Tax Policy, Environmental Concern and Level of Emission Reduction

Abstract

Regulators often use environmental policy to induce green initiatives by firms. This paper examines the emission-reduction-inducement effect of the environmental tax deduction (ETD) incentive by Stackelberg game models between an environmental regulator and a profit-maximizing monopolistic firm facing emission-dependent demand. Different cases, i.e., with/without considering the regulator’s environmental concerns, were used to investigate the ETD policy effects with a numerical example. This paper shows that the regulator’s tax policy will only affect the emission reduction level, but cannot influence the output, which combined with the firm’s operation factors mainly depends the consumers’ attitude toward green products and price sensitivity. Numerical simulation results showed that for the cases with a moderate level of environmental concern and emission standard, the regulator can set an ETD incentive to motivate the choice of a higher level of emission reduction and simultaneously increase social welfare; otherwise, the increase in environmental quality is at the expense of social welfare. When the market’s environmental consciousness increases, it is easier for the regulator to guide the firm to adopt an ETD solution. Therefore, improving consumers’ awareness of environmental protection is an effective way to promote green investment of firms.

Environmental Tax Reform and the “Double Dividend” Hypothesis in a Small Open Economy

“…If the tax base is eroded, the efficiency of the whole tax system as a means of financing is reduced. Equation (17) shows that MEB can be divided into tax base effect (the first item on the right-hand side of the equation) and environmental effect (the second item on the right-hand side of the equation). In fact, MEB represents two tasks of environmental tax reforms as well as the blue dividend and green dividend of the so-called "double dividend" hypothesis.…”

“…In other words, there is no double dividend effect of distribution [14]. Furthermore, several studies point out that the environmental tax will inevitably cause unfair distribution among different generations [15][16][17].…”

Optimising Decarbonisation Investment for Firms towards Environmental Sustainability

“…Rhee [3] Consumer heterogeneity Unobservable Two-stage game framework Chen [13] Consumers' preferences Environmental standards Quality-based model Amacher et al [4] Eco-friendly preferences Consumer can observe Three-stage game model firm's investment levels Conrad [5] Environmental awareness Select its product Spatial duopoly model characteristic and then its price Liu et al [6] Environmental awareness Various eco-friendly operation Two-stage Stackelberg models Sheu and Chen [14] Tax and subsidy policies Three-stage game theoretic model Zhang et al [7] Environmental awareness Production capacity constraint Centralised/decentralised models Hafezalkotob [15] Financial intervention Price competition model Guo et al [16] Different subsidy policies Game and optimisation theories Bi et al [17] Environmentally discerning Subsidy policy Stackelberg model Gao and Zheng [18] Environmental awareness Environmental concerns Three-stage Stackelberg model Xu et al [8] Without and with Analytical model consumer heterogeneity Jin et al [19] Carbon tax policy Centralised data envelopment analysis Zhong and Chen [9] Willingness to pay for Behavioural game model the greenness premium Gao et al [20] Environmental awareness Tax deduction incentive Emission-dependent demand Stackelberg game model Yenipazarli [21] Emission tax Environmental R&D incentives Two-stage duopoly model Zhao and Chen [22] Environmental awareness Subsidy mechanism Principal-agent models…”

“…In the case that both firms produce ordinary products, the optimal tax policy for each firm is different and the government may set a higher tax rate for one firm and a lower tax rate for the other firm. Gao et al [20] examined the effect of environmental tax deduction (ETD) incentive on emission reduction by Stackelberg game models between an environmental regulator and a profit-maximising monopolistic firm facing emission-dependent demand under various cases, such as with/without the regulator's environmental concerns. This study shows that if the regulator has a moderate level of environmental concern and emission standard, it can set an ETD incentive to motivate the choice of a higher emission reduction level and simultaneously increase social welfare; otherwise, it can expense social welfare to increase the environmental quality.…”

Environmental R&D and privatization in a mixed duopoly market

“…Gao, Zheng, Zhang, and Golsanami () considered the regulator's environmental concerns, Nie, Wang, and Meng () integrated environmental and social concerns into business operations of a private firm, and Kopel () investigated the impact of socially concerned firms on the mode of competition.…”