Tax Policy and the Environment: Theory and Practice
IMF Working Papers, September 1, 1994
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- Tax Policy and the Environment: Theory and Practice
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Bibliographic details
- Authors: David C Nellor, Ronald T. McMorran
- Published: September 1, 1994
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451947083.001
Framework and scope
- Provides a framework for examining environment taxes.
- Reviews the theoretical efficiency of three types of environment taxes:
- taxes on emissions or Pigouvian taxes;
- taxes on productive inputs or consumer goods whose use is related to environmental damage;
- environment-related provisions in other taxes.
Survey of practice
- Presents a survey of environment taxes in 42 countries--drawn from developing countries, economies in transition, and industrial countries.
- Illustrates that the use of environment taxes differs dramatically from the recommendations of environment tax theory.
Causes of divergence between theory and practice
- Environment taxes are difficult to implement.
- There are many factors that impede their effectiveness.
- Introduction of environment taxes may be discouraged by their implications for other policy objectives.
Substance: findings and themes
- Theoretical efficiency focus: Pigouvian taxes, input/consumer-good taxes, and tax provisions related to environmental outcomes.
- Empirical observation: practice across 42 countries departs substantially from theoretical prescriptions.
- Impediments and policy trade-offs are central to understanding why environment taxes are not applied as theory suggests.
Policy implications and considerations
- Implementation complexity must be addressed when designing environment taxes.
- Effectiveness can be limited by multiple impeding factors; these should be identified and mitigated in policy design.
- Trade-offs with other policy objectives can discourage adoption; consideration of distributional and broader fiscal impacts is needed.