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127-551: Ecotaxes are examples of Pigouvian taxes , which are taxes on goods whose production or consumption creates external costs or externalities . An example might be philosopher Thomas Pogge 's proposed Global Resources Dividend . The term, environmental tax, encompasses an array of different types of taxes used to internalize negative environmental externalities, promote sustainable development, support environmental preservation, and generate revenue. Specifically, environmental taxes can be divided into four main categories, under which all

254-430: A 'double dividend', and confusion caused when comparing models with direct versus indirect tax programs, reliance on comparisons with an unreliable benchmark, and misinterpretation of notation in the literature. Although the central question for the double dividend hypothesis and the tax interaction literature has been whether the welfare gains from environmental taxation in a second-best world are larger or smaller than in

381-406: A 5% reduction in emissions from the manufacturing sector between 2014 and 2018. The rapid increase in this tax (from 7 euros per ton in 2014 to 14 in 2015 and 44.6 euros in 2018) caused gasoline prices to explode, which, coupled with the increase in the price of petroleum products and natural gas, contributed to the birth of the yellow vest movement . Other debates take place on the transparency of

508-509: A Pigouvian tax imposed on the producer), and the second dividend or benefit is a more efficient tax system due to a reduction in the distortions of the revenue-raising tax system, which also produces an improvement in welfare. This idea received scant attention until the early 1990s when the economics of climate change attracted attention to the topic of environmental taxes. The term 'double dividend' became widely used following its introduction by David Pearce in 1991. Pearce noted that estimates of

635-522: A coal cess at the rate of Rs 50 per ton in 2010. The Standing Committee of the National People's Congress enacted a set of environmental regulations and taxes in 1979, labelled as the 'Pollutant Discharge Fee' (PDF). The Pollutant Discharge Fee, has proved to work in some parts of the country such as Northern China, however has shown adverse effects in parts such as the Karst region of Southwest China , as

762-402: A contractor builds a factory in the middle of a crowded neighborhood, the factory causes these incidental uncharged disservices: higher congestion , loss of light, and a loss of health for the neighbors. He also references businesses that sell alcohol. The sale of alcohol necessitates higher costs in policemen and prisons, Pigou argues, because of the crime associated with alcohol. In other words,

889-418: A dirty good (D) and a clean good (C). If the government taxes D, it can use the earned revenue to lower the labor income tax. At the same time, the tax levied on the firm will increase the price of D. The lowered income tax and the higher consumer prices even each other out, stabilizing the real net wage. But because C's price has not changed and it can substitute for D, consumers will buy C instead of D. Suddenly

1016-529: A fence, the amount of noise, or the amount of smoke than it is for these two neighbors to approach a third party to solve the situation for them. Even when several parties are involved, outside interference could result in an inefficient outcome. Yet, in dynamic settings Coasean bargaining ex post may lead to inefficient investments ex ante (the so-called hold-up problem ). For this reason, some authors have argued that unconstrained Coasean bargaining may actually justify Pigouvian taxation. Instead of taxing

1143-548: A few. The total revenue of IRESA in the Lazio Region was €55mln in 2014. Most of the criticism of the Pigouvian tax relates to the determination of the tax and the implementation. Pigou and Friedrich Hayek point out that the assumption that the government can determine the marginal social cost of a negative externality and convert that amount into a monetary value is a weakness of the Pigouvian tax. William Baumol suggests that

1270-638: A first-best setting, the Tax Interaction literature takes this central question and frames it indirectly, by asking whether the second-best optimal environmental tax is higher or lower than the first-best Pigouvian rate. This question, too, is not answered directly, because the first-best Pigouvian rate is replaced by a definition of marginal social damages, the value of which changes with the tax level and tax program normalization. This becomes an unreliable and shifting benchmark (Jaeger 2011). In retrospect, three factors contributed to misleading interpretations in

1397-456: A green tax shift is often to implement a " full cost accounting " or " true cost accounting ", using fiscal policy to internalize market distorting externalities, which leads to sustainable wealth creation. The broader measures required for this are also sometimes called ecological fiscal reform , especially in Canada , where the government has generally employed this terminology. In some countries

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1524-420: A healthy diet since the prices of harmful food are distorted by taxes, and consumers will be less willing to buy them. However, others say that the fat taxes are different from, for example, the tobacco tax . In the case of the tobacco tax the relation between cause and effect is more intuitive and direct, while in the case of the fat tax the relation between cause and effect is more ambiguous and indirect. There

1651-416: A house to use even less energy overall. The result is a bank taking more per month from a consumer's income as utilities and car insurance companies take less, and housing stock upgraded to use the minimum energy feasible with current technology. Aside from energy, the refits will generally be those required to be maximally accommodating to remote work , permaculture gardens (for example green roofs ), and

1778-695: A lifestyle that is generally localized in the community not based on commuting. It raises real estate valuations for not only the neighborhood but the entire surrounding region. Consumers living sustainable lifestyles in upgraded housing will generally be unwilling to drive around aimlessly shopping, for instance, to save a few dollars on their purchases. Instead, they'll stay nearer to home and create jobs in grocery delivery and small organic grocers, spending substantially less money on gasoline and car operation costs even if they pay more for food. Some green tax shift proposals have been criticized as being fiscally regressive (a tax with an average tax rate that decreases as

1905-474: A lump-sum tax-subsidy. Carlton and Loury responded the same month, clarifying that they were discussing a Pigouvian tax on output; whereas, Kohn was discussing a Pigouvian tax on emissions. Carlton and Loury provide numerical proofs as to why these are different. Ultimately, they argue that there are some cases in which a single tax on emissions will produce the LRSO and others in which a single tax on output will attain

