The efficiency value of effluent tax revenues

The concept of the efficiency value of effluent tax revenues is developed. It is defined as the reduction in excess burden resulting from the substitution of these revenues for current or future resource distorting tax revenues, such as those raised from federal corporate and personal income taxes. The annual efficiency value of revenues raised by national effluent taxes on two major air pollutants is estimated to range from $0.63 to $3.05 billion, if substituted for federal personal income tax revenue, and from $1 to $4.87 billion, if substituted for corporate income tax revenue, expressed in 1982 dollars. Thus previous estimates of the efficiency gain from substitution of an effluent tax scheme for current pollution regulation policy have been too low, because the efficiency value of the tax revenues has been excluded.     

Designing Forest Taxes with Varying Government Preferences and Budget Targets

A model of forest policy design is constructed to examine how government preferences affect the choice of forest taxes. Government preferences are modelled by assuming that the government faces a binding revenue constraint and cares about the provision of public goods from forests. The equilibrium is second best given the imposition of the revenue constraint on the government's decision making. Our results show that a revenue-constrained government will make different choices than a government that does not face revenue constraints. This has important implications for the choice of property and harvest taxes, as well as Pigouvian forest taxes.     

Pigou meets Mirrlees: On the irrelevance of tax distortions for the second-best Pigouvian tax

This paper extends the Mirrlees (1971) model of optimal income redistribution with optimal corrective taxes to internalize consumption externalities. Using general utility structures and exploring both linear and non-linear taxes, it is demonstrated that the optimal second-best tax on an externality-generating good should not be corrected for the marginal cost of public funds, since it equals one in the optimal tax system. In the optimum, distortions of income taxes are equal to marginal redistributional gains. If the government does not have access to a non-distortionary marginal source of finance, the marginal cost of public funds can be either larger or smaller than one depending on subjective preferences for income redistribution. The optimal second-best corrective tax is then either higher or lower than the Pigouvian level. The findings in this paper generalize and amend prior results based on representative-agent models, shedding new light on the weak double-dividend hypothesis, and on the welfare gains of recycling revenue from environmental taxes.     

Forest Taxation and Rotation Age under Private Amenity Valuation: New Results

This paper studies the impact of harvesting, property, and profit taxes on private rotation age in an ongoing rotations model, where the private landowner is interested not only in the present value of harvest revenue, but also in the private amenity services provided by the forest stand. The main finding of the paper is that conventional wisdom about the rotation effects of forest taxes, distilled from the Faustmann model, predominantly ceases to hold. This is because forest taxes distort the relative profitability of timber and amenity production in a way that is sensitive to the precise nature of amenity valuation. Therefore, the design of forest tax policy necessitates good knowledge of the landowner's objective function concerning the type of amenity services.     

Pollution control and technological advance: A dynamic model of the firm

The paper extends the static comparison of effluent taxes and effluent standards to a dynamic world in which firms invest resources in improving their abatement technology as well as their production technology. The analysis shows that the two pollution control policies lead to a distinctly different allocation of research and development (R & D) funds between improvement in abatement technology and improvement in production technology. The model also shows that a temporally constant effluent tax leads to an increasing effluent discharge rate for “typical” firms. Other results concern the pattern of output growth and the rate of technological advance.     

Estimates from a consumer demand system: implications for the incidence of environmental taxes

Most studies suggest that environmental taxes are regressive, making them less attractive policy options. We consider the distributional effects of a gasoline tax increase using four incidence measures and under three scenarios for gas tax revenue use. To incorporate behavioral responses we use Consumer Expenditure Survey data to estimate a consumer demand system that includes gasoline, other goods, and leisure. Our estimates confirm that when revenues are not recycled, a gasoline tax is regressive. Use of incidence measures that ignore demand responses, however, will substantially overstate this regressivity. In contrast, the differences between the equivalent variation and easier-to-implement consumer surplus measures are relatively small. In addition, our results suggest that using the additional gas tax revenue to fund labor tax cuts makes the policy substantially less regressive while using the revenue to fund lump-sum transfers actually makes it progressive.     

Can pollution tax rebates protect low-wage earners?

