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Environmental Tax Reform: Principles from Theory and Practice

Author

Listed:
  • Ian W.H. Parry

    (Fiscal Affairs Department, International Monetary Fund, Washington, DC 20431)

  • John Norregaard

    (Fiscal Affairs Department, International Monetary Fund, Washington, DC 20431)

  • Dirk Heine

    (E3 Foundation, Cambridge CB5 8AF, United Kingdom)

Abstract
On the basis of the environmental tax literature, this article recommends a system of upstream taxes on fossil fuels, combined with refunds for downstream emissions capture, to reduce carbon and local pollution emissions. Motor fuel taxes should also account for congestion and other externalities associated with vehicle use, at least until mileage-based taxes are widely introduced. An examination of existing energy/environmental tax systems in Germany, Sweden, Turkey, and Vietnam suggests that there is substantial scope for policy reform. Policy options include harmonizing taxes for pollution content across different fuels and end users, better aligning tax rates with (albeit crude) values for externalities, and scaling back excise taxes on vehicle ownership and electricity use that are redundant (on environmental grounds) in the presence of more targeted taxes.

Suggested Citation

  • Ian W.H. Parry & John Norregaard & Dirk Heine, 2012. "Environmental Tax Reform: Principles from Theory and Practice," Annual Review of Resource Economics, Annual Reviews, vol. 4(1), pages 101-125, August.
    • Handle: RePEc:anr:reseco:v:4:y:2012:p:101-125
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-resource-110811-114509
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    More about this item

    Keywords

    environmental taxes; design principles; externalities; fuel taxes; country evaluation;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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