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