Advertisement

International Tax and Public Finance

, Volume 12, Issue 2, pp 115–130 | Cite as

Non-Homothetic Preferences and the Non-Environmental Effects of Environmental Taxes

  • Charles L. Ballard
  • John H. Goddeeris
  • Sang-Kyum Kim
Article

Abstract

We show that, if the utility function is non-homothetic, environmental taxes can have positive non-environmental effects. These effects are illustrated with specific reference to taxes on gasoline and tobacco, in the context of a computational model. We also clarify the relationship between the “double dividend” (associated with a marginal change from a tax system with low reliance on environmentally motivated taxes) and the situation in which the optimal environmental tax rate is greater than the Pigouvian tax rate. These two situations are generated by rather similar combinations of parameters.

Keywords

environmental taxation general-equilibrium efficiency analysis 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Ballard, C. L. and S. G. Medema. (1993). “The Marginal Efficiency Effects of Taxes and Subsidies in the Presence of Externalities,” Journal of Public Economics 52, 199–216.Google Scholar
  2. Blundell, R. and T. MaCurdy. (1999). “Labor Supply: A Review of Alternative Approaches.” In Orley Ashenfelter and David Card (eds.), Handbook of Labor Economics, vol. 3A. Amsterdam: Elsevier.Google Scholar
  3. Bovenberg, A. L. (1999). “Green Tax Reforms and the Double Dividend—An Updated Reader’s Guide,” International Tax and Public Finance 6, 421–443.Google Scholar
  4. Bovenberg, A. L. and R. de Mooij. (1994). “Environmental Levies and Distortionary Taxation,” American Economic Review 84, 1085–1089.Google Scholar
  5. Bovenberg, A. Lans and L. H. Goulder. (1997). “Costs of Environmentally Motivated Taxes in the Presence of Other Taxes: General-Equilibrium Analyses,” National Tax Journal 50, 59–88.Google Scholar
  6. Bovenberg, A. L. and Lawrence H. Goulder. (2002). “Environmental Taxation and Regulation.” In Alan Auerbach and Martin Feldstein (eds.), Handbook of Public Economics, vol. 3. Amsterdam: Elsevier.Google Scholar
  7. Bovenberg, A. L. and F. van der Ploeg. (1994). “Environmental Policy, Public Finance, and the Labor Market in a Second-Best World,” Journal of Public Economics 55, 349–390.Google Scholar
  8. Browning, M. and C. Meghir. (1991). “The Effects of Male and Female Labor Supply on Commodity Demands,” Econometrica59, 925–951.Google Scholar
  9. Corlett, W. J. and D. C. Hague. (1953). “Complementarity and the Excess Burden of Taxation,” Review of Economic Studies 21, 21–30.Google Scholar
  10. Deaton, A. (1981). “Optimal Taxes and the Structure of Preferences,” Econometrica 49, 1245–1260.Google Scholar
  11. Federation of Tax Administrators. (2004). State Excise Taxes. http://www.taxadmin.org/fta/rate/tax_stru.html.
  12. Fullerton, D. (1997). “Environmental Levies and Distortionary Taxation: Comment,” American Economic Review 87, 245–251.Google Scholar
  13. Fullerton, D. and G. E. Metcalf. (1998). “Environmental Taxes and the Double-Dividend Hypothesis: Did You Really Expect Something for Nothing?” Chicago-Kent Law Review 73, 221–256.Google Scholar
  14. Goulder, L. H. and R. C. Williams III. (2003). “The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution,” Journal of Political Economy 111, 898–927.Google Scholar
  15. Gruber, J. (2001). “Tobacco at the Crossroads,” Journal of Economic Perspectives15, 193–212.Google Scholar
  16. Gruber, J. and B. Köszegi. (2002). “A Theory of Government Regulation of Addictive Bads: Optimal Tax Levels and Tax Incidence for Cigarette Excise Taxation,” Working Paper 8777, National Bureau of Economic Research.Google Scholar
  17. Heckman, J. J. (1993). “What Has Been Learned About Labor Supply in the Past Twenty Years?” American Economic Review 83, 116–121.Google Scholar
  18. Killingsworth, M. (1983). Labor Supply. New York: Cambridge University Press. Google Scholar
  19. Kim, S.-K. (2000). “The Effect of Homotheticity on the Double Dividend and the Optimal Environmental Tax Rate,” Ph.D. dissertation, Michigan State University (2000).Google Scholar
  20. Oates, W. E. (1993). “Pollution Charges as a Source of Public Revenue.” In H. Giersch (ed.), Economic Progress and Environmental Concerns. Berlin: Springer-Verlag.Google Scholar
  21. Parry, Ian W. H. (1995). “Pollution Taxes and Revenue Recycling,” Journal of Environmental Economics and Management 29, S64–S77.Google Scholar
  22. Parry, Ian W. H. (1999). “The Double Dividend: When You Get It and When You Don’t.” In Proceedings of the 91st Annual Conference on Taxation, Washington, D.C.: National Tax Association.Google Scholar
  23. Parry, Ian W. H. (2003). “On the Costs of Excise Taxes and Income Taxes in the UK,” International Tax and Public Finance 10, 281–304.Google Scholar
  24. Parry, Ian W.H. and A. M. Bento. (2000). “Tax Deductions, Environmental Policy, and the ‘Double Dividend’ Hypothesis,” Journal of Environmental Economics and Management 39, 67–96.Google Scholar
  25. Parry, Ian W. H. and K. A. Small. (2002). “Does Britain or the United States Have the Right Gasoline Tax?” Discussion Paper No. 02-12, Resources for the Future.Google Scholar
  26. Pearce, D. (1991). “The Role of Carbon Taxes in Adjusting to Global Warming,” Economic Journal101, 938–948.Google Scholar
  27. Sandmo, A. (1976). “Optimal Taxation: An Introduction to the Literature,” Journal of Public Economics 6, 37–54.Google Scholar
  28. Schöb, R. (1997). “Environmental Taxes and Pre-existing Distortions: The Normalization Trap,” International Tax and Public Finance 4, 167–176.Google Scholar
  29. Schwartz, J. and R. Repetto. (1997). “Nonseparable Utility and the Double Dividend Debate,” Working Paper, World Resources Institute.Google Scholar
  30. Stone, R. (1954). “Linear Expenditure Systems and Demand Analysis: An Application to the Pattern of British Demand,” Economic Journal 64, 511–527.Google Scholar
  31. Tax Foundation. (2004). “Federal Excise Tax Rates, Selected Years 1944–2002.” http://www.taxfoundation.org/exciseratesfed.html.
  32. Terkla, D. (1984). “The Efficiency Value of Effluent Tax Revenues,” Journal of Environmental Economics and Management 11, 107–123.Google Scholar
  33. Williams III, R. C. (1999). “The Double Dividend When Environmental Quality Affects Health or Productivity.” In Proceedings of the 91st Annual Conference on Taxation. Washington, D.C.: National Tax Association.Google Scholar

Copyright information

© Springer Science + Business Media, Inc. 2005

Authors and Affiliations

  • Charles L. Ballard
    • 1
  • John H. Goddeeris
    • 2
  • Sang-Kyum Kim
    • 3
  1. 1.Department of EconomicsMichigan State UniversityEast Lansing
  2. 2.Department of EconomicsMichigan State University
  3. 3.Korea Economic Research InstituteCenter for Finance & TaxYeongdungpo-Ku,SeoulKorea

Personalised recommendations