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Environmental and Public Finance Aspects of the Taxation of Energy


  • Smith, Stephen


This paper reviews potential applications of environmental taxes in the energy sector. Theoretical and practical arguments for using environmental taxes are reviewed, and possible arrangements outlined for levying environmental taxes on energy. In contrast to most environmental taxes, taxes on energy have the potential to raise revenues sufficient to alter the constraints and opportunities in fiscal policy. A carbon tax levied at a rate of 200 pounds per tonne could raise revenues equivalent to about 11 per cent of total UK tax receipts, allowing income tax to be halved, or corporation tax abolished. Inappropriate use of the revenues, or their unnecessary dissipation, can greatly add to the costs of environmental policy. But, environmental taxes are unlikely reduce the overall excess burden from taxation below the current level, and the case for ecotaxes must thus primarily be made in terms of their environmental benefits. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Smith, Stephen, 1998. "Environmental and Public Finance Aspects of the Taxation of Energy," Oxford Review of Economic Policy, Oxford University Press, vol. 14(4), pages 64-83, Winter.
  • Handle: RePEc:oup:oxford:v:14:y:1998:i:4:p:64-83

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    References listed on IDEAS

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    5. Maurice Obstfeld, 1998. "The Global Capital Market: Benefactor or Menace?," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 9-30, Fall.
    6. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The "Overborrowing Syndrome"," NBER Chapters,in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
    7. McKinnon, Ronald I, 1993. "The Rules of the Game: International Money in Historical Perspective," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 1-44, March.
    8. McKinnon, Ronald I. & Pill, Huw, 1998. "International Overborrowing: A Decomposition of Credit and Currency Risks," World Development, Elsevier, vol. 26(7), pages 1267-1282, July.
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    Cited by:

    1. Creedy, John & Sleeman, Catherine, 2006. "Carbon taxation, prices and welfare in New Zealand," Ecological Economics, Elsevier, vol. 57(3), pages 333-345, May.
    2. Dieter Helm, 2005. "Economic Instruments and Environmental Policy," The Economic and Social Review, Economic and Social Studies, vol. 36(3), pages 205-228.
    3. Ian W. H. Parry, 2003. "Fiscal Interactions and the Case for Carbon Taxes Over Grandfathered Carbon Permits," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 385-399.
    4. MacKenzie, Ian A. & Ohndorf, Markus, 2012. "Cap-and-trade, taxes, and distributional conflict," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 51-65.
    5. Michael G. Pollitt, 2016. "A Global Carbon Market?," Cambridge Working Papers in Economics 1615, Faculty of Economics, University of Cambridge.
    6. Edwards, T. Huw & Hutton, John P., 1999. "The Allocation of Carbon Permits within One Country : A General Equilibrium Analysis of the United Kingdom," The Warwick Economics Research Paper Series (TWERPS) 540, University of Warwick, Department of Economics.

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