Volume 70, Issue 4 p. 517-536
Original Article

Excess Burden of Taxation and Environmental Policy Mix with a Consumer-Friendly Firm

Mariel Leal

Mariel Leal

Tecnológico de Monterrey

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Arturo Garcia

Arturo Garcia

Tecnológico de Monterrey

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Sang-Ho Lee

Sang-Ho Lee

Chonnam National University

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First published: 04 February 2019
Citations: 13

Abstract

This study examines the environmental policy mix of tradable emission permits and emission taxes in a duopoly model with a consumer-friendly firm. We analyse the interplay of the two policies and the welfare consequences in the presence of excess burden of taxation. We show that an emission tax can be redundant when both the excess burden of taxation and the degree of consumer friendliness are insignificant. However, when the excess burden of taxation is significant, tradable permits policy with tax treatment should be applied to enhance welfare in the presence of a consumer-friendly firm. Finally, under the tax revenue-neutral case where the excess burden of taxation does not matter, the environmental policy mix is also efficient if the degree of consumer friendliness is sufficiently high.

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