2032-470: A relatively higher impact on poorer households. An ecotax has been enacted in Germany by means of three laws in 1998, 1999 and 2002. The first introduced a tax on electricity and petroleum, at variable rates based on environmental considerations; renewable sources of electricity were not taxed. The second adjusted the taxes to favor efficient conventional power plants. The third increased the tax on petroleum. At

2159-449: A shift away from distorting taxes such as the income tax. Fullerton and Metcalf note that for every $ 1 extracted in taxes, a $ 1.35 burden falls on the economy. In a sense, the private sector must swallow a 35 cent excess burden for no particular reason. The second dividend aims to eliminate some of this excess burden. Tempting as it may be to try, Fullerton and Metcalf argue, the validity of the double-dividend theory cannot be established as

2286-420: A shift from multi-state corporations to small businesses and families. Definition: Tax shift is a kind of economic phenomenon in which the taxpayer transfers the tax burden to the purchaser or supplier by increasing the sales price or depressing the purchase price during the process of commodity exchange. It has the following three characteristics: In general, the existence of tax shift mainly depends on

2413-466: A tradition of agreeing on minimum standards, so the practicality of this solution is reasonable. Tax shift Tax shift or tax swap is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same. The term can refer to desired shifts, such as towards Pigovian taxes (typically sin taxes and ecotaxes ) as well as (perceived or real) undesired shifts, such as

2540-432: A whole. This does not imply that the double dividend hypothesis is untenable but there is just more complication to that. An observer must evaluate each circumstance individually. Fullerton and Metcalf do provide guidelines for this analysis. Two questions help shape this analysis: what is the status quo? What are the specifics of the reform? The amount and nature of the current taxes, permits, and regulations greatly influence

2667-486: Is CO 2 taxes. A successful pollution ecotax is the “plastic bag tax” in Ireland. The country levies a €0.22 tax on plastic bags at the point of sale, with the hope of reducing consumption by reducing the demand for the bags due to the increase in cost. They successfully changed the consumer's behavior, as can seen by the increase in the use of paper bags, a greener substitute, and due to the fall of plastic bags' contribution to

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2794-653: Is a non-mandatory levy paid only by the use of a polluting service or good The tax is paid by households (on gasoline or gas for example), companies and administrations. However, there are many exceptions: the most polluting large industries are subject to European regulations; air and sea transport are exempted by virtue of international agreements and European directives; national river transport, cabs, road transport of goods, public transport as well as agricultural uses are also exempted from this tax. Nearly 4 million tons of CO 2 were avoided by France in 2018 thanks to its carbon tax, according to an OECD study, which represents

2921-503: Is a special-purpose tax, originally formed in 2001 on a national level, and later repurposed into a regional tax in 2013. Similarly to the French noise tax laws, IRESA tax is calculated by calculating a fee based on several attributes, most importantly the regional airport tax rate. A couple of aircraft are exempt from IRESA; Aircraft whose MTOW is below 4.5 metric tonnes, state-owned aircraft, search and rescue, agriculture and firefighting to name

3048-405: Is adopted, it depends on price changes. Therefore, the free pricing system is the basic condition for tax shift. The free pricing system refers to a price system in which producers or other market entities can price themselves according to changes in market supply and demand. There are mainly three types of price systems: the government-instructed program price system, the floating price system, and

3175-493: Is calculated by a series of factors and coefficients, depending on the type of aircraft, weight of aeroplane (MTOW or Maximum Take-Off Weight), airport and timing of the flight. The tax is added up by the total number of flights per aircraft and reaches a higher level after a certain threshold. Italy also has a noise tax in the aviation industry called the IRESA (Imposta Regionale sulle Emissioni Sonore degli Aeromobili Civili), which

3302-687: Is declared and paid quarterly, and the first collection period will be from April 1 to 15, 2018. The scope of taxation is air, water, solid and noise pollutants directly discharged into the environment. At present, except for the Tibet Autonomous Region, all provinces, autonomous regions and municipalities have issued specific applicable tax amounts for taxable air pollutants and water pollutants in their regions in accordance with legal procedures. The Netherlands , Portugal , Canada , Spain and Finland have introduced differentiations into their car registration taxes to encourage car buyers to opt for

3429-458: Is directly linked to the price movement, which is usually achieved by increasing the selling rate of sales goods and lowering the purchase price of the purchased good. Among them, the tax burden of some taxes can be directly passed on by changes in prices; the tax burden on some taxes is through changes in capital investment, which affects the supply and demand of commodities indirectly through the changes in prices. Regardless of which form of transfer

3556-553: Is for the government to place a limit on the total amount of the production of the output causing the negative externality and create a market for rights to generate that specific output. In the United States since the late 1970s, and in other developed nations since the 1980s, the concept of a market for "pollution rights" has emerged. Giving out the rights for free (or at less than market price) allows polluters to lose less profit or even gain profits (by selling their rights) relative to

3683-446: Is generally accepted now that the magnitude of the "revenue-recycling" benefit is lower than the 20–50 cents per dollar of revenue, but there are differing views on whether the second effect is positive or negative. The line of argument suggesting that the second "benefit" is negative proposes a previously unrecognized "tax interaction effect" (Bovenberg and de Mooij 1994). In a 1997 paper, Don Fullerton and Gilbert E. Metcalf evaluated

3810-498: Is knowledge which could not be provided as a "given" by any "method" yet discovered, due to insuperable cognitive limits. William Baumol as well as Polodoo (2008) have argued that it is extraordinarily difficult to measure the social costs of any externality, especially because many costs are psychological and individual. Even if a measurement of the psychological effect of some externality did exist, it would be impossible to collect that data for all individuals affected and then find

