Pollution versus Inequality: Tradeoffs for Fiscal Policy
Camille Hainnaux  1@  , Thomas Seegmuller  1, 2@  
1 : Aix-Marseille Sciences Economiques  (AMSE)  -  Website
École des Hautes Études en Sciences Sociales : UMR7316, Aix Marseille Université : UMR7316, Ecole Centrale de Marseille : UMR7316, Centre National de la Recherche Scientifique : UMR7316
5-9 Boulevard BourdetCS 5049813205 Marseille Cedex 1 -  France
2 : Groupement de Recherche en Économie Quantitative d'Aix-Marseille  (GREQAM)  -  Website
Université de la Méditerranée - Aix-Marseille II, Université Paul Cézanne - Aix-Marseille III, École des Hautes Études en Sciences Sociales [EHESS], CNRS : UMR7316, Ecole des Hautes Etudes en Sciences Sociales (EHESS)
Centre de la Charité, 2 rue de la Charité, 13236 Marseille cedex 02 -  France

In this paper, we investigate the impact of redistribution and taxation on inequality and pollution. We build a two-sector Ramsey model with a green good, a polluting good, heterogeneous households with non-homothetic preferences, and a subsistence level of consumption for the polluting commodity. We find that under heterogeneous preferences, lump-sum transfers reduce inequality but harms the environment. In the same vein, increasing the environmental tax under a high level of subsistence consumption leads to lower inequalities when coupled with high redistribution, but increases pollution. Therefore, there may be a tradeoff between inequality reduction and pollution mitigation. Looking at the stability properties of the economy, we find that the level of subsistence consumption and the externality matter. This leaves room for taxation and redistribution to play a role in the stability of the equilibrium.


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