Two Generalizations of a Deposit-Refund System

12 Pages Posted: 20 Apr 2000  

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Maryann Wolverton

U.S. Environmental Protection Agency - National Center for Environmental Economics

Date Written: January 2000

Abstract

This paper suggests two generalizations of the deposit-refund idea. In the first, we apply the idea not just to solid waste materials, but to any waste from production or consumption including wastes that may be solid, gaseous, or liquid. Using a simple general equilibrium model, we derive the optimal combination of a tax on a purchased commodity and subsidy to a clean' activity (such as emission abatement, recycling, or disposal in a sanitary landfill). This two-part instrument' is equivalent to a Pigovian tax on the dirty' activity (such as emissions, dumping, or litter). In the second generalization, we consider the case where government must use distorting taxes on labor and capital incomes. To help meet the revenue requirement, would the optimal deposit be raised and the refund reduced? We derive the second-best revenue-raising DRS or two-part instrument to answer that question.

Suggested Citation

Fullerton, Don and Wolverton, Maryann, Two Generalizations of a Deposit-Refund System (January 2000). NBER Working Paper No. w7505. Available at SSRN: https://ssrn.com/abstract=218382

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Maryann (Ann) Wolverton

U.S. Environmental Protection Agency - National Center for Environmental Economics ( email )

Washington, DC 20460
United States

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