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Earmarking of Environmental Taxes: Efficient, After All

  • Pirttilä, Jukka

    ()

    (University of Tampere, Department of Economics and Accounting)

The 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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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/DP_04_1998.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 4/1998.

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Length: 35 pages
Date of creation: 13 Apr 1998
Date of revision:
Handle: RePEc:hhs:bofrdp:1998_004
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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  1. James M. Buchanan, 1963. "The Economics of Earmarked Taxes," Journal of Political Economy, University of Chicago Press, vol. 71, pages 457.
  2. Blomquist, Sören & Christiansen, Vidar, 1997. "Price Subsidies versus Public Provision," Working Paper Series 1997:12, Uppsala University, Department of Economics.
  3. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
  4. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-78, August.
  5. Brett, Craig & Keen, Michael, 2000. "Political uncertainty and the earmarking of environmental taxes," Journal of Public Economics, Elsevier, vol. 75(3), pages 315-340, March.
  6. King, Mervyn A., 1986. "A pigovian rule for the optimum provision of public goods," Journal of Public Economics, Elsevier, vol. 30(3), pages 273-291, August.
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