Kantians defy the economists’ mantra of uniform Pigovian emissions taxes

Abstract

This paper investigates the efficiency-restoring (= Pigovian) taxation of emissions in economies with pollution damage and consumers who are morally motivated to reduce their emissions and who are heterogeneous with respect to their degree of morality or other preference parameters. If the conventional concept of efficiency is applied that relates to the maximum utilitarian welfare disregarding the consumers’ morality, we show that the Pigovian tax is consumer-type specific and smaller than the uniform Pigovian tax in economies with consumers without moral preferences. Since ‘personalized’ Pigovian taxes cannot be implemented in practice due to informational infeasibility, we also characterize the second-best uniform emissions tax. Finally, we investigate the Pigovian taxation when the emissions tax crowds out the moral consumers’ voluntary incentives to reduce emissions.