Is There a Rationale for Rebating Environmental Levies?

Carolyn Fischer, Alain Bernard and Marc Vielle

Discussion Papers from Resources For the Future

Abstract: Political pressure often exists for rebating environmental levies, particularly when incomplete regulatory coverage allegedly creates an “unlevel playing field” with other, unregulated firms or industries. This paper assesses the conditions under which rebating environmental levies is justified for the regulated sector. It combines a theoretical approach based on second-best modeling with numerical simulations aimed at determining the most sensitive parameters. We find that if an adequate tax on production can be levied in the unregulated sector, no rebate is justified for the regulated sector. Moreover, even in the case of constrained taxation in the unregulated sector, a tax rebate or a subsidy in the regulated sector is not necessarily a welfare-increasing policy. The exception occurs when the goods of the competing sectors are close substitutes. We find that these kinds of policy contraints can be quite costly in terms of welfare.

Keywords: environmental levy; tax rebate; fiscal distortions (search for similar items in EconPapers)
JEL-codes: Q2 Q43 H2 D61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-pbe
Date: 2001-10-01
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