Designing Economic Instruments for the Environment in a Decentralized Fiscal System

James Alm () and Spencer Banzhaf

No 1104, Working Papers from Tulane University, Department of Economics

Abstract: When external effects are important, markets will be inefficient, and economists have considered several broad classes of economic instruments to correct these inefficiencies. However, the standard economic analysis has tended to take the region, and the government, as a given; that is, this work has neglected important distinctions and interactions between the geographic scope of different pollutants, the enforcement authority of various levels of government, and the fiscal responsibilities of the various levels of government. It typically ignores the possibility that the externality may be created and addressed by local governments, and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems. This paper examines the implications of decentralization for the design of corrective policies; that is, how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services and to choose tax instruments that can both finance these expenditures and correct the market failures of externalities?

Keywords: market failure; environmental federalism; externalities; fiscal decentralization; subsidiarity principle; economic instruments (search for similar items in EconPapers)
JEL-codes: H2 H4 H7 Q5 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2011-04
New Economics Papers: this item is included in nep-env, nep-reg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://repec.tulane.edu/RePEc/pdf/tul1104.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: DESIGNING ECONOMIC INSTRUMENTS FOR THE ENVIRONMENT IN A DECENTRALIZED FISCAL SYSTEM (2012)
Working Paper: Designing economic instruments for the environment in a decentralized fiscal system (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:tul:wpaper:1104

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