Earmarking of Environmental Taxes: Efficient, After All
AbstractThe paper analyses the benefits of earmarking the environmental tax revenues in a second-best world with asymmetry of information between government and taxpayers. Taxpayers are assumed to have taste differences over consumption of an environmentally harmful activity. The government, which cannot observe these preferences, pursues Pareto-efficient taxation involving compensation to the potential losers of tax policy. Within this framework, it is shown that earmarking environmental tax revenues on projects that are beneficial to the losers of the environmental policy may alleviate problems concerning asymmetric information and facilitate more efficient environmental policy.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 4/1998.
Length: 35 pages
Date of creation: 13 Apr 1998
Date of revision:
environmental taxation; earmarked taxes; Pareto-efficient taxation; second-best analysis;
Find related papers by JEL classification:
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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