Environmental Taxation and Revenue for Development

Agnar Sandmo

in New Sources of Development Finance

Published in print November 2004 | ISBN: 9780199278558
Published online January 2005 | e-ISBN: 9780191601590 | DOI:

Series: WIDER Studies in Development Economics

Environmental Taxation and Revenue for Development

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The taxation of externalities is the subject of this first of seven chapters that examine potential sources of development funding. It considers the possible role of environmental taxes for economic development. The chapter starts with a review of the welfare economics theory of environmental taxation in a single closed economy (analytical details are provided in an appendix A). The different sections then discuss alternatives to taxes as instruments of environmental policy, considering both fixed and transferable quotas; review the double dividend issue; consider the extent to which distributional concerns should be reflected in the design of environmental policy; take up some special problems in the application of environmental externalities to developing economies; extend the analysis from the single country case to the case of global externalities, where each individual country is affected by the environmental pollution of all other countries (the discussion is with specific reference to the carbon tax, and a formal analysis in the context of a two‐country model is given in a second appendix); consider the political economy of global environmental taxes, by comparing alternative tax designs with regard to the equity‐efficiency trade‐off; discuss some practical problems of tax collection; and evaluate the revenue potential of environmental taxes with special reference to the carbon tax.

Keywords: alternatives to taxes; carbon tax; developing economies; development funding; distributional concerns; double dividends; environmental externalities; environmental policy; environmental taxation; equity‐efficiency trade‐off; global environmental taxes; global externalities; single closed economies; sources of funding; tax collection; taxation of externalities; welfare economics theory

Chapter.  13582 words. 

Subjects: Economic Development and Growth

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