Authors: 
Josefsson, Anneli
Year of Publication: 
1997
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 1997:14
Abstract: 
This paper is concerned with the problem of combining a non-linear income tax with an indirect externality correcting tax. The analysis is performed in a model economy with two types of individuals and two types of consumption goods. The government wants to redistribute from the more able individuals to the less able, and also to correct for the externality arising from the total consumption of the dirty good. It turns out that the optimal tax structure depends on the complementarity or substitutability between the dirty good and leisure. The second-best externality correcting tax can be interpreted as consisting of a redistributive and an environmental component. Consequently, the dirt tax can be lower or higher than the first-best Pigouvian tax.
Subjects: 
Pareto efficient taxation
environmental externalities
commodity tax
Nonlinear income tax
JEL: 
D62
H21
H23
Q28
Document Type: 
Working Paper

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