Taxes versus standards in a mixed economy

Bingxin Zeng,Jin Liu,Gaoqi Dai,Z Wang,Y Zhang

doi:10.1051/e3sconf/202122801016

Abstract

Governments have recently become increasingly concerned about environmental policy choice in a mixed economy because many countries are mixed economies where public and private firms engage in the output market. This paper provides an analytical framework to compare emission taxes and emission standards in a mixed economy. Through theoretical analysis and numerical example, two main conclusions are drawn. First, the ranking of emission taxes and standards in the aspect of bringing about greater social welfare depends on the policy stringency. More specifically, for high levels of environmental stringency, taxes yield a greater social welfare than the standards regulation does, while the opposite conclusion holds for low levels of environmental stringency. Second, the total production level under emission taxes is always larger than under emission standards. Our findings provide important implications for the policy choice and design in a mixed economy.

Highlights

Policymakers have become increasingly concerned with implementing an effective environmental policy to reduce greenhouse gas emissions because climate change poses a huge challenge to sustainability
Many countries are mixed economies in which public and private firms engage in the output market [5]
The ranking of emission taxes and standards in the aspect of bringing about greater social welfare depends on the policy stringency

Summary

Introduction

Policymakers have become increasingly concerned with implementing an effective environmental policy to reduce greenhouse gas emissions because climate change poses a huge challenge to sustainability. Some fundamental results in environmental economics may fail to hold in a mixed economy [5]. This paper compares the two popular environmental policies (i.e., emission taxes and emission standards) in a mixed economy. This study contributes to the literature by investigating the environmental policy choice in a mixed economy. There are a limited number of studies investigating environmental policy choice in a mixed economy [8, 9], but the result has been a matter of debate. The ranking of emission taxes and standards in the aspect of bringing about greater social welfare depends on the policy stringency. For high levels of environmental stringency, taxes yield a greater social welfare than the standards regulation does, while the opposite conclusion holds for low levels of environmental stringency. Conclusions and policy implications are summarized in the final section

Literature review

The model

Policy comparisons

Conclusions