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Welfare effects of green tax reforms in one sector and two sector dynamic economies

Mota, Rui Pedro and Domingos, Tiago (2006): Welfare effects of green tax reforms in one sector and two sector dynamic economies.

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Abstract

The main focus of this paper is twofold. First is to design Pigouvian taxes for different kinds of environmental external effects on the market economy in order to be possible to say what is the relevant information in each situation. Second is to address the question of the welfare effects of using close to Pigouvian taxes in real economies. This is done by considering more general conditions than those used by Aronsson et al. (2003). In particular, we take the ecosystem dynamics as being density dependent, and we assume that there are errors in measuring both the consumers marginal utility of nature and its regeneration rate. Additionally, we derive cost benefit rules for a green tax reform on the context of a two sector economy, in particular, a final goods sector and a knowledge sector, considering two externalities - one environmental externality and one technology externality.

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