Carbon Revenue Recycling - Opportunities and Challenges
Environmental policy instruments that generate budget revenues may become an increasingly attractive policy option for Canada's federal government due to amplified fiscal pressures. If that is the case, revenue recycling is an essential element of pricing carbon. This paper present a brief overview of benefits of recycling carbon revenues and the challenges that may be encountered when choosing a specific option for revenue recycling. The analysis shows that the existing research leaves the open-ended question of which taxes should be used for revenue recycling unanswered; particularly in the Canadian context. Given this, the economic efficiency of different types of taxes could be used as a source of general guidance for revenue recycling. However, significant doubt exists that there is sufficient political will to recycle carbon revenue. Over the past two decades, the tax composition of the federal revenue continued shifting towards a higher reliance on economically distortive taxes instead of increasing use of more efficient taxes.
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