Pollution taxes are believed to burden low-income households that spend a greater than average share of income on pollution-intensive goods. Some proposals offset that effect by returning revenue to low-income workers via reduced labor tax. We build analytical general equilibrium models with both high-skilled and low-skilled labor, and we solve for the change in real net wage of each group. Decomposition shows the separate effects of the tax rebate, higher product prices, and the changes in relative wage rates. We also include numerical examples. Even though the pollution tax injures both types of labor, in most cases we find that returning all of the revenue to low-skilled workers is still not enough to offset higher product prices. Changes in relative wage rates may further hurt low-skilled labor. Protecting low-income workers is possible in this model only if they are defined as those below a relatively low wage threshold, but we discuss many possible elaborations of this model that could affect those results.     

Equity impacts of proposals for federal product charges

Pollution taxes have been studied as instruments for promoting environmental objectives in an efficient manner. Their adoption has also been recommended, although less rigorously, on equity grounds. In the case of solid wastes it has been contended that persons whose waste generation occasions local public outlays for refuse service should pay commensurately, but that they often do not under general revenue financing. How proposals for federal product charges might reduce current inequities, so conceived, is the subject of the paper. The behavioral responses of local public officials to federal grants funded by charge revenues and the design of the grant formula are identified as potentially important factors in that regard.     

Should the federal government subsidize industrial pollution control investment?

Tax-exempt financing of industrial pollution control equipment has increased rapidly in recent months. This method of subsidizing pollution abatement is known to be highly inefficient. If tax-exempt industrial revenue bonds were replaced by a more efficient subsidy the net financial benefits to polluting industries could probably be about doubled without any extra cost to American taxpayers. Increased utilization of an inefficient subsidy device and the international energy crisis make this a propitious time for tax experts and economists to re-examine the question, should industrial pollution control investments be subsidized?     

Tax evasion and optimal environmental taxes

This paper introduces a new argument to the debate about the role of environmental taxes in modern tax systems. Some environmental taxes, particularly taxes on gasoline or electricity, are more difficult to evade than taxes on labor or income. When the tax base is shifted in a revenue-neutral manner toward these environmental taxes, the result is a net reduction in the amount of tax evasion. Using a carbon tax as a motivating example, the “tax evasion effect” is shown to sharply reduce the welfare cost of controlling emissions. A simple computable general equilibrium model suggests that the impact of considering tax evasion can be large: costs are lowered by 28% in the United States, by 89% in China, and by 97% in India. In countries with high levels of pre-existing tax evasion, a carbon tax will pay for itself through improvements in the efficiency of the tax system.     

Enforcement costs and the incentive to evade controls on production

Economists have long favored emission taxes as a method of controlling pollution. One reason for the widespread support of emission taxes has been the assumption that emission taxes would be easier to enforce than other policies. However, recent developments in the discussion of pollution control allow more specific comparisons of enforcement costs and yield the conclusion that there may exist at least one alternate regulatory scheme that would be easier to enforce than emission taxes.     

Emission control policies under uncertainty

The paper deals with the problem of optimal environmental policy under uncertainty. Usually, when an environmental policy is considered, only the expected values of the parameters of the marginal benefit and marginal cost functions associated with the policy are known. Thus a relevant question is: In the presence of uncertainty, what is the optimal policy mean for achieving the environmental objective? The study addresses itself to the specific objective of improving air quality although the analysis is generally applicable. The policy means are emission taxes and emission quotas. It is shown that under uncertainty neither of these means is generally optimal, and that specific parameter values of the costs and benefits relations and their distributions determine the optimal policy for each situation.     

Redistribution and pollution taxes with non-linear Engel curves

This paper analyses optimal corrective taxation and optimal income redistribution. The Pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages. Moreover, under general utility functions, optimal pollution taxes should be set below the Pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods. However, if Engel curves are linear, optimal pollution taxes should follow the first-best rule for the Pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods. The often-used quasi-linear, CES and Stone-Geary utility functions all have linear Engel curves. If Engel curves are linear, and if pollution taxes are not optimised, Pareto-improving green tax reforms exist that move the pollution tax closer to the Pigouvian tax. Simulations demonstrate that optimal corrective taxes should be Pigouvian if the demand for polluting goods is derived from a LES demand system, but deviate from the Pigouvian taxes if demand for polluting goods demand is derived from a PIGLOG demand system.     

