Optimal Control of Externalities in the Presence of Income Taxation

@article{Kaplow2006OptimalCO,
  title={Optimal Control of Externalities in the Presence of Income Taxation},
  author={Louis Kaplow},
  journal={Monetary Economics eJournal},
  year={2006}
}
  • L. Kaplow
  • Published 1 June 2006
  • Economics
  • Monetary Economics eJournal
A substantial literature examines second-best environmental policy, focusing particularly on how the Pigouvian directive that marginal taxes should equal marginal external harms needs to be modified in light of the preexisting distortion due to labor income taxation. Additional literature is motivated by the possibility that distributive concerns should amend the internalization prescription. It is demonstrated, however, that simple first-best rules %u2013 unmodified for labor supply distortion… 
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