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Tax uniformity: A commitment device for restraining opportunistic behaviour

Author

Listed:
  • Gerda Dewit

    (Economics, National University of Ireland, Maynooth)

  • Dermot Leahy

    (Economics, National University of Ireland, Maynooth)

Abstract
We investigate whether and to what extent uniform and differentiated tax systems diverge in their propensity to create distortionary opportunistic behavoiur. The set-up in which we carry out our analysis features polluting firms that are confronted with existence a Pigovian emission tax. Firms can invest in pollution abatement. We first show that the existence of emmission taxes, although optimally chosen, create strategic incentives for firms to distort their abatement investment. Second, we find that a system of differentiated emission taxes has a greater propensity to foster strategic distortions in abatement investment than a uniform emission tax regime.

Suggested Citation

  • Gerda Dewit & Dermot Leahy, 2008. "Tax uniformity: A commitment device for restraining opportunistic behaviour," Economics Department Working Paper Series n1971108.pdf, Department of Economics, National University of Ireland - Maynooth.
    • Handle: RePEc:may:mayecw:n1971108.pdf
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    Cited by:

    1. Xuexian Gao & Haidong Zheng, 2017. "Environmental Concerns, Environmental Policy and Green Investment," IJERPH, MDPI, vol. 14(12), pages 1-13, December.

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    More about this item

    Keywords

    Uniform tax; Differentiated taxes; Emission tax; Short-run policy commitment; Pollution-abating investment; Strategic investment.;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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