An Economic Analysis for Designing Environmental Tax System (in Japanese)

Kazuhiro Ueta, Kanji Yoshioka, Yoshihisa Inada, Kiyoshi Fujikawa, Akira Yokoyama, Mikio Suga, Tetsuo Saito, Minoru Ono, Wataru Kawashima, Masakazu Yamagishi, Toshiyuki Suzuki, Hiroki Nakayama, Koju Murota and Naoki Adachi

Economic Analysis, 1997, vol. 153, 3-54

Abstract: I. Economic Instruments for the Reduction and Recycling of Solid Waste : A Comparison Between Dual System and Package Taxation This paper aims to analyze the economic function of Germany's "Dual System" --especially Grune Punkt-- in comparison with a package taxation proposed from an environmental economic theory point of view. Based on the analysis of the cost estimation formula of the optimal tax rate of package taxation for PET bottles, aluminum cans and paper-board packages. This means that the recycling level mandated by German law is inefficient from the viewpoint of static efficiency, because it is higher than the optimal level. Dynamic efficiency is more important than static efficiency for the reduction of waste at the source. It is concluded that the Dual System has an incentive effect for promoting technological improvement and changes in package design for waste reduction. II. Public Choice on Environmental (Carbon) Taxes Global warming and the greenhouse effect have become two of the most important issues in international society. In Japan, environmental taxes as well as other economic instruments became popular with policy-makers, but there is little acceptability of a carbon tax that will abate the emissions of CO2. This study investigates public choice on the introduction of environmental (carbon ) taxes and proposes a tax reform that changes implicit carbon taxes to pure carbon taxes under revenue neutral. In this study, a simple model deals with the conflicts of policy preferences and a Nash equilibrium --a profile of strategies such that each policy-maker's strategy is an optimal response to the other's strategy. The implicit carbon taxes in the Japanese tax system consist of seven taxes on fossil fuels, the revenue from which amounts to about 5 trillion yen. This study examines the effect of the tax reform under the condition of revenue neutral on the reduction of CO2 emissions by assuming that the price elasticities on the demands of the fossil fuels are the same: 0.2 or 0.1. The results of this examination are as follows. In the case that the elasticities are 0.2 (0.1), the pure carbon tax of 18.975 (17.145) per kg carbon can finance the same amount of revenue as the existing implicit carbon taxes and abate CO2 emissions by 70.547 (31.544) million tonnage carbon while the implicit carbon taxes could abate emissions by only 19.265 (8.700) million tonnage carbon. The tax reform may keep the uses of revenue from the implicit carbon taxes. As a consequence, the tax reform could mitigate the movement against the introduction of a carbon tax and effectively abate CO2 emissions.

Date: 1997
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