Environmental taxes, consumer awareness and the relative efficiency of the output vs emissions tax base

Abstract

In this work, we employ the model in Martis (2022) (Model B), and we compare their results to those of Constantatos et al. (2021) (Model A) in order to see whether committing to a tax rate or not yields better environmental conditions and social welfare. We find that under both models, the abatement has the same path, however, in Model B the abatement under both taxes lies higher than that of Model B, due to tax manipulation efforts. Consequently, output tax net emissions lie lower that all other tax plans under both committed and time consistent regulator, and quickly becomes zero. This is not true in the case of the emissions tax, where the time-consistent regulator generates higher abatement but also higher quantity than the committed one. Therefore, net emissions in the case of the time-consistent regulator lies higher from both committed regulator net emissions and the first-best case. Finally, due to over-abatement, the output-tax social welfare in Model B monotonically decreases, however, it lies higher than that of Model A for low levels of ϕ. In the case of emissions tax, social welfare generated by the committed regulator lies lower than the one generated by the time-consistent one. As for the robustness of the model, k raises some robustness issues. The most interesting one is that of the social welfare function. For low levels of ϕ, the social welfare function becomes positive-sloped due to cost rationalization reaches first-best and after that it decreases.