Wednesday, February 20, 2013

Who Owns the Air?

By Charlie Clarke

Here is a letter I wrote to Greg Mankiw in March of 2009.  Robert's comment on my last post about giving the poor gobs of free money reminded me of it.  The main idea is that redistributing revenue from the use of a public good is in some sense assigning property rights to that good.

Dear Greg,

    I admire your professional work and your blog, and as you have spoken out frequently on pigou taxes I would love to understand our differences on a subject.  I find that the Obama administration would like to follow something close to my ideal pigouvian tax scheme.  Given that the tax will be collected as cap-and-trade (rather than carbon tax), it appeals to my intuitive sense of fairness that the revenue from such a tax be distributed lump-sum to each citizen (total revenue / citizen = payment to each).  My reasoning is that everyone has an equal right to public goods like air (or the right to pollute air), if this were a more perfect world, I would be able to sell my air rights to the highest bidder as would everyone else.  It seems my system closely mimics that outcome with heavy polluters compensating light polluters.

   I understand that your position is that revenue from pigouvian taxation should be used to offset income taxes.  I understand that my plan creates more deadweight loss than your plan, but to me, your plan asserts that productive people should have more property rights to pollute air than less productive people.  So my question is, why should this be so?  How do you view the world differently than me that leads you to believe that your ideal is more correct than my ideal?

   I would like to close by saying I'm not sure that my intuition is correct.  In all my economics classes, I have received no training on how to think about distributional issues.  My goal is to open a real dialog, not because I think I have found some sort of trump card.  I read your paper about the optimal taxation of height, and it makes me think that you too might like to see economics open a dialog about philosophical issues of fairness.

 Charlie Clarke

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