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In Search of a Rationale for Differentiated Environmental Taxes

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  • Rutherford, Thomas F.
  • Böhringer, Christoph

Abstract

Environmental tax schemes in OECD countries often involve tax rates differentiated across industrial, commercial and household sectors. In this paper, we investigate four potentially important arguments for these deviations from uniform taxation: pre-existing tax distortions, domestic equity concerns, global environmental effectiveness, and strategic trade policy. Our primary objective is to ascertain whether the degree of tax differentiation observed in many countries can be rationalized on economic grounds. In simulations with a computable general equilibrium model, we calculate optimal policies under various settings. Our simulation results lead us to conclude that there is little economic rationale for the common policy practice of discriminating strongly in favor of heavy industries, even when accounting for interacting taxes, distributional concerns, leakage, and international market power.

Suggested Citation

  • Rutherford, Thomas F. & Böhringer, Christoph, 2002. "In Search of a Rationale for Differentiated Environmental Taxes," ZEW Discussion Papers 02-30, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:867
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    2. Otto, Vincent M. & Löschel, Andreas & Reilly, John, 2008. "Directed technical change and differentiation of climate policy," Energy Economics, Elsevier, vol. 30(6), pages 2855-2878, November.
    3. Halkos, George & Kitsou, Dimitra, 2014. "A weighted location differential tax method in environmental problems," MPRA Paper 59502, University Library of Munich, Germany.
    4. Anger, Niels & Böhringer, Christoph & Lange, Andreas, 2006. "Differentiation of Green Taxes: A Political-Economy Analysis for Germany," ZEW Discussion Papers 06-003, ZEW - Leibniz Centre for European Economic Research.
    5. George E. Halkos & Dimitra C. Kitsou, 2018. "Weighted location differential tax in environmental problems," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(1), pages 1-15, January.

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    More about this item

    Keywords

    optimal environmental taxation; computable general equilibrium;

    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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