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John Stranlund and Wei Zhang
''Bankruptcy Risk, Limited Liability and Imperfectly Enforced Emissions Taxes''
( 2009, Vol. 29 No.4 )
Under reasonable conditions, noncompliance with an emissions tax has no effect on environmental outcomes or the efficient allocation of individual emissions control. Moreover, differences in individual tax violations are independent of firm-level differences. All of these desirable characteristics disappear when some firms under an emissions tax risk bankruptcy. The combination of imperfect enforcement, bankruptcy risk, and limited liability in bankrupt states produces an inefficient distribution of emissions control, higher aggregate emissions, and makes individual violations dependent on firm-level characteristics.
Keywords: Emissions Taxes, Enforcement, Bankruptcy, Limited Liability
JEL: Q5 - Environmental Economics: General
L5 - Regulation and Industrial Policy: General
Manuscript Received : Aug 27 2009 Manuscript Accepted : Dec 22 2009

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