Optimal Fiscal Policy and the Environment
September 1, 1998
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: 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
Pages:
28
Volume:
1998
DOI:
Issue:
146
Series:
Working Paper No. 1998/146
Stock No:
WPIEA1461998
ISBN:
9781451856613
ISSN:
1018-5941