Decentralized regulation of a common property renewable resource industry with irreversible investment

The effectiveness of output controls for rationalizing a common property renewable resource has been called into question by the theoretical work of J. R. Gould [Economica, Nov., 383–402 (1972)]. A proper examination of this question requires an intertemporal analysis, one that takes into account that asymmetries between persistent factors of production (“immaleable capital”) and factors that are instantaneously consumed (“labor” or ldharvest effort”). We present here a nonlinear intertemporal model of a renewable resource industry, under conditions of irreversible capital investment, and undertake to analyze its dynamics, both at open access and under centralized optimal management. We then examine the theoretical possibility of decentralized regulation by Pigouvian taxes, and reconsider the proposition of Gould.     

Is Chinese trade policy motivated by environmental concerns?

This paper analyses whether China's export VAT rebates and export taxes are driven by environmental concerns. Since China struggles to enforce environmental regulation, trade policy can be used as a second-best environmental policy. In a general equilibrium model it is possible to show that the second-best export tax increases in a product's pollution intensity. The empirical analysis investigates whether the export tax equivalent of partial VAT rebates and export taxes are higher for products which are more pollution intensive along several dimensions. The results indicate that the VAT rebate rates are set in a way that discourages exports of water pollution intensive, SO₂ intensive and energy intensive products from 2007 on. Moreover, the conservation of natural resources such as minerals, metals, wood products and precious stones seems to be a key determinant of China's export VAT rebate rates. There is little evidence that export taxes are motivated by environmental concerns.     

From Population Viability Analysis to Coviability of Farmland Biodiversity and Agriculture

Substantial declines in farmland biodiversity have been reported in Europe for several decades. Agricultural changes have been identified as a main driver of these declines. Although different agrienvironmental schemes have been implemented, their positive effect on biodiversity is relatively unknown. This raises the question as to how to reconcile farming production and biodiversity conservation to operationalize a sustainable and multifunctional agriculture. We devised a bioeconomic model and conducted an analysis based on coviability of farmland biodiversity and agriculture. The coviability approach extended population viability analyses by including bioeconomic risk. Our model coupled stochastic dynamics of both biodiversity and farming land‐uses selected at the microlevel with public policies at the macrolevel on the basis of financial incentives (taxes or subsidies) for land uses. The coviability approach made it possible for us to evaluate bioeconomic risks of these public incentives through the probability of satisfying a mix of biodiversity and economic constraints over time. We calibrated the model and applied it to a community of 34 common birds in metropolitan France at the small agricultural regions scale. We identified different public policies and scenarios with tolerable (0–0%) agroecological risk and modeled their outcomes up to 2050. Budgetary, economic, and ecological (based on Farmland Bird Index) constraints were essential to understanding the set of viable public policies. Our results suggest that some combinations of taxes on cereals and subsidies on grasslands could be relevant to develop a multifunctional agriculture. Moreover, the flexibility and multicriteria viewpoint underlying the coviability approach may help in the implementation of adaptive management. Del Análisis de Viabilidad Poblacional a la Co‐Viabilidad de la Agricultura y la Biodiversidad de las Tierras de Cultivo     

Effects of Carbon Taxes in an Economy with Prior Tax Distortions: An Intertemporal General Equilibrium Analysis

This paper analyzes the costs of carbon taxes in a model that recognizes interactions between this tax and pre-existing taxes. First we examine the extent to which costs of a U.S. carbon tax are reduced when its revenues finance cuts in income taxes. Such use of revenues significantly reduces, but does not eliminate, the overall policy costs. The positive overall costs reflect the carbon tax′s focus on intermediate inputs and its relatively narrow base in comparison with income taxes. We also examine the sensitivity of the carbon tax′s costs to the level of pre-existing taxes. For any given use of revenues, welfare costs rise significantly with pre-existing tax rates, indicating that models disregarding pre-existing taxes may substantially understate the costs of new environmental tax initiatives.     

Substituting pollution taxation for general taxation: Some implications for efficiency in pollutions taxation

Earlier papers have recognized that nonenvironmental benefits will be realized if pollution taxes are substituted for other taxes which impose efficiency losses on society. The purpose of this paper is to investigate the importance of these nonenvironmental benefits for the design of an efficient pollution tax. It is found that the efficient tax may be higher or lower than that conventionally defined as optimal, and that the net benefit from unrestrained pollution can have important implications for the size of the tax.     

Controlling stock externalities in a common property fishery subject to uncertainty

Two methods are examined for regulating stock externalities under uncertainty: quotas and taxes. Dynamic programming is used to characterize the externalities precisely. The accuracy with which the current size of the resource stock can be monitored is found to be of crucial importance in the choice between tax and quota regulation. If the current stock is observed without error, taxes are capable of outperforming any quota.