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Indirect Taxes on International Aviation

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Author Info
Michael Keen
Jon Strand

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Abstract

There has recently been much discussion of the possible use of internationally coordinated indirect taxes, or equivalent charges, on international aviation, whether as a source of finance for development or as part of a response to heightened concerns with climate change. This paper considers the strengths and weaknesses of the leading candidate instruments of this kind. It argues that, on both policy and administration grounds, the case for increasing indirect taxes on international aviation is strong: the indirect tax burden on international aviation is very low, yet aviation contributes significantly to border-crossing environmental damage, is just as proper an object of taxation as any other commodity, and incipient tax competition is likely to result in these taxes being set at inefficiently low levels. But the form(s) in which such taxes are levied matters: a tax on aviation fuel would address the key border-crossing externalities most directly; a tax on final ticket values would have greater revenue potential, and perhaps some distributional advantage; departure/arrival taxes face the least legal obstacles, but are much blunter instruments. Optimal policy, it is shown, typically requires deploying both a fuel tax and a ticket tax, and the paper explores, both in principle and by simulation, the key considerations and trade-offs involved in designing a suitable indirect tax regime for international aviation. Copyright 2007 Institute for Fiscal Studies.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-5890.2007.00046.x
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Publisher Info
Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 28 (2007)
Issue (Month): 1 (03)
Pages: 1-41
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Handle: RePEc:ifs:fistud:v:28:y:2007:i:1:p:1-41

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jon Strand, 2008. "Energy Efficiency and Renewable Energy Supply for the G-7 Countries, With Emphasis on Germany," IMF Working Papers 07/299, International Monetary Fund. [Downloadable!]
  2. Jon Strand, 2008. "Importer and Producer Petroleum Taxation: A Geo-Political Model," IMF Working Papers 08/35, International Monetary Fund. [Downloadable!]
  3. Don Fullerton & Andrew Leicester & Stephen Smith, 2008. "Environmental Taxes," NBER Working Papers 14197, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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