American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Guns, Latrines, and Land Reform: Dynamic Pigouvian Taxation
American Economic Review
vol. 106,
no. 5, May 2016
(pp. 83–88)
Abstract
Dynamically and statically optimal Pigouvian subsidies and taxes on durables will differ in a growing economy. In a dynamic game, consumers may delay purchasing durables with positive externalities, such as latrines, anticipating greater future subsidies. Governments can most cheaply induce optimal purchasing by commiting to make subsidies temporary. Foreign donors may make commitment impossible, generating delays in private investment that more than fully offset the social benefits of transfers. Anticipated future taxes or regulation of durables with negative externalities, such as guns, may encourage current purchase, potentially causing policymakers who would otherwise prefer taxes or regulation to abandon such policies.Citation
Kremer, Michael, and Jack Willis. 2016. "Guns, Latrines, and Land Reform: Dynamic Pigouvian Taxation." American Economic Review, 106 (5): 83–88. DOI: 10.1257/aer.p20161096Additional Materials
JEL Classification
- D62 Externalities
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H71 State and Local Taxation, Subsidies, and Revenue
- I18 Health: Government Policy; Regulation; Public Health
- Q53 Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling