Corrective Taxes under Oligopoly with Inter-Firm Externalities |
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Authors: | Xiangkang Yin |
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Institution: | (1) Department of Economics and Finance, La Trobe University, Bundoora, Victoria, 3083, Australia |
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Abstract: | Pollution externalities between polluters should be taken into account in the design of corrective taxes. When the externalities are substantial and/or the number of polluters is large, the effluent levies on these firms do not necessarily result in a deadweight loss. Consequently, the second-best tax exceeds the marginal social cost of pollution. A more general rule is that the tax rate should be greater than the marginal social cost of pollution if and only if a marginal increase in the tax rate results in opposite effects on the changes of equilibrium emission level and output. |
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Keywords: | corrective tax inter-firm externality oligopoly |
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