3937-423: Is no exact scientific evidence to prove that the nutrients can definitely lead to obesity. Other factors can also have impacts on one’s health, such as age, work, gender, etc. Nutritional Index Fat Tax (NIFT) is levied on each food based on its food content and also takes into account that specific nutrients do not cause obesity but many substitute nutrients. Therefore, it considers the proportion of ingredients and

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4064-490: Is no longer worth his or her time to continue in that job. Thus, employment decreases. If the Pigouvian tax, which increases the price of consumption goods, replaces the income tax, Fullerton argues that the net wage is not affected. This rejection of the double dividend hypothesis found in the "tax interaction" literature was met with surprise and skepticism among economists for a variety of reasons. There are multiple sources of ambiguity, differing definitions of what constitutes

4191-523: Is only achieved by "market forces and price signals" , and "As our understanding of climate change increases, it is clear more needs to be done." Starting in 1999, the Ukrainian government has been collecting an ecological tax, officially known as Environmental Pollution Fee ( Ukrainian : Збір за забруднення навколишнього природного середовища ), which is collected from all polluting entities, whether it's one-time or ongoing pollution and regardless of whether

4318-430: Is revenue-positive. If it supplements the regulation, it may or may not be environmentally and revenue-neutral, depending on the effectiveness of the original regulation. The status quo substantially affects the outcome of a proposed tax. A. Lans Bovenberg and Ruud A. Mooij argue that there is a first-best case scenario and a second-best case scenario in their article "Environmental Levies and Distortionary Taxation." In

4445-424: Is the main sector of the national economy. The state taxation is mainly a tax on land and land production. This part of the tax can only be borne by the landowner, and taxpayers cannot implement tax transfer. With the development of productivity, there has been the production of goods and the exchange of goods. In capitalist society , the commodity economy is highly developed. Under the conditions of commodity economy,

4572-705: Is the “coal excise tax” in the United States. The tax is levied on the producers, at the coal’s initial sale. Currently, the tax rate, after being increased by over 50% in 2020,  is $ 1.10 per ton for coal from subsurface mines and $ 0.55 per ton for coal from surface mines. The revenue is generated for a more specific purpose, which is to fund the Black Lung Program and the Black Lung Disability Trust Fund. These entities pay benefits to miners who suffer from black lung disease. The tax continues to generate hundreds of millions of dollars each year despite

4699-530: Is theoretically incorrect. Arthur Pigou said: "It must be confessed, however, that we seldom know enough to decide in what fields and to what extent the State, on account of [the gaps between private and public costs] could interfere with individual choice." In other words, the economist's blackboard "model" assumes knowledge we don't possess – it's a model with assumed "givens" which are in fact not given to anyone. Friedrich Hayek would argue that this

4826-416: Is to add an entry tax for potential firms and a subsidy for current firms to restrict a movement in the number of firms. Fourth, it is possible for a tax policy to create a LRSO. Robert Kohn responded to this article in "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities: Comment," saying that a Pigouvian tax on pollution emissions can, in fact, create the long-run social optimum without

4953-543: The " feebate " approach advocated by Amory Lovins , in which additional fees on less sustainable products—such as sport utility vehicles —are pooled to fund subsidies on more sustainable alternatives, such as hybrid electric vehicles . However, they may simply act as incentives to change habits and make capital investments in newer more efficient vehicles or appliances or to upgrade buildings. Small changes in corporate tax rates for instance can radically change return on investment of capital projects, especially if

5080-622: The $ 907 million preexisting taxes could have been eliminated by auctioning off the permits rather than grandfathering them. The environmental tax , including carbon taxes , fuel taxes , severance taxes , land value taxes (LVT) on the unimproved value of land, etc., is a classic example of the Pigouvian tax. It is a means to mitigate greenhouse gas emissions . Some said the environmental tax can deliver incentives to mitigate greenhouse gas emissions due to an increase in prices of fuel, carbon, or other types of taxes, and thus it can influence agents’ decisions economically and have effects on preserving

5207-674: The EU, based on the amount of non-recycled plastic packaging waste generated by each member state. The aim is to reduce plastic waste and stimulate member states to develop a circular economy together with the European Plastics Strategy . Each member state can design its own tax legislation to collect the plastic tax from producers, consumers, importers, etc. A noise tax is a tax which is put in place to regulate noise pollution , usually in order to not disturb nearby wildlife or communities. The most common cases of noise taxes are to do with

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5334-433: The LRSO. Either case only works with the taxes properly determined. The double-dividend hypothesis proposes that a revenue-neutral substitution of environmental taxes for revenue-raising taxes might offer two benefits. The idea was first advanced by Tullock (1967) in a paper titled 'Excess Benefit'. The first benefit (or dividend) is the benefit or welfare gain resulting from a better environment and less pollution (caused by

5461-536: The Pigouvian theory does have effects on the reduction of greenhouse gas emissions, there are different results between developed countries and emerging countries . They revealed that once the Pigouvian tax in emerging countries is beyond the turning point, the effect of the Pigouvian tax on emissions will start decreasing. From an economic aspect, congestion is a negative externality, for drivers can affect other drivers' costs of travel, such as costs of time, miles, or gasoline. Therefore, in 1920 A. C. Pigou published

5588-519: The Pollutant Discharge Fee, such as local governments exploiting loopholes in the system and sparing big companies from legal trouble.This new law provides five types of exemptions, including, among others, exemptions for eligible agricultural pollution, pollution from transportation, and pollution from sewage and household waste. Taxpayers may also enjoy a 25% reduction in return for cutting down their air and water pollution by 30% or more, below

5715-472: The SBO taxes are an inefficient means of reducing vehicle emissions. It tends to overtax, resulting in the majority of vehicle owners paying excessive amounts. Economist Ronald Coase argued that individuals can come to an agreement with an efficient result without the need for a third party when transaction costs are low. He says it is less expensive and less difficult for two neighbors to come to an agreement about

