In this paper we investigate a dynamic setting of environmental taxation, for which the government imposes a tax rate in order to internalize externalities caused by polluting firms. The basic model consists of the intertemporal maximization problem for an additively separable utility which is...

In this paper we propose a leader – follower dynamic model of taxation with the government imposing a tax to internalize externalities caused by polluting firms. As expected the Stackelberg games with the government acting as leader yield time inconsistent outcomes. We first show how time...