Environmental and Resource Economics

, Volume 46, Issue 3, pp 275–280 | Cite as

Emission Taxes and Optimal Refunding Schemes with Endogenous Market Structure

  • Susumu CatoEmail author


The purpose of this paper is to investigate optimal schemes for refunding the emission tax in a free-entry market where the production process generates emissions. We consider the regulation by a three-part tax policy: the government sets an emission tax, a refunding scheme, and an entry-license tax. In contrast to the case of the two-part tax-refund policy under no entry, we show that even if it is impossible to obtain subsidies from outside, the first-best outcome is always attained. Further, the government’s budget constraint is binding under the optimal schemes. Our result implies that the tax-refund system works effectively in a market with endogenous entry.


Emission tax Entry-license tax First-best outcome Free entry Government’s budget constraint Refunds 

JEL Classification

H42 L13 


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Copyright information

© Springer Science+Business Media B.V. 2010

Authors and Affiliations

  1. 1.Institute of Social ScienceThe University of TokyoTokyoJapan

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