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The duality of taxes and tradable permits: A survey with applications in Central and Eastern Europe

Published online by Cambridge University Press:  01 October 1999

SCOTT FARROW
SCOTT FARROW
Affiliation:
Department of Engineering and Public Policy, Carnegie Mellon University, Pittsburgh, PA 15213
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Abstract

Economic instruments such as taxes and tradable permits have been promoted as efficiency improving policies in the transition economies of Central and Eastern Europe and elsewhere. The little noticed potential for a symmetric equity impact from the two instruments in a world without distortions is first discussed. A specific policy option is suggested in which existing environmental taxes in Central and Eastern Europe can be increased without imposing additional financial burdens in industry if appropriate tax credits are provided. Second, conditions in Central and Eastern Europe are identified that reduce the change of efficiency losses in a general equilibrium setting when distortions exist. The trade-off between efficiency and equity in such a setting is found to depend on country-specific parameters and to be reduced if: (1) a cost-effective policy is implemented, (2) environmental assets can be distributed prior to privatization, and (3) government expenditures can decline.

Type
Research Article
Information
Environment and Development Economics , Volume 4 , Issue 4 , October 1999 , pp. 519 - 535
Copyright
© 1999 Cambridge University Press

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Footnotes

Appreciation is extended to the many individuals at the Harvard Institute for International Development and in the host countries of the Czech Republic, Kazakhstan, Latvia and Slovakia who provided both technical and institutional insights. Particular thanks are due to: Benoit Laplante, Bob Hahn, Bulet Esekin, Danka Jassikova, Don Fullerton, Galina Telelkova, Gilbert Metcalf, Glenn Morris, Ian Parry, Ivan Mojik, Jan Pisko, Janis Bruneikis, Jeff Vincent, Jirina Jilkova, Joseph Lauber, Josh Margolis, Jozef Myjavec, Larry Goulder, Lubomir Paroha, Marat Balgareev, Mike Boyd, Randy Bluffstone, Theo Panayotou, Tom Owen, Wade Martin, Zdenek Stepanek, and three anonymous reviewers of this journal. This work was developed in part from funding by US Agency for International Development although the views expressed are solely those of the author and do not necessarily reflect the views of the US Government in general or of AID in particular.