The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation
When consumers or firms don't face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, but it may be infeasible to tax the externality directly. The alternative, taxing a relat...
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| Format: | Article |
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American Economic Association
2019
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| Online Access: | http://hdl.handle.net/1721.1/120525 https://orcid.org/0000-0002-7654-8641 |
| _version_ | 1826188041371254784 |
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| author | Sandler, Ryan Knittel, Christopher Roland |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Sandler, Ryan Knittel, Christopher Roland |
| author_sort | Sandler, Ryan |
| collection | MIT |
| description | When consumers or firms don't face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, but it may be infeasible to tax the externality directly. The alternative, taxing a related product, will be second-best. In this paper, we show that in the presence of heterogeneous externalities and elasticities, this type of indirect tax performs poorly. In our empirical application, gasoline taxes to address pollution externalities, less than a third of the deadweight loss of the externality is addressed by second- best optimal taxes. |
| first_indexed | 2024-09-23T07:53:42Z |
| format | Article |
| id | mit-1721.1/120525 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T07:53:42Z |
| publishDate | 2019 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/1205252022-09-23T09:27:43Z The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation Sandler, Ryan Knittel, Christopher Roland Sloan School of Management Knittel, Christopher Roland When consumers or firms don't face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, but it may be infeasible to tax the externality directly. The alternative, taxing a related product, will be second-best. In this paper, we show that in the presence of heterogeneous externalities and elasticities, this type of indirect tax performs poorly. In our empirical application, gasoline taxes to address pollution externalities, less than a third of the deadweight loss of the externality is addressed by second- best optimal taxes. University of California, Berkeley. Center for Energy and Environmental Economics University of California, Davis. Sustainable Transportation Center 2019-02-21T18:46:10Z 2019-02-21T18:46:10Z 2018-11 2019-02-19T17:18:24Z Article http://purl.org/eprint/type/JournalArticle 1945-7731 1945-774X http://hdl.handle.net/1721.1/120525 Knittel, Christopher R., and Ryan Sandler. “The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation.” American Economic Journal: Economic Policy 10, no. 4 (November 2018): 211–242. © 2018 American Economic Association. https://orcid.org/0000-0002-7654-8641 http://dx.doi.org/10.1257/pol.20160508 American Economic Journal: Economic Policy Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. application/pdf American Economic Association American Economic Association |
| spellingShingle | Sandler, Ryan Knittel, Christopher Roland The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation |
| title | The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation |
| title_full | The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation |
| title_fullStr | The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation |
| title_full_unstemmed | The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation |
| title_short | The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation |
| title_sort | welfare impact of second best uniform pigouvian taxation evidence from transportation |
| url | http://hdl.handle.net/1721.1/120525 https://orcid.org/0000-0002-7654-8641 |
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