Environmental Tax Reform with Vertical Tax Externalities in a Federal State

Bert Saveyn and Stef Proost

Energy, Transport and Environment Working Papers Series from KU Leuven, Department of Economics - Research Group Energy, Transport and Environment

Abstract: The paper studies a regional environmental tax reform in a federal state. In a model with immobile labour, mobile capital and mobile polluting input in the production function, one region increases its pollution taxes and recycles the excess tax revenues by lowering either pre-existing distorting labour or capital taxes. This choice determines whether the non-environmental efficiency of the regional tax system improves or gets worse. Moreover, the regional tax reform changes the level of the federal budget through the vertical tax externality effect. We illustrate the magnitude of the different effects with simulations for a country with only 2 regions (Belgium) and a country with 50 regions (US).

Keywords: Tax Reform; Tax externality; Federalism; Tax Burden; Capital Mobility (search for similar items in EconPapers)
JEL-codes: H23 H77 R13 R53 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2004-05
New Economics Papers: this item is included in nep-env, nep-geo and nep-pbe
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ete:etewps:ete0404

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