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Two Generalizations of a Deposit-Refund System

  • Don Fullerton
  • Ann Wolverton

This paper suggests two generalizations of the deposit-refund idea. In the first, we apply the idea not just to solid waste materials, but to any waste from production or consumption including wastes that may be solid, gaseous, or liquid. Using a simple general equilibrium model, we derive the optimal combination of a tax on a purchased commodity and subsidy to a clean' activity (such as emission abatement, recycling, or disposal in a sanitary landfill). This two-part instrument' is equivalent to a Pigovian tax on the dirty' activity (such as emissions, dumping, or litter). In the second generalization, we consider the case where government must use distorting taxes on labor and capital incomes. To help meet the revenue requirement, would the optimal deposit be raised and the refund reduced? We derive the second-best revenue-raising DRS or two-part instrument to answer that question.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7505.

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Date of creation: Jan 2000
Date of revision:
Publication status: published as Fullerton, Don and Ann Wolverton. "Two Generalizations Of A Deposit-Refund System," American Economic Review, 2000, v90(2,May), 238-242.
Handle: RePEc:nbr:nberwo:7505
Note: PE EEE
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  1. Bovenberg, A Lans & van der Ploeg, Frederick, 1992. "Environmental Policy, Public Finance and the Labour Market in a Second-best World," CEPR Discussion Papers 745, C.E.P.R. Discussion Papers.
  2. repec:cup:cbooks:9780521311120 is not listed on IDEAS
  3. Ann Wolverton & Don Fullerton, 2003. "The Two-Part Instrument in a Second-Best World," NCEE Working Paper Series 200304, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2003.
  4. Don Fullerton & Thomas C. Kinnaman, 1993. "Garbage, Recycling, and Illicit Burning or Dumping," NBER Working Papers 4374, National Bureau of Economic Research, Inc.
  5. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
  6. Fullerton, Don, 1997. "Environmental Levies and Distortionary Taxes: Comment," American Economic Review, American Economic Association, vol. 87(1), pages 245-51, March.
  7. Palmer, Karen & Walls, Margaret, 2000. "Upstream Pollution, Downstream Waste Disposal, and the Design of Comprehensive Environmental Policies," Discussion Papers dp-97-51-rev, Resources For the Future.
  8. Ronnie Schöb, 1997. "Environmental Taxes and Pre-Existing Distortions: The Normalization Trap," International Tax and Public Finance, Springer, vol. 4(2), pages 167-176, May.
  9. repec:cup:cbooks:9780521322249 is not listed on IDEAS
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