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Optimal taxation, environment quality, socially responsible firms and investors

Renstrom, T.; Spatarom, L.; Marsiliani, L.

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


L. Spatarom


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.

Journal Article Type Article
Acceptance Date Aug 2, 2019
Online Publication Date Sep 18, 2019
Publication Date Jan 1, 2019
Deposit Date Aug 5, 2019
Publicly Available Date Mar 18, 2020
Journal International Review of Environmental and Resource Economics
Print ISSN 1932-1465
Electronic ISSN 1932-1473
Publisher Now Publishers
Peer Reviewed Peer Reviewed
Volume 13
Issue 3-4
Pages 339-373
Public URL


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