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Cover of: Environmental Taxation and Redistribution Concerns
Rafael Aigner

Environmental Taxation and Redistribution Concerns

Section: Articles
Volume 70 (2014) / Issue 2, pp. 249-277 (29)
Published 09.07.2018
DOI 10.1628/001522114X681379
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  • 10.1628/001522114X681379
How is the optimal level of Pigouvian taxation influenced by distributive concerns? With second-best instruments, a higher level of income redistribution calls for a lower level of Pigouvian taxation. More redistribution implies higher distortions from income taxation. Pigouvian tax revenues become more valuable, and the optimal level of environmental taxation decreases. With first-best instruments, however, the relation between levels of redistribution and Pigouvian taxation is reversed. So second-best Pigouvian taxes are very different from their first-best counterpart – despite apparently identical first-order conditions.