Political Uncertainty and the Earmarking of Environmental Taxes

Posted: 6 Feb 2001

See all articles by Craig Brett

Craig Brett

Mount Allison University - Department of Mathematics and Computer Science

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Abstract

Far from being used to secure a "double dividend" by reducing distorting taxes, revenues from environmental taxes seem quite often to be earmarked to particular spending programs. In the US, for example, a range of such taxes feed into environmental trust funds. Such earmarking runs counter to standard notions of good practice in taxing and spending. This paper develops and explores an explanation of such apparent inefficiencies in terms of political uncertainty: roughly, a green incumbent may chose to earmark revenues if the efficiency loss from doing so is outweighed by the value of constraining subsequent and potentially non-green policy-makers from "wasting" the funds raised. It emerges, for example, that those most likely to earmark are green politicians who are politically weak, and that earmarking then enables such a policy-maker to set the corrective tax higher than they otherwise would but nevertheless lower than the Pigovian tax.

Keywords: earmarked taxes, pigovian taxes, political uncertainty

JEL Classification: D62, D72, H20, H50

Suggested Citation

Brett, Craig and Keen, Michael, Political Uncertainty and the Earmarking of Environmental Taxes. Journal of Public Economics, Vol. 75, Issue 3, March 2000. Available at SSRN: https://ssrn.com/abstract=252731

Craig Brett

Mount Allison University - Department of Mathematics and Computer Science ( email )

67 York Street
Sackville NB E4L 1E6
Canada

Michael Keen (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Abstract Views
866
PlumX Metrics