The Effect of Addiction on Environmental Taxation in a Firstand Second-best world

• We examine the effect of addictive behavior on a socially optimal environmental tax. If utility in part depends on past consumption and individuals are time-consistent, the socially optimal environmental tax is shown to be equal to the conventional Pigovian tax. In a second-best world where the social planner has a restriction on the future environmental tax level, the current optimal tax is no longer equal to the Pigovian tax. We extend the analysis with time-inconsistent (myopic) individuals to both the first (no restriction on future environmental tax) and second-best world (restriction on future environmental tax). Also, the importance of addiction in an environmental framework is discussed.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Nyckelord

Optimal taxation; environment; addiction; timeinconsistency;second-best

Publikations- och innehållstyp

vet (ämneskategori)

rap (ämneskategori)