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Optimal Tax and Public Investment Rules for Congestion Type of Externalities
Author(s) -
Mayeres Inge,
Proost Stef
Publication year - 1997
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00062
Subject(s) - externality , economics , optimal tax , microeconomics , investment (military) , distribution (mathematics) , public economics , government (linguistics) , mathematical analysis , linguistics , philosophy , mathematics , politics , political science , law
Optimal government policy is considered in a second‐best framework where consumers and producers cause an externality of the congestion type and income distribution issues are taken into account. The theoretical results of the optimal tax literature are adapted using the concept of the net social Pigouvian tax. An illustrative AGE model uncovers the relative importance of its components. The model demonstrates that the level of the externality tax does not depend strongly on distribution concerns, as reoptimization of the other taxes ensures that the income distribution objective is reached. The model also allows us to study the interaction between externality taxes and public abatement.