Time delay,complexity and support for taxation

People often experience the benefits of taxation over time. We design an intertemporal market experiment with negative externalities to examine how delaying the benefits of taxation affects support for taxes. We find that when negative externalities occur immediately, people learn to adopt Pigouvian taxes, which are aimed at reducing negative externalities and restoring market efficiency. By contrast, when negative externalities are delayed, people are less receptive to taxation. This effect persists over time. Our data reveal that the strong negative delay effect can be explained in large part by narrow bracketing and the increased perceived complexity of the environment, rather than by time discounting per-se. We argue and demonstrate that increasing the transparency of intertemporal tradeoffs can effectively promote support for taxation.     

Optimal taxation: Timber and externalities

The paper presents a model of the relationship between timber taxation and externalities. Optimal pigouvian taxation formulas are derived within this framework for common taxes. A simulation model of Douglas fir is used to estimate the size and direction of these effects. The results show that taxation policy can have a marked impact on the production of externalities, depending on tree species and land productivity.     

Pigou meets Mirrlees: On the irrelevance of tax distortions for the second-best Pigouvian tax

This paper extends the Mirrlees (1971) model of optimal income redistribution with optimal corrective taxes to internalize consumption externalities. Using general utility structures and exploring both linear and non-linear taxes, it is demonstrated that the optimal second-best tax on an externality-generating good should not be corrected for the marginal cost of public funds, since it equals one in the optimal tax system. In the optimum, distortions of income taxes are equal to marginal redistributional gains. If the government does not have access to a non-distortionary marginal source of finance, the marginal cost of public funds can be either larger or smaller than one depending on subjective preferences for income redistribution. The optimal second-best corrective tax is then either higher or lower than the Pigouvian level. The findings in this paper generalize and amend prior results based on representative-agent models, shedding new light on the weak double-dividend hypothesis, and on the welfare gains of recycling revenue from environmental taxes.     

Intertemporal quota arbitrage in multispecies fisheries

In the management of natural resources, regulation often induces behavioral responses by resource users that ultimately undermine stated policy objectives. Examples of these unintended consequences have been associated with regulations ranging from the Endangered Species Act to laws governing clean air. In this paper we investigate an unintended behavioral response that can be triggered by conservation measures in multispecies fishery management, which leads to increased targeting of the species the conservation measures are meant to protect. Harvest is subject to stochastic variation, with output partially determined by the probability of encountering species of interest, either due to targeting or avoidance. Given the right conditions, an intertemporal arbitrage opportunity arises due to the fact that by targeting a stock in the current period, the probability of encountering that stock in the next period, when announced conservation measures are implemented, decreases. We present an empirical case study that supports the findings of the theoretical model. The results indicate that, by targeting so called weak stocks, some New England fishermen are willing to trade off increased costs today for increased expected profits in the future. To prevent the potentially harmful effects of this behavioral response, a manager may adopt precautionary provisions at the time a quota reduction is announced, or alternatively allow the industry to bank part of its current season's quota in order to alleviate the consequences of the reduction in the ensuing period. These results highlight the challenge of developing effective conservation strategies.     

On uncertain renewable resource stocks: Optimal harvest policies and the value of stock surveys

Annual harvest quotas are commonly employed in the management of renewable resource stocks, commercial fisheries being a prime example. Such resource stocks often undergo quite significant natural fluctuations, to which quotas must be adapted. A further complication arises from the fact that estimates of stock abundance are often highly uncertain. In this paper a Bayesian approach is used to model optimal quota decisions for an uncertain, fluctuating, renewable resource stock.     

Stable taxation schemes in regional environmental management

Economists have frequently proposed the use of taxes to internalize externalities, the unit tax on a particular activity being equal to the marginal social damage it generates. This paper introduces such a taxation scheme, comprising a set of rules which, given a set of polluters, their profits, and costs, and a central authority for environmental control, generates a set of taxes to be levied on the waste emissions. Different attributes of the taxation schemes are then presented, the most important of which (stability) refers to the possibility of overall cooperation between all the polluters. The paper concludes by examining the implications of the existence of stable taxation schemes and of the imposition of constraints either on the emissions or on the percentage of load removed.     

