Designing Fiscal Policy to Address the External Costs of Energy
53 Pages Posted: 15 Jan 2015
Date Written: December 30, 2014
This paper first reviews the conceptual case for, and appropriate design of, fiscal policies to address major externalities associated with energy use — global warming, local air pollution, and various side effects (e.g., congestion) from motor vehicles. Techniques for (roughly) estimating the magnitude of these externalities, and corrective energy taxes, on a country-by-country basis are then described. The implications for reforming energy taxes, and the potential environmental, health, and fiscal benefits from reform, are then discussed. A theme of the paper is the critical role of finance ministries in administering tax reforms and ensuring efficient use of revenues.
Keywords: externalities, energy taxes, getting prices right, air pollution, global warming
JEL Classification: H230, Q480, Q540, Q580
Suggested Citation: Suggested Citation