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Paying for public spending: is there a role for earmarked taxes?


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  • Margaret Wilkinson
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    Tax earmarking, or hypothecation, refers to the assigning of receipts either from a single tax base, or as a proportion from a wider pool of revenue, to a specific end use; it contrasts with general fund financing of expenditure from consolidated receipts. The idea has been seized on both by those who want to defend the public sector who think it would make taxation popular and by those who want to cut public spending who expect the opposite effect. Earmarking may be applied in a strong or substantive sense, or in a weak or nominal sense. In the strong case, revenue determines expenditure, or at least revenue must match expenditure, and there may be associated referendums on the amount of spending and the tax rate. In the weak case, earmarking is purely formal — undertaken to make the system more transparent and to inform the taxpayer of the cost of a service. Earmarking may also be wide, covering a whole spending programme, or narrow, for a specific project within a programme. The principal example of earmarking (nominal) in the UK today is National Insurance contributions (NICs) which go to the National Insurance Fund out of which contributory benefits are paid. This paper considers the range of support for earmarked taxes, examines the issues, and asks if there is a role for such taxes in the British system.

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    Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

    Volume (Year): 15 (1994)
    Issue (Month): 4 (November)
    Pages: 119-35

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    Handle: RePEc:ifs:fistud:v:15:y:1994:i:4:p:119-35

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    1. Rivlin, Alice M, 1989. "The Continuing Search for a Popular Tax," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 113-17, May.
    2. James M. Buchanan, 1963. "The Economics of Earmarked Taxes," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 71, pages 457.
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    Cited by:
    1. John C. V. Pezzey, 2002. "EmissionTaxes and Tradable Permits: A Comparison of views on Long Run Efficiency," Economics and Environment Network Working Papers, Australian National University, Economics and Environment Network 0210, Australian National University, Economics and Environment Network.
    2. Guillem López i Casasnovas & David Casado i Marín, . "Análisis prospectivo de la oferta de servicios públicos en España," Studies on the Spanish Economy 28, FEDEA.
    3. Sclen, HÃ¥kon & Kallbekken, Steffen, 2011. "A choice experiment on fuel taxation and earmarking in Norway," Ecological Economics, Elsevier, Elsevier, vol. 70(11), pages 2181-2190, September.
    4. Richard Bird & Joosung Jun, 2005. "Earmarking in Theory and Korean Practice," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0515, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    5. Ergas, Henry, 2010. "New policies create a new politics: issues of institutional design in climate change policy," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, Australian Agricultural and Resource Economics Society, vol. 54(2), June.
    6. Bos, Dieter, 2000. "Earmarked taxation: welfare versus political support," Journal of Public Economics, Elsevier, Elsevier, vol. 75(3), pages 439-462, March.
    7. Pezzey, John C.V., 2001. "Distributing the Value of a Country’s Tradeable Carbon Permits," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australian Agricultural and Resource Economics Society 125832, Australian Agricultural and Resource Economics Society.
    8. Dieter Bös, 1999. "Earmarked Taxation: Welfare versus Political Support," CESifo Working Paper Series 207, CESifo Group Munich.
    9. Neva Novarro, 2004. "Do Policy-Makers Earmark to Constrain their Successors? The Case of Environmental Earmarking," Working Papers, College of the Holy Cross, Department of Economics 0408, College of the Holy Cross, Department of Economics.


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