5842-474: The TI literature: an algebraic error, the use of an unreliable benchmark, and unrecognized compounding or double taxation. As a result, the conclusion that a large, previously unnoticed distortionary tax interaction effect existed can be seen as partly due to misinterpretations (Jaeger 2013). Despite these sources of confusion, it remains the case that a) the possibility of a double dividend depends on specifics specific to

5969-442: The advanced manufacturing industry value-added tax additional deduction policy. The French government shared its intentions to establish a new fee on plane tickets with the purpose to fund environment-friendly alternatives, such as eco-friendly transport infrastructure, including rail. The proposed tax would range between 1.50 euros ($ 1.7) and 18 euros ($ 20) and apply to most flights departing from France. The French government expects

6096-505: The amount of the externality. If the tax is placed on the quantity of emissions from the factory, the producers have an incentive to reduce output to the socially optimum level. If the tax is placed on the percentage of emissions per unit of production, the factory has the incentive to change to cleaner processes or technology. In 1980, a new critique of Pigouvian taxes emerged from Dennis Carlton and Glenn Loury . They argued that Pigouvian taxes alone would not create an efficient outcome in

6223-447: The area has had a boom in industrialisation and urbanisation, which has caused regional water shortage and pollution. On 1 January 2018, China replaced its existing, long-lasting "Pollutant Discharge Fee" system, with an environmental protection tax which was set to put in place a "green" financial and taxation system, whilst encouraging pollution control and the treatment of polluted areas. The new tax has also helped battle problems from

6350-442: The averted costs of future fossil fuel use are taken into account. The same logic applies to major consumer purchases. A " green mortgage " such as a Location Efficient Mortgage , for example, recognizes that persons who do not drive cars and live generally energy-efficient lifestyles pay far less per month than others and accordingly have more to pay a heftier mortgage bill with. This justifies lending them much more money to upgrade

6477-401: The aviation industry and urban infrastructure such as highway construction. Some examples of noise taxes which have been put in place have been in EU member states, such as France which has a noise tax on the aviation industry (Taxe sur les nuisances sonores aériennes, TNSA). The TNSA taxes both commercial and non-commercial aircraft which enter one of France's 10 busiest airports . The tax

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6604-437: The budget deficit, where the majority of it goes to the general fund. However, the revenue earned can also be used to subsidize positive externality generating activities, which is called the “double dividend” of environmental tax. Furthermore, these taxes can reduce deadweight losses caused by negative externalities. For such reasons, many economists support energy taxes along with Environmentalists, where activists often highlight

6731-443: The buyer. Because the fixed-cost commodity does not increase or decrease its unit cost with the quantity of production. At this time, if the demand is inelastic , the tax can be added to the price to realize the transfer. For goods with increasing cost, tax burdens can only be partially passed on. Because the unit cost of this commodity increases with the increase in output, the increase in the price of goods after taxation will affect

6858-491: The cleanest car models. In the Netherlands, the new registration taxes, payable when a car is sold to its first buyer, can earn the owner of a hybrid a discount up to € 6000. Spain reduced taxes for cars that produced less CO 2 (some of which will be exempted), while the more consuming, like SUVs and 4WDs saw their taxes increased. Austria has had a registration tax based on fuel consumption for several years. In 1993,

6985-482: The coal mining industry contracting, as the yearly revenue has shrunk from $ 644 million in 2008 to $ 177 million in 2022. It is important to note that governments, when imposing ecotaxes for the central purpose of revenue, generally tend to prefer energy taxes when levying environmental taxes due to the fact that energy demand tends to be quite inelastic in the short run, meaning that the government can use such taxes to gain immense revenue. This revenue can be used to reduce

7112-534: The coal yard. The effect is immediate. In 2018, the first year of the implementation of the Environmental Protection Tax Law, the pollution equivalents generated by power plants decreased by 73.1% compared with 2017, and the environmental protection tax paid was 2.14 million yuan, which was 73% lower than the pollution discharge fee of 7.96 million yuan paid in 2017. If the enterprise is identified as an advanced manufacturing industry, it can even enjoy

7239-440: The companies can earn profits over and above what is earned before the regulations even with selling a lower quantity of goods. If the production cost of all firms increased simultaneously due to regulation, the firms may be able to increase the price uniformly. They do not consider the elasticity of products and the effect on the quantity of demand and the industry's final profits. Another alternative to applying Pigouvian taxation

7366-504: The conditions for the shift of tax burdens, we can conclude that basically there is still an objective shift of tax burden even if under the highly centralized program management system. After implementing the market economy system, there is an objective shift in tax burden. But the market economy is a highly developed commodity economy. Under this system, the production and business operators of goods and other market entities have their own independent material interests. Profitability has become

7493-402: The conditions for the transfer of taxes have now been met. Therefore, the phenomenon of shifting the tax burden objectively existing in the commodity economy. The transfer of tax burdens is related to changes in costs. In the three situations of fixed, increasing and declining costs, tax transfer has different characteristics. For goods with fixed costs , the tax burden may be all passed on to

7620-515: The conservative government introduced the Fuel Price Escalator , featuring a small but steady increase of fuel taxes, as proposed by Weizsäcker and Jesinghaus in 1992. The FPE was stopped in 2000, following nationwide protests; while fuel was relatively cheap in 1993, fuel prices were then among the highest in Europe. Under the 1997–2007 Labour government, despite Gordon Brown ’s promise to

7747-612: The contrary, green taxes as a percentage of overall taxes had actually fallen from 9.4% to 7.7%, according to calculations by Friends of the Earth . In a 2006 proposal, the U.K.'s then- Environment Secretary David Miliband had the government in discussions on the use of various green taxes to reduce climate-changing pollution . Of the proposed taxes, which were meant to be revenue-neutral, Miliband stated: "They're not fundamentally there to raise revenue." Miliband provided additional comments on their need, saying: "Changing people's behaviour