Vertical fiscal externalities and the environment

We show that imposition of a state-level environmental tax in a federation crowds out pre-existing federal taxes. We explain how this vertical fiscal externality can lead unilateral state-level environmental policy to generate a welfare gain in the implementing state, at the expense of other states, even absent any environmental benefits. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that – as a consequence of vertical fiscal externalities – state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.     

Re-evaluating the role of energy efficiency standards: A behavioral economics approach

The economic models that prescribe Pigovian taxation as the first-best means of reducing energy-related externalities are typically based on the neoclassical model of rational consumer choice. Yet, consumer behavior in markets for energy-using durables is generally thought to be far from efficient, giving rise to the concept of the “energy-efficiency gap.” This paper presents a welfare analysis of energy policies that is based on a behavioral model of temptation and self-control, introduced by Gul and Pesendorfer 23 and 24. We find that, in the presence of temptation, (i) Pigovian taxes alone do not yield a first-best outcome, (ii) when viewed as substitutes, energy efficiency standards can dominate Pigovian taxes, and (iii) a policy combining standards with a Pigovian tax can yield higher social welfare than a Pigovian tax alone, implying that the two instruments should be viewed as complements rather than substitutes.     

Cost-effective environmental policy: implications of induced technological change

Cost-effective environmental policy generally requires that all emission sources are faced with the same tax. In this paper I discuss how the existence of induced technological change may alter this result, if at least some of the effect is external to the firm. Focusing on Learning by doing (LBD) effects in abatement activities, it is shown that emission sources with external learning effects should be faced with a higher tax than emission sources with only autonomous technological change. By using simple numerical simulations, it is further investigated to what degree a cost-effective climate policy differs from a free quota market, under various assumptions about learning effects, diffusion of technology and environmental targets. The results indicate that optimal taxes may be significantly higher in the industrial world than in the developing world. Moreover, the industrial world's share of global abatement may be much higher in a cost-effective solution than in a free quota market. The global cost savings of a fully flexible implementation of the Kyoto Protocol are further questioned, as potential spillover effects of technological growth in the industrial world are not internalised in the market.     

Prices vs quantities with multiple pollutants

We examine the choice of policy instruments (price, quantity or a mix of the two) when two pollutants are regulated and firms' abatement costs are private information. Whether abatement efforts are complements or substitutes is key determining the choice of policies. When pollutants are complements, a mixed policy instrument with a tax on one pollutant and a quota on another is sometimes preferable even if the pollutants are identical in terms of benefits and costs of abatement. Yet, if they are substitutes, the mixed policy is dominated by taxes or quotas.     

The welfare effects of fuel conservation policies in a dual-fuel car market: Evidence from India

We estimate a model of vehicle choice and kilometers driven to analyze the long-run impacts of fuel conservation policies in the Indian car market. We simulate the effects of petrol and diesel fuel taxes and a diesel car tax, taking into account their interactions with the pre-existing petrol fuel tax and car sales taxes. At levels sufficient to reduce total fuel consumption by 7%, the increased diesel and petrol fuel taxes both yield deadweight losses (net of externalities) of about 4 (2010) Rs./L. However, at levels sufficient to reduce total fuel consumption by 2%, the increased petrol fuel tax results in a deadweight loss per liter of fuel conserved that is greater than that caused by the diesel fuel tax. This reflects both the high pre-existing tax on petrol fuel and the high own-price elasticities of fuel demand in India. A tax on diesel cars that results in the same diesel market share as the large diesel fuel tax actually has a negative deadweight loss per liter of fuel conserved. The welfare effects of all three policy instruments are positive, once the external benefits of reducing fuel consumption are added to the excess burden of taxation.     

