December 5, 2010

Should We Impose Emissions Taxes that Firms Evade?

by John K. Stranlund

- In this paper, I identify several circumstances under which regulators may conserve enforcement costs by implementing emissions taxes that firms evade. I demonstrate that a regulator can use a firm’s tax evasion to reduce monitoring effort, but only if its monitoring strategy can be made an increasing function of the firm’s emissions, if the probability of sanctioning a violation is increasing in the size of the violation, or if the firm’s manager is risk averse.

Stranlund, J.K. (2010). "Should We Impose Emissions Taxes that Firms Evade?" University of Massachusetts Amherst Department of Resource Economics Working Paper No. 2010-4, Sept 2010.