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7874-691: The contrary, states may set ecotaxes as high as they wish without violating the Commerce Clause or the Supremacy Clause of the United States Constitution . Starting from January 1, 2018, China's first green tax aimed at environmental protection, the Environmental Protection Tax, was officially implemented, replacing the pollution discharge fee system that had been in place for nearly 40 years. The environmental protection tax

8001-422: The demands and the economy in which an environmental tax is being considered, and b) that the efficiency gains with revenue recycling will be greater, potentially significantly greater, than when revenues are not collected and used to reduce pre-existing revenue-raising taxes. Various research studies using numerical models find evidence in support of the double dividend hypothesis (Jorgensen et al., 2013). Despite

8128-419: The depletion of natural resources. Resource taxes are the least prevalent ecotaxes. Resource depletion is usually covered by government fees, for example, determined by the amount and the type of resource extracted, as opposed to imposed taxes. Examples of taxes which could be lowered or eliminated by a green tax shift are: Examples of ecotaxes which could be implemented or increased are: The object of

8255-407: The domestic economy, as well as the climate, as a result of overambitious energy taxes. This is known as carbon leakage. The second most notable form of environmental tax globally is transport taxes. Such taxes range from being implemented on airplane tickets, to car purchases, or even motor registration. Transport fuels are, however, included in energy taxes. The category mostly consists of taxes on

8382-401: The double dividend hypothesis. They define the double-dividend hypothesis as the theory that environmental taxes can improve the environment and increase economic efficiency simultaneously. Either motivation can legitimately support a tax reform. The first dividend intuitively makes sense: decreasing pollutant emissions improves the environment. The improvement in economic efficiency results from

8509-445: The ecotaxes fall. The categories are energy, transport, pollution and resource taxes. The first type of ecotax, energy taxes, can vary greatly as they can be levied on the production, distribution, or consumption of energy sources, particularly fossil fuels like coal, oil, natural gas, and sometimes electricity. They are often aimed at influencing energy consumption patterns and behaviors, promoting energy efficiency, and encouraging

8636-402: The environment ‘’. It puts a price on each ton of CO 2 emitted to encourage consumers to move away from certain products or behaviors with high greenhouse gas emissions. In other words, to reduce the use of fossil fuels. It is a Pigouvian tax that encourages quantifying the costs of negative externalities of goods and services. The carbon tax is in fact a "carbon component" integrated into

8763-427: The environment. However, others said that since these kinds of products are imposed taxes, their production prices will be higher, and thus the burden of increases in production costs can be shifted to consumers by increasing prices, which will increase pressure on low-income people and deteriorate income inequality . According to the research of Manta, Sandler, Bădîrcea, Badareu, and Țăran, they found that although

8890-429: The environmental benefit. Thus, the government must use the Pigouvian tax revenue to lower another tax if it wants to minimize the economic damage of a tax. Fullerton and Metcalf also mention that the effectiveness of any sort of Pigouvian tax depends on whether it supplements or replaces an existing pollution regulation. If the tax replaces a pollution regulation, it will most likely be environmentally neutral, even if it

9017-409: The existence of externalities and their potential negative effects. To the extent that green taxes correct for externalities such as pollution, they correspond with mainstream economic theory. In practice, however, setting the correct taxation level or the tax collection system needed to do so is difficult, and may lead to further distortions or unintended consequences . Taxes on consumption may take

9144-408: The first edition of The Economics of Welfare and tried to solve the congestion problem. Although the two-road model provided by Pigou was not intended to suggest the need for Pigouvian taxes to mitigate traffic congestion and thus dropped from subsequent editions, it is thought to be a starting point to analyze the congestion traffic. Since 1963, when William Vickrey published a paper and called for

9271-448: The first-best case, the government does not need to get revenue from distortionary taxes such as the income tax, and the Pigouvian tax can create the long-run social optimum. In the real world, second-best case, the status quo includes an income tax that distorts the labor supply. In this situation, Bovenberg and Mooij write that the best tax comes in below the level of the Pigouvian tax. Bovenberg and Mooij establish that households consume

9398-471: The following two conditions: Tax shift is achieved through commodity price changes in commodity exchange . Without the existence of commodity exchange, there would be no tax burden. Therefore, the commodity economy is the economic prerequisite for tax shift. Historically, in a natural economic society based on self-sufficiency, products generally go directly from the production sector to the consumer sector without market exchange. During this period, agriculture

9525-420: The free price system. Under the government's mandatory plan price system, the producers, operators and other market entities do not have their own pricing power, prices are directly controlled by the government, and taxpayers cannot pass tax burden through price changes. Under the floating price system, the government determines the maximum price or minimum price of a commodity. Within the range of fluctuations,

9652-464: The fundamental motive for all production and business activities, and the realization of tax burden transfer has become the subjective motivation and desire of various taxpayers. At the same time, with the continuous deepening of the reform of the economic system, the government has liberalized most of the pricing power, and the enterprises have a large amount of free pricing power. The free pricing system based on free prices has basically taken shape, and

9779-438: The government has complete knowledge of the market, which is almost never the case, and can often lead to inefficiencies and market failure through rent-seeking behavior by individuals and firms. Sometimes when the optimal Pigouvian taxation is unfeasible in practice due to technical or political reasons to directly tax the externality , policymakers might opt to tax a product related to the externality indirectly, which will be

9906-419: The government to justify doing more of each by making the optimal environmental tax higher than it would be otherwise, and by lowering the distortionary cost of financing the provision of public goods. The Pigouvian tax is a method commonly used by governments as it has relatively low transaction costs associated with implementation. Other methods such as command and control regulations or subsidies assume that

