Green Taxes and Administrative Costs: The Case of Carbon Taxation

Sjak Smulders and Herman R. J. Vollebergh

in Behavioral and Distributional Effects of Environmental Policy

Published by University of Chicago Press

Published in print December 2000 | ISBN: 9780226094816
Published online February 2013 | e-ISBN: 9780226094809 | DOI:
Green Taxes and Administrative Costs: The Case of Carbon Taxation

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Implementing environmental policies — through standards, tradable permits, or environmental taxes alike — is far from costless. For instance, when implementing an environmental tax, the tax department has to run a special unit to enforce and collect taxes and to monitor compliance. In practice, the costs of implementing environmental policies play a significant role in the choice between policy options. This chapter investigates the potential trade-off between administrative costs and incentives of environmental regulation, in particular if the government aims to reduce carbon dioxide emissions. It analyzes how the optimal choice of carbon taxes is affected by the administrative costs incurred by the regulator (government). Using a simple model, the chapter determines the optimal rates for emissions and input taxes in the presence of administrative costs and which of these taxes should optimally be introduced. It also explores and interprets the scarce empirical evidence on administrative costs of taxation in the light of optimal carbon taxation. Finally, it evaluates both explicit and implicit carbon taxation in OECD countries in terms of the trade-off and suggests some opportunities for welfare-improving carbon tax policies.

Keywords: carbon taxes; administrative costs; environmental regulation; incentives; carbon dioxide emissions; OECD countries; trade-off

Chapter.  16528 words.  Illustrated.

Subjects: Economic Development and Growth

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