ENVIRONMENTAL TAX POLICY AND INTERGENERATIONAL DISTRIBUTION

We study the effects of environmental taxation within the context of a n overlapping generations model. The quality of the environment is mod elled as a durable consumption good. Introduction of the environmental tax harms old existing generations and benefits young existing genera tions as well as all future generations. Increasing the tax in a Paret o-improving manner is easier the higher the pre-existing tax. The reve rse holds if tax policy is decided by majority rule. A suitably design ed bond policy can be used to redistribute the efficiency gains due to the internalisation of environmental externalities across the generat ions. (C) 1998 Elsevier Science S.A.