Halkos, George (2008): A Stackelberg Model on Taxing Polluting Firms.
Download (183kB) | Preview
In this paper we propose a leader – follower dynamic model of taxation with the government imposing a tax to internalize externalities caused by polluting firms. As expected the Stackelberg games with the government acting as leader yield time inconsistent outcomes. We first show how time inconsistency can be avoided adopting specific utility functions. We then propose a pollution model that uses abatement as the value of accumulated pollution stock and find that the outcome of the proposed Stackelberg model is time consistent with an open – loop informational structure. This yields a tax factor that is time independent. Finally, we show that the result of the game is inefficient compared to the social planner dynamic game.
|Item Type:||MPRA Paper|
|Original Title:||A Stackelberg Model on Taxing Polluting Firms|
|Keywords:||Stackelberg model; dynamic leader–follower games|
|Subjects:||C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm
|Depositing User:||Nickolaos Tzeremes|
|Date Deposited:||08. Jul 2010 19:18|
|Last Modified:||12. Feb 2013 05:40|
Alesina, A. and Rodrick, D.: Distributive politics and Economic Growth, Quarterly Journal of Economics, 109, 465-490 (1994).
Aliprantis, C. D., Brown, D. J., Burkinshaw, O.: Existence and optimality of competitive equilibria. New York: Springer–Verlag (1990).
Aliprantis, C. D. Border K.C.: Infinite dimensional analysis. Berlin Heidelberg New York: Springer – Verlag (1998).
Benchekroun, H. and N. V. Long: Efficiency inducing taxation for polluting oligopolists, Journal of Public Economics, 70 (325 – 342) (1998).
Brock W. A.: A polluted golden age, in V. L. Smith, ed., Economics of Natural and Environmental Resources (Gordon and Breach, New York), pp 441 – 461 (1973).
Chamley C.: Optimal taxation of capital income in general equilibrium with infinite lives, Econometrica 54, 607 – 622 (1996).
Cohen, D., Michel, P.: How should control theory be used to calculate a time–consistent government policy?, Review of Economic Studies 55, No 2, 263 – 274 (1998).
Karp, L. and Lee In Ho: Time Consistent Policies, Journal of Economic Theory, 112, 353 – 364 (2003).
Karp L. and Livernois J.: On efficiency inducing taxation for a non renewable resource monopolist, Journal of Public Economics, 49, 219 – 239 (1992).
Kemp, M. C., N. V. Long and K Shimomura: Cyclical and non cyclical redistributive taxation, International Economic Review, 34, 415 – 429 (1993).
Krusell P.: Time consistent redistribution, European Economic Review, 46, 755 – 769 (2002).
Kydland F., Prescott E.: Rules rather discretion: The inconsistency of optimal plans, Journal of Political Economy, 85, 473 – 492 (1997).
Lindner I., and H. Strulik: Distributive politics and economic growth: The markovian Stackelberg solution, Economic Theory, 23, 439-444 (2004).
Long N. V. and Soubeyran A.: Selective penalization of polluters: an inf-convolution approach, Economic Theory, 25, 421-454, (2005)
Solow R.: Neoclassical growth theory, in: J. B. Taylor and M. Woodford, eds., Handbook of Macroeconomics, Vol. I (Elsevier Amsterdam) (1999).
Stokey, N. L.: Are there limits to growth?, International Economic Review 39, 1 – 31, (1996). Strulik H. : The dynamics of time – consistent redistributive capital taxation, Hambourg University, working paper, (2002).
Xepapadeas A.: Optimal taxes for pollution regulation: Dynamic, spatial and stochastic characteristics, Natural Resource Modelling 6: 139 – 170 (1992).
Xepapadeas A.: Economic growth and the environment, Prepared for the Handbook of Environmental Economics, edited by K. G. Maler and J. Vincent (2003).
Xie D.: On time consistency: a technical issue in Stackelberg differential games, Journal of Economic Theory, 76, 412 – 430 (1997).