Optimal taxation, global externalities and labor mobility |
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Authors: | Thomas Aronsson Sören Blomquist |
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Institution: | a Department of Economics, University of Umeå, SE-901 87 Umeå, Sweden b Department of Economics, Uppsala University, Box 513, SE-751 20 Uppsala, Sweden |
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Abstract: | This paper concerns transboundary environmental problems in the context of an optimal tax model. We assume that part of the labor force is mobile across countries, and that the set of tax instruments includes a nonlinear income tax and a commodity tax on the ‘dirty’ good that is causing damage to the environment. The purpose is to compare the (globally optimal) second best policy of a cooperative equilibrium with the policy implicit in a noncooperative equilibrium. We show that the commodity taxes differ between equilibria because of: (i) transboundary externalities not internalized by national governments, (ii) interaction effects between environmental and other policies, and (iii) labor mobility. |
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Keywords: | Transboundary externalities Fiscal federalism Optimal taxation |
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