Emission Taxes and Optimal Refunding Schemes with Endogenous Market Structure
- 259 Downloads
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.
KeywordsEmission tax Entry-license tax First-best outcome Free entry Government’s budget constraint Refunds
JEL ClassificationH42 L13
Unable to display preview. Download preview PDF.
- Barnett AH (1980) The Pigouvian tax rule under monopoly. Am Econ Rev 70: 1037–1041Google Scholar
- Baumol WJ, Oates WE (1988) The theory of environmental policy. 2nd edn. Cambridge University Press, CambridgeGoogle Scholar
- Buchanan JM (1969) External diseconomies, corrective taxes, and market structure. Am Econ Rev 59: 174–177Google Scholar
- Fischer C (2003) Market power and output-based refunding of environmental policy revenues. Discussion paper 03–27, Resources for the futureGoogle Scholar
- Gersbach H, Winkler R (2007) On the design of global refunding and climate change. Working Paper, CER-ETH—Center of Economic Research at ETH ZurichGoogle Scholar
- Gersbach H, Winkler R (2008) International emission permit markets with refunding. Working Paper, CER-ETH—Center of Economic Research at ETH ZurichGoogle Scholar
- Requate T (1993) Pollution control in a Cournot duopoly via taxes or permits. J Econ 58: 255–291Google Scholar
- Requate T (1997) Green taxes in oligopoly if the number of firms is endogenous. Finanzarchiv 54: 261–280Google Scholar