IMF Working Papers

Optimal Fiscal Policy and the Environment

By Jenny E Ligthart

September 1, 1998

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Jenny E Ligthart. Optimal Fiscal Policy and the Environment, (USA: International Monetary Fund, 1998) accessed September 20, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper studies the setting of optimal fiscal policy in a second-best world with environmental externalities. The optimal second-best pollution tax is shown to lie below the first-best Pigovian tax, particularly if substitution between labor and polluting intermediate inputs is easy, the labor supply curve is more elastic, and preexisting taxes are large. The optimal level of public abatement is derived from the modified Samuelson rule and is larger if society cares more for the environment, public funds are inexpensive, and public abatement is relatively productive. The analysis also shows that the Samuelson rule should be revised if allowance is made for nonseparabilities in preferences.

Subject: Consumption, Environmental taxes, Expenditure, Labor, Labor supply, Labor taxes, National accounts, Private consumption, Taxes

Keywords: Abatement, Abatement activity, Consumption goods, Environmental taxes, Labor supply, Labor taxes, Labor-environment elasticity, Makes household, Marginal cost of public funds, Marginal utility, Pollution externality raise, Pollution taxation, Private consumption, Public consumption, Public funds, Public goods, Public spending, Samuelson rule, Second-best, WP

Publication Details

  • Pages:

    28

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1998/146

  • Stock No:

    WPIEA1461998

  • ISBN:

    9781451856613

  • ISSN:

    1018-5941

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