中国能源税制改革的趋势分析

分析我国与能源相关税(费)的现状及存在问题,探讨了我国能源税制体系改革趋势:一是完善能源消费税,二是开征能源排污税,最终建立以保护环境和节约能源为目的能源税制体系。     

Stochastic bycatch, informational asymmetry, and discarding

The existing literature (i) examines bycatch and discard behavior in a static framework and (ii) treats bycatch as a deterministic process uniform across vessels. Using a dynamic representative agent model in a two-stock resource, this paper explores strategic interactions between a social planner and two groups of harvesters, one of which imposes a stochastic “technological externality” (bycatch) on the other. In addition to limitations on entry and the number of trips taken in each industry, three bycatch control instruments are compared to the unconstrained case: taxes, trip limits, and value-based quotas. Implementation and enforcement costs aside, taxes dominate both types of quota, and value limits outperform trip limits by eliminating one type of discarding. In simulations, relative performance depends upon variance in the bycatch process, differences in the ex vessel prices of stocks, relative efficiency of the harvester types, and fixed costs on the trip and industry margins.     

Household incidence of pollution control policies: A robust welfare analysis using general equilibrium effects

This study assesses the incidence of pollution control policies on households. In contrast to previous studies, we employ an integrated framework combining a multisector general equilibrium model with a stochastic dominance analysis using household-level data. We consider three policy instruments in a domestic emission trading system: (i) an output-based allocation (OBA) of permits; (ii) the use of the proceeds of permit sales to reduce payroll taxes (RPT); (iii) and the use of these proceeds to reduce consumption taxes instead (UCS). The general equilibrium results suggest that the return to capital is more negatively affected than the wage rate in all simulations, since polluting industries are capital intensive. Abstracting from pollution externalities, the dominance analysis suggests that all three policies have a normatively robust negative (positive) impact on welfare (poverty). Formal dominance tests indicate that RPT first-order welfare dominates OBA over all values of household incomes. UCS also first-order poverty dominates RPT for any choice of poverty line below $CAN 18,600, and poverty dominates for any poverty line (and thus welfare dominates) at the second order. Finally, while the three pollution control policies do not have a numerically large impact on inequality (in comparison to the base run), statistical tests indicate that inequality increases significantly more with OBA and RPT than with UCS.     

Flattening the carbon extraction path in unilateral cost-effective action

Internalizing the global negative externality of carbon emissions requires the flattening of the extraction path of world fossil energy resources (=world carbon emissions). We consider governments with sign-unconstrained emission taxes at their disposal and seeking to prevent world emissions from exceeding some binding aggregate emission ceiling in the medium term. Such a ceiling policy can be carried out either in full cooperation or by a sub-global climate coalition. Unilateral action has to cope with carbon leakage and high costs, which makes a strong case for choosing a policy that implements the ceiling in a cost-effective way. In a two-country, two-period general equilibrium model with a non-renewable fossil-energy resource, we characterize the unilateral cost-effective ceiling policy and compare it with its fully cooperative counterpart. We show that with full cooperation there exists a cost-effective ceiling policy in which only first-period emissions are taxed at a rate that is uniform across countries. In contrast, the cost-effective ceiling policy of a sub-global climate coalition is characterized by emission regulation in both periods. The share of the total stock of energy resources owned by the sub-global climate coalition turns out to be a decisive determinant of the sign and magnitude of unilateral cost-effective taxes.     

Are energy efficiency standards justified?

This paper develops an analytical framework for comparing the welfare effects of energy efficiency standards and pricing policies for reducing gasoline, electricity, and nationwide carbon emissions. The model is parameterized with US data and includes key externalities in the energy/transportation sectors and possible underinvestment in energy efficiency due to “misperceptions” over energy savings. Even with large misperceptions, the extra welfare gains from complementing efficient pricing policies with energy efficiency standards are zero for reducing gasoline and 5 percent for reducing electricity. And when viewed as substitutes, these standards forgo 60 percent or more of the potential welfare gains from corresponding pricing policies. A combination of energy efficiency and emissions standards is more than three times as costly as carbon pricing when there is no misperception over energy savings, and even with large misperceptions, combining carbon pricing with gasoline/electricity taxes is better than combining it with energy efficiency standards.     

