Environmental Tax Reform: Principles from Theory and Practice to Date

40 Pages Posted: 1 Nov 2012

See all articles by Dirk Heine

Dirk Heine

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics; University of Hamburg - Institute of Law and Economics; University of Bologna - Department of Economics; World Bank, Macroeconomics, Trade and Investment Global Practice

John Norregaard

Formerly with International Monetary Fund (IMF); Independent

Ian Parry

International Monetary Fund (IMF)

Date Written: July 2012

Abstract

This paper 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. This includes harmonizing taxes for pollution content across different fuels and end-users, better aligning tax rates with values for externalities, and scaling back taxes on vehicle ownership and electricity use that are redundant (on environmental grounds) in the presence of more targeted taxes.

Keywords: Environmental Taxes, Design Principles, Externalities, Fuel Taxes, Country Evaluation, Energy Taxes, Environmental Protection, Tax Reforms

JEL Classification: Q54, Q38, Q48, H23

Suggested Citation

Heine, Dirk and Norregaard, John and Parry, Ian, Environmental Tax Reform: Principles from Theory and Practice to Date (July 2012). IMF Working Paper No. 12/180. Available at SSRN: https://ssrn.com/abstract=2169725

Dirk Heine (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics ( email )

Burgemeester Oudlaan 50
PO box 1738
Rotterdam, 3000 DR
Netherlands

University of Hamburg - Institute of Law and Economics ( email )

Johnsallee 35
Hamburg, 20148
Germany

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

World Bank, Macroeconomics, Trade and Investment Global Practice ( email )

1818 H Street, NW
Washington, DC 20433
United States

John Norregaard

Formerly with International Monetary Fund (IMF) ( email )

700 19th Street, NW
Washington, DC 20431
United States

Independent ( email )

No Address Available

Ian Parry

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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