A many-person Corlett-Hague tax rule with externalities

This study addresses environmental tax reforms in a many-person economy. St arting from a situation of uniform commodity taxation, a tax reform raising the tax on a good complementary to leisure or on a good that is environmen tally harmful may be seen as welfare-improving as long as environmental ext ernalities do not affect commodity demand. When environmental quality reduc es commodity demand, a trade-off arises between the direct beneficial impac t of the higher environmental tax and its indirect, harmful impact caused b y reduced tax revenues. A second trade-off may also arise from a conflict b etween efficiency and distributional equity.