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The Two-Part Instrument In A Second-Best World, Don Fullerton, Ann Wolverton
The Two-Part Instrument In A Second-Best World, Don Fullerton, Ann Wolverton
Don Fullerton
Standard Pigovian tax theory has been extended in two directions. First, many polluting activities are difficult to tax because they are not market transactions, and so recent papers have shown that the same effects can be achieved by use of a two-part instrument (2PI): a tax on output or income and a subsidy for clean alternatives to pollution. It is a generalization of a deposit-refund system. Second, a different literature concerns the second-best pollution tax in the presence of other tax distortions. Here, we combine the two extensions by looking at the second-best 2PI. When government needs revenue, is the …
Suggested Subsidies Are Sub-Optimal Unless Combined With An Output Tax, Don Fullerton, Robert D. Mohr
Suggested Subsidies Are Sub-Optimal Unless Combined With An Output Tax, Don Fullerton, Robert D. Mohr
Don Fullerton
Because of difficulties measuring pollution, many prior papers suggest a subsidy to some observable method of reducing pollution. We take three such papers as examples, and we extend each of them to show how welfare under the suggested subsidy can be increased by the addition of an output tax. While the suggested subsidy reduces damage per unit of output, it also decreases the firm's cost of production and the equilibrium break-even price. It might therefore increase output – unless combined with an output tax. While this general point has appeared in prior literature, it has been overlooked in specific applications. …
Two Generalizations Of A Depost-Refund System, Don Fullerton, Ann Wolverton
Two Generalizations Of A Depost-Refund System, Don Fullerton, Ann Wolverton
Don Fullerton
This paper suggests two generalizations of the deposit-refund idea. In the first, we apply the idea not just to solid waste materials, but to any waste from production or consumption -- including wastes that may be solid, gaseous, or liquid. Using a simple general equilibrium model, we derive the optimal combination of a tax on a purchased commodity and subsidy to a “clean” activity (such as emission abatement, recycling, or disposal in a sanitary landfill). This “two-part instrument” is equivalent to a Pigovian tax on the “dirty” activity (such as emissions, dumping, or litter). In the second generalization, we consider …
Policies For Green Design, Don Fullerton, Wenbo Wu
Policies For Green Design, Don Fullerton, Wenbo Wu
Don Fullerton
A simple general equilibrium model is used to analyze disposal-content fees, subsidies for recyclable designs, unit-pricing of household disposal, deposit-refund systems, and manufacturer “take-back” requirements. Firms use primary and recycled inputs to produce output that has two “attributes”: packaging per unit output, and recyclability. If households pay the social cost of disposal, then they send the right signals to producers to reduce packaging and to design products that can more easily be recycled. If garbage is collected for free, then socially optimum attributes can still be achieved by a tax on producers’ use of packaging and subsidy to recyclable designs.