Second-best pollution taxes: revisited and revised

This paper examines second-best pollution taxation within a unified framework, which simultaneously takes into account society’s preferences towards producer profits and environmental costs, the possibility of raising public revenue through pollution taxes and the costly administration of pollution taxes. Several new results were derived concerning the discrepancy between second-best taxes and the Pigouvian rule. In addition, this paper shows that previous results identified in the relevant literature are special cases of our results. It should be stressed, however, that the comparison between first-best and second-best taxation is an empirical issue. Finally, the policy implications of the results are also discussed. © 2015, Society for Environmental Economics and Policy Studies and Springer Japan.