Climate policy with tied hands optimal resource taxation under implementation lags

C. di Maria, Sjak Smulders, E.H. van der Werf

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

In the presence of implementation lags, announced Pigouvian taxation leads to fossil fuel prices that are too low from society’s perspective. This results in excessive emissions and reduced incentives for green innovation. Such effects are compounded by the presence of pre-existing subsidies to fossil fuel use. We show that the intertemporal resource tax path may need to be modified to optimally take into account the perverse incentives from policy lags and pre-existing policies. We find that it might be optimal to subsidize, rather than tax resource extraction at the instant of implementation.
Original languageEnglish
Pages (from-to)537-551
JournalEnvironmental and Resource Economics
Volume66
Issue number3
Early online date28 Nov 2016
DOIs
Publication statusPublished - Mar 2017

Fingerprint

environmental policy
fossil fuel
incentive
resource
innovation
tax
taxation
policy
Resources
Tax
Incentives
Lag
Taxation
Climate policy
Fossil fuels
effect
price
subsidy
Fuel price
Resource extraction

Keywords

  • climate policy
  • second-best
  • carbon tax
  • non-renewable resources
  • resource taxation
  • implementation lag
  • green paradox

Cite this

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Climate policy with tied hands optimal resource taxation under implementation lags. / di Maria, C.; Smulders, Sjak; van der Werf, E.H.

In: Environmental and Resource Economics, Vol. 66, No. 3, 03.2017, p. 537-551.

Research output: Contribution to journalArticleScientificpeer-review

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KW - second-best

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KW - non-renewable resources

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KW - implementation lag

KW - green paradox

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