10033-423: The government's environmental tax base has eroded and its revenue with it. The government then cannot afford to keep the labor income tax down. Bovenberg and Mooij posit that the increase in the price of goods will outweigh the slight decrease in the income tax. Labor and leisure become more interchangeable the lower the real net wage (or after-tax wage) falls. With this decrease in the real net wage, more people leave

10160-440: The impact on obesity of a given food as an indicator, and taxes it according to this index. There is also a worry that fat taxes may harm low-income people if healthy food is more expensive than unhealthy food, resulting in it just being a tax on people who can only afford unhealthy food. Another issue is black markets appearing or, if the tax is not granular enough, it may fall to the same issues as some types of sin tax where if

10287-584: The importance of energy taxes in reducing greenhouse gas emissions and mitigating the impact of climate change, while economists highlight the benefits of the taxes on the economy. Opponents, however, argue such taxes increase the cost of daily necessities, which harm the average consumer, especially those under the poverty line. Additionally, a strong argument against energy taxes is that they can be counterproductive, as it may encourage producers who are being taxed to relocate to countries in which there are weaker, or nonexistent energy taxes. This would negatively impact

10414-467: The interconnections with other markets, such as the labor market. In his 2011 paper, " The Problem of Social Cost: What Problem? A Critique of the Reasoning of A.C. Pigou and R.H. Coase " Harold Demsetz provided two main theoretical objections, one of which was many years old, and one of which is new. He argued that both Pigou and Coase were theoretically incorrect to assume that there is a divergence between

10541-412: The job market. Ultimately, labor bears the cost of all public goods. Goulder, Parry, and Burtraw agree that the net social welfare after the implementation of a tax hinges on the preexisting tax rate. Don Fullerton agreed with this analysis in 1997 in his article "Environmental Levies and Distortionary Taxation: Comment". He added that lowering the income tax and taxing the dirty good equates with raising

10668-425: The labor tax and subsidizing the clean product. These two policies create the same effects, Fullerton says. In 1998, Fullerton and Gilbert E. Metcalf explain this theory more thoroughly. They begin by defining terms. The gross wage reflects the pre-tax wage a laborer receives. The simplest form of the net wage is the pre-tax wage minus the income tax. In reality, however, the net wage is the gross wage times one minus

10795-408: The long run, because the taxes controlled only the scale of the individual firms, not the number of firms in the particular industry. In the case of pollution, if the firms each produced a fraction of what they produced before, but the number of firms increased exponentially, the amount of pollution would still increase. To prevent this, Carlton and Loury recommend a policy with the potential to regulate

10922-449: The marginal excess burden (marginal distortionary cost) of existing levels of taxation in the US economy are between 20 and 50 cents per dollar of revenue collected. Because the revenue from the carbon tax would be recycled (used to lower preexisting and distorting taxes), the policy would be revenue-neutral, and the secondary benefit from revenue recycling would justify an even higher carbon tax. It

11049-518: The marginal social interest diverges from the marginal private interest, the industrialist has no incentive to internalize the marginal social cost. Conversely, Pigou argues, if an industry produces a marginal social benefit, the individuals receiving the benefit have no incentive to pay for that service. Pigou refers to these situations as incidental uncharged disservices and incidental uncharged services, respectively. Pigou provides numerous illustrations of incidental uncharged disservices. For example, if

11176-415: The market price), those who did not consent to be part of the market activity receive the benefit, and the market may under-produce. Similar logic suggests the creation of a Pigouvian subsidy to help consumers pay for socially beneficial products and encourage increased production to generate more positive societal benefits. An example sometimes cited is a subsidy for the provision of flu vaccines and

11303-562: The market price). A Pigouvian tax is a method that tries to internalize negative externalities to achieve the Nash equilibrium and optimal Pareto efficiency . The tax is normally set by the government to correct an undesirable or inefficient market outcome (a market failure ) and does so by being set equal to the external marginal cost of the negative externalities. In the presence of negative externalities, social cost includes private cost and external cost caused by negative externalities. This means

11430-405: The market. The seller has to reduce production to reduce the cost of products in order to maintain marketability, and thus the tax amount cannot be all passed on. For goods with diminishing costs, the tax burden can be all passed on to the buyer. Because the unit cost of such goods decreases with the increase in output, if there is no demand elasticity for taxable goods, taxes can also be added to

11557-415: The measurement of social cost is almost impossible. Ronald Coase argues that all social costs are reciprocal in nature, so, once the tax is set, it must not be changed. Some point out that political factors can complicate the implementation of a Pigouvian tax, while others that the Pigouvian tax focuses solely on the market for the product that is responsible for the externality but does not take into account

11684-400: The more global calculation of the domestic consumption tax on energy products, natural gas and coal. It is indexed to the carbon price, which serves as a climate reference for investment choices by public and private economic actors and is expressed in euros per ton of CO 2 . The carbon tax takes the form of a fee rather than a tax or an environmental tax in the strict sense of the word. It

11811-420: The most commonly used environmental taxes fall in the category of “energy” taxes.  Energy taxes can be narrowed down further to “energy taxes for stationary purposes”, such as taxes on natural gas, coal and biofuels, “energy taxes for transport”, with petrol and diesel as the two most relevant examples, and lastly “greenhouse gasses”. Apart from the most common energy tax, carbon tax, another popular energy tax

11938-447: The name is eco-social market economy . Tax shifting usually includes balancing taxation levels to be revenue-neutral for government and to maintain overall progressiveness . It also usually includes measures to protect the most vulnerable, such as raising the minimum income to file income tax at all, or an increase to pension and social assistance levels to offset increased costs of fuel consumption. Basic economic theory recognizes

