The Case for a Two-Part Instrument: Presumptive Tax and Environmental Subsidy / Don Fullerton, Ann Wolverton.

Format:

Book

Author/Creator:

Fullerton, Don.

Contributor:

National Bureau of Economic Research.

Wolverton, Ann.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5993.

NBER working paper series no. w5993

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Case for a Two-Part Instrument

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

This paper builds two simple general equilibrium models to demonstrate the equivalence between the Pigovian tax and the combination of a presumptive tax and an environmental subsidy. A presumptive tax is a tax that is imposed under the presumption that all production uses a dirty technology or all consumption goods become waste. The environmental subsidy is then provided only to the extent that production uses a cleaner technology or that consumption goods are recycled. To analyze the usefulness of the tax-subsidy combination, we review conceptual considerations regarding its implementation and practical considerations regarding its actual use throughout the world. While the tax-subsidy combination is increasingly being used, in the form of a deposit-refund system, we argue that more flexible interpretations are important to explore. The two parts of such a policy do not have to apply to the same side of the market. The tax and subsidy do not have to equal one another, and they can apply to different goods altogether. Compared to the Pigovian tax, a two-part instrument may be easier to enforce, may be easier to enact, and can still force the market to recognize the social cost of disposal.

Notes:

Print version record

April 1997.