Optimal Environmental Taxation When Goods and Contamination are Durable

Abstract

[EN] This paper analyzes the effects of optimal taxation on a polluting monopolist who produces a durable good and cannot precommit to future sale prices. The government establishes the taxes that maximize social welfare, measured as the present value of the sum of consumer surplus plus producer's gross profits minus environmental damage. The consequences of taxes on the production and monopolist's profits, consumer surplus, environmental damage and social welfare are analized. It is shown that optimal taxes increase social welfare and reduce environmental damage. However, the effets of taxes on monopolist's profits depend on the goverment's ability to establish different taxes in different periods and the durability of the pollution.optimal taxation, monopolist, durable goods and contamination