12065-527: The negative externality producer, the government could regulate the production of that negative externality. Fullerton and Metcalf argue that restricting the amount of pollution that all firms in an industry can produce will indirectly reduce the output of all firms. This comprehensive supply reduction will automatically raise the consumption price of the good. These types of command-and-control restrictions stimulate cartel-like profits. Fullerton and Metcalf assert that production costs do not change, and assert that

12192-414: The net private product of alcohol businesses is peculiarly large relative to the net social product of the same business. He suggests that this is why most countries tax alcohol businesses. The divergence between the marginal private interest and the marginal social interest produces two primary results. First, as already noted, the party receiving the social benefit does not pay for it, and the one creating

12319-409: The new tax to raise over 180 million euros ($ 200 million) from 2020. The carbon tax was implemented in 2014 after two unsuccessful attempts. It is not a specific tax but a component of domestic consumption taxes on fossil fuels , proportional to their carbon content. It is based on the "polluter pays" principle, ‘’ according to which all persons must contribute to the repair of the damage they cause to

12446-444: The number of firms in an industry: lump-sum taxes or lump-sum subsidies. Carlton and Loury present four basic arguments in their article. First, Pigouvian taxes work in the short-term, because the number of firms cannot vary. Second, Pigouvian taxes do not work in the long-term because the number of firms can vary. Third, an industry with a specific number of firms and scale can achieve the long-run social optimum (LRSO). The best option

12573-399: The optimum output level. Since it is not possible to find the optimum output level, it is not possible to find the optimum Pigouvian tax level to achieve that optimum. In the end, Baumol argues that the best solution is to set a minimum standard of acceptability for negative externalities and create tax systems to achieve those minimum standards. Baumol points out that government committees have

12700-595: The polluting act was legal or illegal at the time. The Ministry of Environment and Forests, Government of India, asked Madras School of Economics , Chennai, to undertake a study of taxes on polluting inputs and outputs in 2001. Raja Chelliah , Paul Appasamy, U.Sankar and Rita Pandey (Academic Foundation, 2007, New Delhi) recommended eco taxes on coal, automobiles, chlorine, phosphate detergents, chemical pesticides, chemical fertilizers, lead acid batteries and plastics. See Ecotaxes on polluting inputs and outputs, Academic Foundation, New Delhi,2007. The Finance Minister introduced

12827-490: The power generation remained unchanged, the environmental protection tax to be paid would double the original pollution discharge fee. Transformation is imminent. The reason why thermal power plants are criticised for "high pollution" is that the key is backward technology, such as incomplete coal combustion and lack of flue gas treatment equipment. The power plant has carried out ultra-low emission transformation on all six generating units and added wind and dust suppression nets in

12954-427: The price and passed on. Under some certain circumstances, taxes can not only be passed on entirely, but even more than the tax price benefit. The following table lists tax shifts that have been proposed or introduced: Tennessee Tax swap can also refer to the sale of a security that has declined in price since its purchase and the simultaneous purchase of a similar but not identical security, in order to realize

13081-449: The pricing of traffic based on the welfare economic principle of Pigou, this method started to attend into political aspect in order to resolute the congestion problem in big cities. Some studies have found that implementing Pigouvian taxes as a solution to congestion externalities in the form of entrance fees or tolls (i.e. congestion pricing ) can maximize not only profits but also utility. However, others argued that it would increase

13208-412: The producers, operators and other market entities have a certain amount of freedom in pricing, and tax shift can be realized within a certain extent and within a certain range. Under the free pricing system, the producers, operators and other market players can freely set prices according to changes in the market supply and demand relationship, and the tax burden can be passed on. Through the analysis of

13335-411: The production costs of some industries, and that revenue would fall from the diminution of traffic. Heller, Johnen, and Schmitz argued that the traditional Pigouvian approach is not the optimal solution to the congestion problem. Rather, they believed the optimal solution is to charge drivers a variety of different prices which depend on the desired travel time, i.e. also depend on the number of drivers on

13462-601: The proscribed level. According to data released by the Ministry of Finance of China, China's environmental protection tax will collect 20.5 billion yuan (RMB, the same below) in 2023, and 5.1 billion yuan in January and February 2024. Before the environmental protection tax was levied, many Chinese companies had to pay pollution discharge fees. Six years ago, the finance department of a thermal power plant in Chongqing calculated that if

13589-500: The public goods (such as education and national defense), research & development, etc. Pigouvian taxes are named after English economist Arthur Cecil Pigou (1877–1959), who also developed the concept of economic externalities. William Baumol was instrumental in framing Pigou's work in modern economics in 1972. In 1920, British economist Arthur Cecil Pigou published The Economics of Welfare . In it, he argues that industrialists seek their own marginal private interest. When

13716-429: The recent controversy on this topic, the conclusions that can be drawn are in keeping with economic intuition. Environmental and revenue-raising taxes are complementary tools for achieving two different kinds of government goals: the provision of public goods with revenue-motivated taxes and the protection of environmental quality with corrective taxes. Indeed, the joint pursuit of these two goals through taxation can enable

13843-480: The results of the additional tax. Also, where the tax revenue goes greatly affects the success of the tax. Secondly, Fullerton and Metcalf say the previous literature on Pigouvian taxes focused too heavily on the revenue dividend and too lightly on the environmental dividend of environmental taxes. Their predecessors naively value revenue too much, Fullerton and Metcalf argue, because they fail to recognize that all taxes impose costs on someone. These taxes could outweigh

13970-414: The road. A fat tax is a tax that incorporates unhealthy foods into a society's diet that is made from ingredients considered harmful, such as sugar , starch , and trans fats . Governments implement health policy through education and price risks into food prices through taxes on public health products. Some say that consumers are price-sensitive, therefore, a fat tax can be imposed and used to enforce

