Substituting pollution taxation for general taxation: Some implications for efficiency in pollutions taxation

Earlier papers have recognized that nonenvironmental benefits will be realized if pollution taxes are substituted for other taxes which impose efficiency losses on society. The purpose of this paper is to investigate the importance of these nonenvironmental benefits for the design of an efficient pollution tax. It is found that the efficient tax may be higher or lower than that conventionally defined as optimal, and that the net benefit from unrestrained pollution can have important implications for the size of the tax.