The Discussion Papers series presents results from ongoing research projects and other research and analysis by SSB staff, intended for international journals or books. The views and conclusions in this document are those of the author(s).
Implementing the Pigouvian allocation requires the environmental tax difference, measured relative to the consumer price of clean consumption, to equal marginal damage in units of clean consumption, a condition invariant to the normalization of the tax system. The efficient statutory rate is therefore willingness to pay to avoid damage divided by one plus the consumption tax rate when the environmental tax is inside the consumption tax base, and willingness to pay when it is outside. Damage borne by firms is measured at producer prices and therefore adjusts in the opposite way: unchanged inside the base and multiplied by one plus the consumption tax rate outside.