On green production taxes

Edward Calthrop

No 158, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Proposals are often made to tax goods which are environmentally damaging. Many such goods are consumed both directly by households and industry at large: for example, carbon-intensive fuel, waste water or congested road space. This paper adopts a tax-reform setting to evaluate such a policy. The welfare impact is shown to depend on an input-substitution effect and an output effect on final consumption, where the latter effect can be conveniently analysed via the standard concept of the marginal welfare cost of a commodity tax. Finally, it is shown that raising a production tax is welfare enhancing if the current tax is below marginal external cost and revenues are recycled via the commodity tax with the highest marginal welfare cost.

Keywords: externality taxes; productive efficiency; tax reform (search for similar items in EconPapers)
JEL-codes: D61 H23 (search for similar items in EconPapers)
Date: 2003-05-01
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