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The role of fiscal instruments in environmental policy

  • Katri Kosonen
  • Gaëtan Nicodème

Environmental protection is one of Europe's key values. The EU has set clear policy objectives to achieve its environmental goals. The EU has favoured market-based instruments, among which fiscal instruments to tackle the climate change problem. This paper takes a policy-making perspective and provides an overview of key issues on the role of fiscal instruments in energy and environmental policies. It describes fiscal instruments as cost-effective means to promote environmental goals and highlights in which cases taxes and other types of fiscal instruments can usefully complement each other to achieve environmental target.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 09-026.RS.

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Length: 33 p.
Date of creation: 2009
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:09-026
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  1. Heady, Christopher, 1987. "A Diagrammatic Approach to Optimal Commodity Taxation," Public Finance = Finances publiques, , vol. 42(2), pages 250-63.
  2. Parry, Ian, 2003. "Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits," Discussion Papers dp-03-46, Resources For the Future.
  3. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
  4. 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.
  5. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
  6. Chris Heady, 1993. "Optimal taxation as a guide to tax policy: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(1), pages 15-41, February.
  7. Peter Sørensen, 2007. "The theory of optimal taxation: what is the policy relevance?," International Tax and Public Finance, Springer, vol. 14(4), pages 383-406, August.
  8. Ronnie Schöb, 2003. "The Double Dividend Hypothesis of Environmental Taxes: A Survey," Working Papers 2003.60, Fondazione Eni Enrico Mattei.
  9. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
  10. Parry, Ian W.H. & Goulder, Lawrence H., 2008. "Instrument Choice in Environmental Policy," Discussion Papers dp-08-07, Resources For the Future.
  11. Bovenberg, A. Lans & Goulder, Lawrence H., 2002. "Environmental taxation and regulation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545 Elsevier.
  12. Sarah E. West & Roberton C. Williams III, 2004. "Empirical Estimates for Environmental Policy Making in a Second- Best Setting," Public Economics 0402005, EconWPA.
  13. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  14. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  15. Don Fullerton & Andrew Leicester & Stephen Smith, 2008. "Environmental Taxes," NBER Working Papers 14197, National Bureau of Economic Research, Inc.
  16. 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.
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