Earmarking of environmental taxes: efficient, after all

Jukka Pirttilä

No 4/1998, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: The paper analyses the benefits of earmarking the environmental tax revenues in a second-best world with asymmetry of information between government and taxpayers.Taxpayers are assumed to have taste differences over consumption of an environmentally harmful activity.The government, which cannot observe these preferences, pursues Pareto-efficient taxation involving compensation to the potential losers of tax policy.Within this framework, it is shown that earmarking environmental tax revenues on projects that are beneficial to the losers of the environmental policy may alleviate problems concerning asymmetric information and facilitate more efficient environmental policy.

Keywords: Environmental taxation; earmarked taxes; Pareto-efficient taxation; second-best analysis (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp1998_004

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