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

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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File URL: http://www.hha.dk/nat/WPER/01-17_gts.pdf
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Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 01-17.

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Length: 23 pages
Date of creation: 01 Jan 2001
Date of revision:
Handle: RePEc:hhs:aareco:2001_017
Contact details of provider: Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Phone: +45 89 486396
Fax: +45 8615 5175
Web page: http://www.asb.dk/departments/nat.aspx

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  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  2. 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.
  3. 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 139-47, March.
  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.
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