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Optimal taxation, environment quality, socially responsible firms and investors.

Renstrom, T. and Spatarom, L. and Marsiliani, L. (2019) 'Optimal taxation, environment quality, socially responsible firms and investors.', International review of environmental and resource economics., 13 (3-4). pp. 339-373.


We characterize the optimal pollution-, capital- and labour-tax structure in a continuous-time model in the presence of pollution (resulting from production), both in the first- and second-best, allowing investors to be driven by social responsibility objectives. The social responsibility objective takes the form of warm-glow, as in Andreoni (1990) and Dam (2011), inducing firms to reduce pollution through increased abatement activity. Among the results, the second-best pollution tax displays an additivity property and the Chamley–Judd zero capital-income tax can be violated under warm-glow preferences. We also show that first- and second-best pollution taxes are positive, under warm-glow preferences, and, under mild assumptions, the latter yield lower first-best pollution taxes and lower pollution intensity.

Item Type:Article
Full text:(AM) Accepted Manuscript
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Date accepted:02 August 2019
Date deposited:06 August 2019
Date of first online publication:18 September 2019
Date first made open access:18 March 2020

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