Abstract
This paper examines, within a dynamic framework, the role of information provision as a policy instrument to supplement environmental taxation. Several products are responsible for health as well as environmental damages. Many consumers do not possess the required information to optimally substitute away from these products. However, as the stock of information regarding the negative effects of these products builds up, an increasing fraction of consumers behaves optimally. The government uses two policy instruments, environmental taxation and information provision. We show that as the accumulated stock of information increases, the optimal tax rate declines over time. Information provision can shift market demand towards environmentally friendly goods over time, and thus reduce the required level of the tax rate. Our results provide strong evidence in support of information campaigns as a policy instrument to supplement traditional environmental policies.
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The authors would like to thank Christos Constantatos and participants of the EAERE 2007 conference for their comments and suggestions. Sartzetakis gratefully acknowledges financial support from the Research Grants Project of the University of Macedonia’s Research Committee.
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Sartzetakis, E.S., Xepapadeas, A. & Petrakis, E. The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes. Environ Resource Econ 52, 347–368 (2012). https://doi.org/10.1007/s10640-011-9532-4
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DOI: https://doi.org/10.1007/s10640-011-9532-4