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More is less: the tax effects of ignoring flow externalities

Sandal, Lief K; Steinshamn, Stein Ivar; Grafton, Quentin


Using a model of nonlinear decay of the stock pollutant, and starting from the same initial conditions, the paper shows that an optimal tax that corrects for both stock and flow externalities may result in a lower tax, fewer cumulative emissions (less decay) and higher output at the steady state than a corrective tax that ignores the flow externality. The “more is less” result emphasizes that setting a corrective tax that ignores the flow externality, or imposing a corrective tax at too low a...[Show more]

CollectionsANU Research Publications
Date published: 2001
Type: Working/Technical Paper
Source: Resource and Energy Economics
DOI: 10.1016/S0928-7655(02)00037-4


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