TAXATION, MIGRATION, AND POLLUTION

by

Agnar Sandmo
Norwegian School of Economics and Business Administration
 
and
 
David E. Wildasin
Department of  Economics
Vanderbilt University
 

Abstract

This paper analyzes optimal fiscal, environmental and immigration policy for a single jurisdiction.  In the presence of immigration quotas, taxes on the output of externalitiy-producing industries should be higher than indicated by the standard rule for Pigovian corrective taxation. Immigration quotas are not optimal if fiscal instruments can be used to control immigration, and relaxation of immigration quotas generally increases domestic welfare. If optimal taxes are imposed on  immigrants, no immigration quota should be imposed, and a version of the traditional Pigovian rule characterizes optimal taxation of domestic externalities. If production in the immigrants' country of origin causes trans-boundary spillovers, domestic welfare can be improved by lighter taxation of immigrants or by further relaxation of immigration quotas.


David E. Wildasin / dew@davidwildasin.us


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