14097-444: The same time, income taxes were reduced proportionally so that the total tax burden remained constant. The regional government of Balearic Islands (then held by an ecosocialist coalition) established an ecotax in 1999. The Balearic Island suffer a high human pressure from tourism, that at the same time provides the main source of income. The tax ( € 1.00 per person per day) would be paid by visitors staying at tourist resorts. This

14224-400: The second-best optimal solution. For example, to mitigate the negative externalities from emissions produced by transportation policymakers might impose taxes on gasoline rather than emissions directly. However, this makes everyone face different externalities due to the different number of purchases or the state of the vehicles. According to Knittel and Sandler's research, they found that

14351-415: The social and private marginal product. He showed that property rights are exogenous to the market system. The market achieves the efficient outcome given property rights assignment (this was first pointed out by Frank Knight in 1924). Second, he showed that positive transaction costs are just any other cost. To separate these out to justify a disharmony or divergence between social and private marginal product

14478-483: The social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. Often-cited examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption. In the presence of positive externalities (i.e., external public benefits gained by society that are not included in

14605-406: The social harm does not pay for it. Second, when the marginal social cost exceeds the marginal private benefit, the cost-creator over-produces the product. Ultimately, because non-pecuniary externalities overestimate the social value, they are over-produced. To deal with over-production, Pigou recommends a tax placed on the offending producer. If the government can accurately gauge the social cost,

14732-411: The tax could equalize the marginal private cost and the marginal social cost. In more specific terms, the producer would have to pay for the non-pecuniary externality that it created. This would effectively reduce the quantity of the product produced, moving the economy back to a healthy equilibrium. The diagram illustrates the working of a Pigouvian tax. A tax shifts the marginal private cost curve up by

14859-434: The tax is only set on whole categories of items at a time, as opposed to on a per-item basis based on best estimate of the negative externalities for any given item, it may incentivize people to switch to the cheapest item in that category, which is often the least healthy. From January 1, 2021, the plastic tax becomes its own resource in the EU budget 2021–2027. It is not actually a tax but a contribution from member states to

14986-450: The tax rate, all divided by the price of consumption goods. With the status quo income tax, deadweight loss exists. Any addition to the price of consumption goods or an increase in the income tax extends the deadweight loss further. Either of these scenarios lowers the net wage, reducing the supply of labor offered. The supply of labor decreases because of the labor/leisure interchange. If someone gets paid very little, he or she may decide it

15113-404: The tax, indeed, although the receipts are estimated at 8 billion euros per year, the citizens do not really know what is done with it, which makes it even more difficult to accept. Pigouvian tax A Pigouvian tax (also spelled Pigovian tax ) is a tax on any market activity that generates negative externalities (i.e., external costs incurred by third parties that are not included in

15240-508: The taxpayer's income increases). Taxing negative externalities usually entails exerting a burden on consumption, and since the poor consume more and save or invest less as a share of their income, so that any shift towards consumption taxes can be regressive. In 2004, research by the Policy Studies Institute and Joseph Rowntree Foundation indicated that flat rate taxes on domestic rubbish, energy, water and transport use would have

15367-517: The total litter pollution in Ireland from 5% to 0.13% in 14 years. It has also generated over €200 million in revenue, proving to be a huge revenue source for the government. The final categorization of ecotaxes, and arguably the least important form of ecotaxes is resource taxes. Within the category of resource ecotaxes lie taxes associated with the extraction or utilization of natural resources like water, forests, wildlife, and other forms of flora and fauna. These levies are imposed on activities leading to

15494-539: The transition to cleaner and more sustainable energy sources. For example, they can influence energy consumption by levying larger ecotax rates on nonrenewable energy sources, which have a greater negative impact on the environment and contribute to high levels of CO 2 emissions. This reduces the demand for unclean energy sources, and it can make renewable energy sources relatively more competitive, encouraging investment and consumption in clean energy technologies like solar, wind, hydroelectric, and geothermal power. Globally,

15621-425: The unaltered market case. Goulder, Perry, and Burtraw suggest that selling permits to firms is the best option, but recognize that many firms in the status quo are grandfathered in, meaning they are given exemptions. The authors include an example of the U.S. regulations in coal-fired electrical power plants that require the reduction of 10 million tons of sulfur dioxide emissions. They estimate that more than half of

15748-450: The usage of certain roads, for example through electronic tolling systems. Collectively, energy and transportation taxes make up the majority of the ecotaxes imposed globally. In 2021, the two taxes made up 96% of the ecotaxes implemented in the EU. The remaining 3% is made up of pollution and resource taxes. Pollution taxes incorporate taxes on measured emissions to air and water, and the management of waste and noise pollution. An exception

15875-568: The usage or ownership of vehicles. An example of a common transport tax is the tax placed on vehicle registration. This tax is levied on registrations based on factors such as weight, fuel efficiency, or emissions, and it is used to both generate revenue, and to promote the ownership and usage of cleaner, and more fuel efficient vehicles. Another example is the tax imposed on cars entering areas of congestion, such as certain areas in New York City, and this can even be coupled with an additional ecotax on

16002-409: The value of all commodities is expressed in the form of currency as the price. The exchange of goods breaks through the limitations of time and area and develops on a large scale. It opens up a vast space for the taxation of goods and commodity circulation. It also makes it possible to pass on commodity taxation, and commodity taxation is also passed back or indirectly through price changes. Tax shift

16129-476: Was criticized by the conservative opposition as contrary to business interests, and they abolished the tax in 2003 after seizing back the government. A variety of ecotaxes (often called "severance taxes") have been enacted by various states in the United States. The Supreme Court of the United States held in Commonwealth Edison Co. v. Montana , 453 U.S. 609 (1981), that in the absence of federal law to

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