Economics, Econometrics and Finance
8 years ago

Taxing Externalities Could Boost Societal Welfare, Reshape Consumer Behavior

Journal of Public Economics
Taxation of externalities: Direct versus Indirect
Yves Balcer

Paper Summary

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The article compares direct and indirect taxes to correct externalities caused by consuming a good. The type of tax depends on how related the goods are for each consumer and the impact on the externality. The study shows that the sign of the indirect tax is not based on complementarity between the taxed goods, but on the relationship between the goods for each consumer and the size of the impact on the externality.