Tax scheme for agricultural technology innovation incentive

Abstract

To incentivize innovation or green technologies, governments use various economic instruments. Resource taxes and effluent taxes are typical Pigovian taxes used for water environmental protection. In this paper, a game model is developed to systematically compare water and effluent taxes and to discuss the impact on three issues: business performance, inducing technological change (ITC) and water environmental protection (water conservation and pollutant reduction). In the model, local governments levy tax policies. In response, growers select technologies based on the profit maximization principle, which in turn determines total water consumption, production quantities and product prices. By comparing the corresponding effects on water savings, reduced effluent volume and economic costs, this analysis reveals the different properties of these two types of taxes. First, neither tax necessarily motivates growers to choose innovative technologies. Both taxes have special conditions that incentivize new technologies. The effluent tax depends on the tax rate, while the resource tax also depends on the fixed cost of the new technology and the difference in pollutant density in the effluent of the two planters. Second, in terms of water protection, the water tax has advantages in terms of both water conservation and pollutant reduction. Third, in terms of operating performance, there is a threshold for the improvement in profits from both taxes. This threshold increases with the efficiency of the new technology.