The Tax Structure and the Environment
The Tax Structure and the Environment
The determination of a system of environmental taxes must be seen in conjunction with the design of the tax system as a whole. The present analysis is based on a model of optimal commodity taxation in the presence of environmental pollution. The main conclusion is that taxes should be designed both so as to minimize market distortions, and to give the right incentives to improve the environment. However, only the goods whose consumption or production actually generates pollution should include an ‘environmental component’. This is an example of the more general principle of the targeting of policy instruments.
Keywords: design, incentives, optimal taxation, pollution, targeting, tax systems
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