Efficiency and Redistribution Effects of Environmental Taxes under Capital Mobility
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چکیده
When capital taxes are used to finance a public good, capital mobility reduces efficiency since it narrows the tax base. This motivates the concern that capital mobility might also interfere with unilateral efforts to provide the public good of environmental quality through pollution taxes. I show in this paper that capital mobility does not affect efficiency in a small open economy, even though the pollution taxes reduce capital productivity. Capital mobility does, however, affect the distribution of the policy effects within the domestic economy. Compared to a closed economy setting capital income is higher, while labor income bears the full burden of the policy. JEL classification:
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