Nonpoint Source Pollution Taxes and Excessive Tax Burden

If a regulator is unable to measure firms' individual emissions, an ambient tax can be used to achieve the socially desired level of pollution. With this tax, each firm pays a unit tax on aggregate emissions. In order for the tax to be effective, firms must recognize that their decisions affect aggregate emissions. When firms behave strategically with respect to the tax-setting regulator, under plausible circumstances their tax burden is lower under an ambient tax, relative to the tax which charges firms on the basis of individual emissions. Firms may prefer the case where the regulator is unable to observe individual firm emissions, even if this asymmetric information causes the regulator to tax each firm on the basis of aggregate emissions.


Issue Date:
1998
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/25100
Total Pages:
34
JEL Codes:
D82; H20; H40; Q20
Series Statement:
CUDARE Working Paper 835




 Record created 2017-04-01, last modified 2017-04-04

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