Negative Off‐Site Impacts of Ecological Restoration: Understanding and Addressing the Conflict

Abstract: Ecological restoration is a key component of biological conservation. Nevertheless, unlike protection of existing areas, restoration changes existing land use and can therefore be more controversial. Some restoration projects negatively affect surrounding landowners, creating social constraints to restoration success. Just as negative off‐site impacts (i.e., negative externalities) flow from industrial areas to natural areas, restoration projects can generate negative externalities for commercial land uses, such as agriculture. Negative externalities from industry have led to government regulation to prevent human health and environmental impacts. Negative externalities from restoration projects have elicited similar legal constraint on at least one large‐scale conservation project, riparian restoration in the Sacramento River Conservation Area. The negative externalities of restoration that are perceived to be the direct result of specific goals, such as endangered species management, are likely to be more contentious than externalities arising from unintended phenomena such as weed invasion. Restoration planners should give equal consideration to off‐site characteristics as to on‐site characteristics when choosing sites for restoration and designing projects. Efforts to control externalities can lead to off‐site ecological benefits.     

Non-compliance and the quota price in an ITQ fishery

This paper examines the effects of non-compliance on quota demands and the equilibrium quota price in an ITQ fishery. I show that whereas lower quota prices are implied unambiguously by expected penalties which are a function of the absolute violation size, the expectation of penalties based upon relative violations of quota demands can, under certain conditions, produce higher quota prices than in a compliant quota market. If there are both compliant and non-compliant firms in the fishery, the result would then be a shift in quota demand from compliant to non-compliant firms, rather than the reverse. The findings are generally applicable to quota markets in other industries, including pollution permit markets.     

Biological parameters used in setting captive‐breeding quotas for Indonesia's breeding facilities

The commercial captive breeding of wildlife is often seen as a potential conservation tool to relieve pressure on wild populations, but laundering of wild‐sourced specimens as captive bred can seriously undermine conservation efforts and provide a false sense of sustainability. Indonesia is at the center of such controversy; therefore, we examined Indonesia's captive‐breeding production plan (CBPP) for 2016. We compared the biological parameters used in the CBPP with parameters in the literature and with parameters suggested by experts on each species and identified shortcomings of the CBPP. Production quotas for 99 out of 129 species were based on inaccurate or unrealistic biological parameters and production quotas deviated more than 10% from what parameters in the literature allow for. For 38 species, the quota exceeded the number of animals that can be bred based on the biological parameters (range 100–540%) calculated with equations in the CBPP. We calculated a lower reproductive output for 88 species based on published biological parameters compared with the parameters used in the CBPP. The equations used in the production plan did not appear to account for other factors (e.g., different survival rate for juveniles compared to adult animals) involved in breeding the proposed large numbers of specimens. We recommend the CBPP be adjusted so that realistic published biological parameters are applied and captive‐breeding quotas are not allocated to species if their captive breeding is unlikely to be successful or no breeding stock is available. The shortcomings in the current CBPP create loopholes that mean mammals, reptiles, and amphibians from Indonesia declared captive bred may have been sourced from the wild.     

Redistribution and pollution taxes with non-linear Engel curves

This paper analyses optimal corrective taxation and optimal income redistribution. The Pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages. Moreover, under general utility functions, optimal pollution taxes should be set below the Pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods. However, if Engel curves are linear, optimal pollution taxes should follow the first-best rule for the Pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods. The often-used quasi-linear, CES and Stone-Geary utility functions all have linear Engel curves. If Engel curves are linear, and if pollution taxes are not optimised, Pareto-improving green tax reforms exist that move the pollution tax closer to the Pigouvian tax. Simulations demonstrate that optimal corrective taxes should be Pigouvian if the demand for polluting goods is derived from a LES demand system, but deviate from the Pigouvian taxes if demand for polluting goods demand is derived from a PIGLOG demand system.