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The timing of environmental policies with excess burden of taxation in free-entry mixed markets

Xu, Lili and Lee, Sang-Ho (2018): The timing of environmental policies with excess burden of taxation in free-entry mixed markets.

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Abstract

This study investigates the timing of environmental policies in free-entry mixed markets with excess burden of taxation. We consider two scenarios in which the government chooses the optimal tax before or after firms enter the market, and compare these ex-ante and ex-post taxations. When the excess burden of taxation is small (large), we find that ex-post taxation imposes a lower (higher) tax level than ex-ante taxation, which induces a larger (smaller) number of firms and a higher (lower) environmental damage. Finally, the effect of excess burden of taxation can increase the welfare, but ex-ante taxation always yields higher welfare than ex-post taxation.

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