Environmental tax
- 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
- To increase private costs
- 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
- Producers may move production to another country with lower tax
- Producers may move production to another country with lower tax
- Other alternatives
- Subsidies to encourage greater innovation
- Trade-able pollution permit
- e.g. London congestion charge, landfill tax
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