SFB 303 Discussion Paper No. A - 579
Author: Gaube, Thomas
Title: Distortionary Taxes Preserve the Environment
Abstract: Recently, it became customary to argue that environmental
quality - like ordinary public consumption - is crowded out by
distortionary taxation. We show that this hypothesis does not hold
provided that the marginal revenue of the environmental tax is
positive. In this case, under-provision of public goods implies
over-provision of environmental quality in second best.
Hence, contrary to the impression left by the recent literature,
distortionary taxes may actually provide more room for environmental
protection than lump-sum taxes.
Keywords: environmental taxation, public goods
JEL-Classification-Number: H41, H21
Creation-Date: August 1998
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