The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation
Name
pol.20160508.pdf
Size
722.39 KB
Format
Adobe PDF
Checksum (MD5)
11b719bca7490b21fa96279eb3c6ebf7
Author(s)
Sandler, Ryan
Knittel, Christopher Roland
Date Issued
November 2018
Journal
American Economic Journal: Economic Policy
Publisher
American Economic Association
Citation
Knittel, Christopher R., and Ryan Sandler. “The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation.” American Economic Journal: Economic Policy 10, no. 4 (November 2018): 211–242. © 2018 American Economic Association.
Version
Final published version
Abstract
When consumers or firms don't face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, but it may be infeasible to tax the externality directly. The alternative, taxing a related product, will be second-best. In this paper, we show that in the presence of heterogeneous externalities and elasticities, this type of indirect tax performs poorly. In our empirical application, gasoline taxes to address pollution externalities, less than a third of the deadweight loss of the externality is addressed by second- best optimal taxes.
MIT Department
Sloan School of Management
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1257/pol.20160508
