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  • School of Business, Economics and Law / Handelshögskolan
  • Department of Economics / Institutionen för nationalekonomi med statistik
  • Working papers
  • Redigera dokument
  •   Startsida
  • School of Business, Economics and Law / Handelshögskolan
  • Department of Economics / Institutionen för nationalekonomi med statistik
  • Working papers
  • Redigera dokument
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The Importance of Habit Formation for Environmental Taxation

Sammanfattning
We analyze how habit formation affects optimal environmental taxation, when consumption of a habitual good causes a negative external effect on the environment. In a simple two-period model, we show that optimal taxation is still Pigouvian, where tax rates equal marginal damage in each period. However, the magnitudes of the tax rates are affected by habit formation. Using simulations we show that since consumption of the habitual good increases over time, so does the optimal tax rate, implying a higher tax rate in period two than in period one. The discrepancy increases in habitual strength. Given the development of the tax rates over time we discuss the welfare loss from imposing a secondbest environmental tax and its relation to habitual strength. Further, we analyze how optimal taxation changes if we relax the assumption of time-consistency
Universitet
Göteborg University. School of Business, Economics and Law
URL:
http://hdl.handle.net/2077/2710
Samlingar
  • Working papers
Fil(er)
gunwpe0204.pdf (189.6Kb)
Datum
2006
Författare
Nordblom, Katarina
Löfgren, Åsa
Nyckelord
Optimal taxation; environment; habit formation; secondbest; myopia
Publikationstyp
Report
ISSN
1403-2465
Serie/rapportnr.
Working Papers in Economics, nr 204
Språk
en
Metadata
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