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Designing green taxes in a political context: From optimal to feasible environmental regulation

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Abstract

How should green taxation be designed so that it accommodates producer interests? We argue that to design green taxes which are high enough to have the desired incentive effects, tax revenues must be reimbursed, either by earmarking them for environmental subsidies or by reducing other taxes directed at industry. If green tax schemes can be designed this way, industry will have little incentive to mobilise strong opposition to green taxation. However, in practice, the requirement of reimbursement may be difficult to fulfil because, with few exceptions, polluting industries are not homogeneous. This means that reimbursement will redistribute financial resources within industry and thus create winners and losers. Still, green taxes can be used in heterogeneous industries which can be created by operating separate tax schemes for each branch of industry. The Danish case of pesticide taxation demonstrates that relatively high tax levels can be implemented if an equal relationship between the tax object and the object determining the level of refunds exists throughout the sector. This means that revenues can be reimbursed without creating redistribution within producer communities.

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  • Daugbjerg, Carsten & Svendsen, Gert Tinggaard, 2001. "Designing green taxes in a political context: From optimal to feasible environmental regulation," Working Papers 01-17, University of Aarhus, Aarhus School of Business, Department of Economics.
  • Handle: RePEc:hhs:aareco:2001_017
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    File URL: http://www.hha.dk/nat/WPER/01-17_gts.pdf
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    1. Buchanan, James M & Tullock, Gordon, 1975. "Polluters' Profits and Political Response: Direct Controls Versus Taxes," American Economic Review, American Economic Association, vol. 65(1), pages 139-147, March.
    2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    3. Boom, J.-T. & Svendsen, G.T., 1999. "International Emission Trading Systems: Trade Level and Political Acceptability," Papers 99-11, Aarhus School of Business - Department of Economics.
    4. Svendsen, Gert Tinggaard & Daugbjerg, Carsten & Hjollund, Lene & Pedersen, Anders Branth, 2001. "Consumers, industrialists and the political economy of green taxation: CO2 taxation in OECD," Energy Policy, Elsevier, vol. 29(6), pages 489-497, May.
    5. Weaver, R. Kent, 1986. "The Politics of Blame Avoidance," Journal of Public Policy, Cambridge University Press, vol. 6(04), pages 371-398, October.
    6. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, March.
    7. Linder, Stephen H. & Peters, B. Guy, 1989. "Instruments of Government: Perceptions and Contexts," Journal of Public Policy, Cambridge University Press, vol. 9(01), pages 35-58, January.
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    Cited by:

    1. Kallbekken, Steffen & Westskog, Hege & Mideksa, Torben K., 2010. "Appeals to social norms as policy instruments to address consumption externalities," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(4), pages 447-454, August.
    2. Annegrete Bruvoll & Hanne Marit Dalen & Bodil M.Larsen, 2012. "Political motives in climate and energy policy," Discussion Papers 721, Statistics Norway, Research Department.

    More about this item

    Keywords

    Green taxation; Policy design; Reimbursement; Lobbyism; Redistribution;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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