Give detail explanation of Credibility problem

There are indications that such credibility problem stems from a tension between the goal of encouraging innovation and investment in environment-friendly technologies on the one hand and distributional concerns on the other; environmental taxes are instrumental to inducing firms to undertake abatement-related investment; but it is also true that these taxes would produce unwanted distributional effects, which might be difficult for policy makers to offset through compensation. Then, once innovation has taken place, policymakers tend to reduce environmental taxes in order to minimize their distributional ill effects. Note that the emission taxes are the only available policy instrument, and produce adverse distributional effects. Thus, when setting emission taxes governments trade off efficiency and distributional objectives.

 

Posted Date: 9/30/2013 6:56:30 AM | Location : United States

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