A Baumol–Oates approach to solid waste taxation

A national Baumol–Oates tax on waste in Denmark helped achieve a reduction of 26% in net solid waste from 1987 to 1998. The tax, which is levied per ton of waste, was particularly effective as regards the heavier waste streams such as construction waste and garden waste. When it comes to industrial and commercial waste, there are indications that the waste tax is not sufficiently significant to induce changes in behavior, and that except for very waste-intensive enterprises, companies do not seem to be very price sensitive. For household waste, the impact of the tax can be improved where tariffs for garbage collection are weight based, rather than per unit. However, the waste sector is an area in which the price signals are modified and filtered by institutionalized practices in municipal administration, and in which true-cost pricing is not easy to achieve. Hence, the rational choice assumption of environmental economics needs to be supplemented by an institutional dimension to interpret responses to environmental taxes correctly. Received: July 13, 2001 / Accepted: October 2, 2001