Berliant, Marcus and Peng, Shin-Kun and Wang, Ping (2012): Taxing pollution: agglomeration and welfare consequences.
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This paper demonstrates that a pollution tax with a fixed cost component may lead, by itself, to stratification between clean and dirty firms without heterogeneous preferences or increasing returns. We construct a simple model with two locations and two industries (clean and dirty) where pollution is a by-product of dirty good manufacturing. Under proper assumptions, a completely stratified configuration with all dirty firms clustering in one city emerges as the only equilibrium outcome when there is a fixed cost component of the pollution tax. Moreover, a stratified Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax that encompasses Pigouvian taxation as a special case. To support such a stratified Pareto optimum, however, an effective but unconventional policy prescription is to redistribute the pollution tax revenue from the dirty to the clean city residents.
|Item Type:||MPRA Paper|
|Original Title:||Taxing pollution: agglomeration and welfare consequences|
|Keywords:||pollution tax; agglomeration of polluting producers; endogenous stratification|
|Subjects:||D - Microeconomics > D6 - Welfare Economics > D62 - Externalities
R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
|Depositing User:||Marcus Berliant|
|Date Deposited:||24. Jul 2012 19:38|
|Last Modified:||15. Feb 2013 22:56|
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