Environmental tax

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  • Created by: sammilaw
  • Created on: 17-03-16 15:49
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  • Environmental Taxation
    • Chapter 10
    • A tax on a good/service that has negative externalities on the environment
    • Aims:
      • To increase private costs
        • Increase the firm's private marginal cost until it equates with the social marginal cost curve (MPC=MSC)
      • Incentive for producers/consumers to take externalities into account
      • Increasing the price = decrease in demand
      • Reduce output to social optimum level of production
      • May encourage innovation to develop new technology
        • Dynamic efficiency
      • Revenue could go towards gov. spending on environmental projects
    • Criticisms:
      • Difficult to put a price on the environment
      • Consumer welfare effects
        • Producers may pass on tax to consumers, especially if it has an inelastic demand
      • Income distribution
        • Regressive tax on goods i.e. cigarettes can worsen income inequalities
      • Employment consequences
        • Producers may move production to another country with lower tax
          • Does not reduce global pollution
        • Structural unemployment
          • Producers may move production to another country with lower tax
            • Does not reduce global pollution
          • Loss of international competitiveness
      • Other alternatives
        • Subsidies to encourage greater innovation
        • Trade-able pollution permit
    • e.g. London congestion charge, landfill tax

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