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- Title
Environmental Levies and Distortionary Taxation.
- Authors
Bovenberg, A. Lans; De Mooij, Ruud A.
- Abstract
This article attempts to show that environmental taxes typically exasberates, rather than alleviate, preexisting tax distortions - even if revenues are employed to cut preexisting distoritionary taxes. It demonstrates that in the presence of preexisting distortionary taxes, the optimal pollution tax typically lies below the Pigovian tax, which fully internalizes the marginal social damage from pollution. The collective good of environmental quality directly competes with other collective goods. Hence, the marginal costs of environmental policy rise with the marginal cost of public funds. Many economists have argued that pollution levies are an efficient instrument for achieving environmental objectives. Some have gone even further to suggest that may yield benefits and above a cleaner environment. In particular, governments can use the revenues from pollution taxes to decrease other distortionary taxes. In this way, environmental taxes may yield a "double dividend" - not only a cleaner environment, but also a less distortionary tax system. This argument suggests that one may wish to push the role of environmental taxes beyond that of solely an instrument for environmental protection and employ these instruments also as a revenue-raising device in reference to a discussion paper prepared by Wallace E. Oates. Furthermore, if pollution taxes are available, ambitious environmental policies may seem more attractive if public revenues become scarcer. Indeed, high estimates for the deadweight losses of current tax systems have been used to suggest that environmental taxes may yield important side benefits.
- Subjects
POLLUTION control costs; TAXATION; ENVIRONMENTAL policy; POLLUTION &; economics; ENVIRONMENTAL impact charges
- Publication
American Economic Review, 1994, Vol 84, Issue 4, p1085
- ISSN
0002-8282
- Publication type
Article