Working Paper: NBER ID: w0742
Authors: A. Mitchell Polinsky; Steven Shavell
Abstract: This paper examines how the optimal Pigouvian tax should be adjusted to reflect administrative costs. Several cases are examined, depending on whether the administrative costs are fixed per firm taxed or are a function of the amount of tax collected, and on whether such costs are borne by the government or by the taxed firm. In some cases, the presence of administrative costs increases the optimal tax above the external cost, while in other cases it leads to a decrease in the tax.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| administrative costs borne by government (H51) | optimal pigouvian tax > external cost (D62) |
| optimal pigouvian tax > external cost (D62) | reduces number of firms engaging in the activity (L11) |
| reduces number of firms engaging in the activity (L11) | saves on administrative costs (J32) |
| administrative costs borne by taxed firms (H32) | optimal pigouvian tax = external cost (D62) |
| variable administrative costs borne by government (H59) | optimal pigouvian tax can be above or below external cost (D62) |
| firms less responsive (D21) | reducing tax may save administrative costs (H20) |
| firms highly responsive (D21) | increasing tax may be beneficial (H29) |
| variable administrative costs borne by taxed firms (H32) | optimal pigouvian tax < external cost (D62) |