Environmental Taxes and Fiscal Reform

274 Pages·2012·7.772 MB·English

by  Laura Castellucci, Anil Markandya (eds.)

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Environmental Taxes and
Fiscal Reform
Edited by
Laura Castellucci
University of Rome ‘Tor Vergata’, Rome, Italy
and
Anil Markandya
Basque Centre for Climate Change, Bilbao, Spain
© Servizio Italiano Pubblicazioni Internazionali 2012
Softcover reprint of the hardcover 1st edition 2012 978-0-230-39239-7
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First published 2012 by
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A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Environmental taxes and fiscal reform / edited by Laura Castellucci, Anil
Markandya.
p. cm.
1. Environmental impact charges. 2. Fiscal policy—Environmental aspects. 3.
Taxation—Environmental aspects. I. Castellucci, Laura. II. Markandya, Anil,
1945–
HJ5316.E58165 2012
336.2(cid:2)783337—dc23 2012012334
10 9 8 7 6 5 4 3 2 1
21 20 19 18 17 16 15 14 13 12
Contents*
Environmental Taxes and Fiscal Reform 1
Laura Castellucci and Anil Markandya
Part I General Issues
Environmental Taxation: What Have We Learnt in the Last30 Years? 9
Anil Markandya
Market-Based Instruments in CEE Countries: Much Ado about Nothing 57
Milan Ščasný and Vojtttĕĕĕch Máca
Part II Distributional Issues
Environmental Fiscal Reform in East and Southern Africa and
its Effects on Income Distribution 93
Daniel Slunge and Thomas Sterner
Environmental Quality and Income Inequality: The Impact
of Redistribution on Direct Household Emissions in Italy 123
Laura Castellucci, Alessio D’Amato and Mariangela Zoli
Part III Carbon Taxation
Carbon Pricing as an Effective Instrument of Climate Policy:
Searching for an Optimal Policy Instrument 145
Alberto Ansuategi and Ibon Galarraga
Green Taxes on Aviation: The Case of Italy. The Proposal
of the Green Taxation Matrix 168
Anil Markandya and Elena Claire Ricci
Is it Time for a Revival of ETR in Italy? Energy Elasticities and
Factor Substitutability for Manufacturing Firms 207
Rossella Bardazzi, Filippo Oropallo and Maria Grazia
* These chapters were originally published as articles in the journal Rivista di Politica
Economica and have been reproduced exactly and in their entirety, including any minor
typographic errors or omissions which may have been present in the original.
v
vi Contents
Financing Public Expenditure via Emissions Taxation under
International Emissions Trading: Is There Any Scope for
Emission Tax Harmonization? 243
Alessio D’Amato and Amanda Spisto
Index 269
Environmental Taxes
and Fiscal Reform
Laura Castellucci* - Anil Markandya
University of Rome “Tor Vergata” Basque Centre for Climate Change BC3,
Spain and University of Bath
The ordinary way of financing government expenditures is
through taxation. This is not to say that borrowing is an extraord-
inary way of financing public expenditures, nor it is to deny otherr
sources of financing such as charges to the public, rents, profits
from the nationalized industries and sale of assets. It is to stress
the fact that the “basics” of the budget-making process consists
of different types of expenditures and revenues from taxation.
Again it is not the idea of balancing the budget but rather the fact
that the decision of how much to spend must be (loosely) linked
to how much the government can reasonably expect to raise from
tax collection without inducing more tax evasion and tax elusion.
In other words, the decision on the level of expenditures has to
be guided by the tax capability of a country. Tax effort and tax
revenue are fundamental concepts that have been overlooked in
the recent years, at least in Italy, and they must be resurrected.
Although the prolonged international economic crisis requires a
balance of both prudence in controlling expenditures and effi-
ciency in tax collecting, the situation of public accounts is a ser-
ious one in several countries, including Italy. Fortunately, due to
European Union obligations and especially to the adoption of the
European currency1, Italy has to strengthen both its tax effort and
* <[email protected]>; <[email protected]>.
1 The introduction of the Euro was a great achievement in terms of the
European cohesion and the participation of Italy was very important for the
1
2 Laura CCCastellucciandAnil MMMarkandya
its tax revenue. In this regard there may well be a role for envir-
onmental taxation, which could serve the twin targets of intern-
alizing pollution effects and raising revenue.
The best fiscal system for a country is the one that allows
maximum revenue in the long run (and at least administrative
costs) satisfying both efficiency and equity. To make environmental
taxes to play a greater role in the fiscal system is totally consis-
tent with these criteria. For, on one hand it is fair to tax “bads”,
such as pollution or excessive use of natural resources, rather than
“goods”, such as labor and profits, and on the other it is a known
result in the received literature that green taxes have a positive
effect on the development and diffusion of new technologies. GDP
(and possibly employment) increases will follow, which in turn se-
cure an increase in the long run tax revenue. Moreover since every
fiscal system has adapted to the structure of the economy in which
it operates, it is somehow contradictory to have in operation fiscal
systems whose structure have been basically the same for the last
50/60 years while the economies have undergone great changes
and transformation. Fifty years ago pollution problems, for ex-
ample, were much less serious than they are today, when they
pose serious threats to human health not to mention the rights off
future generations. As it is another well established result in the
literature, it is impossible to have a non distortionary fiscal sys-
tem in practice; thus why not use the non-distortionary effects off
environmental taxes to move away from consumption/production
patterns which are harmful for the wellbeing of present and fu-
ture generation? Some might say that green taxation has a re-
gressive impact; this extremely important issue for the welfare off
a society has been little investigated up to now, in the sense that
the regressive impact has been more asserted than proved. This
topic needs larger and deeper empirical investigation because vest-
ed interest may hide behind the superficially addressed argument,
rather than a concern for the low income households.
According to many official governments’ declarations, as well
country, as the present economic crisis has clearly shown. It is also definitely true
that for Italy to adopt a restrictive budgetary policy as European constraint is off
great help.
Envirrronmental TTTaxesand FFFiscal Reform 3
some treaties voluntarily signed by the international communityy
of developed countries (and sometimes also less developed ones),
two targets seem clear for the present century: to switch to a “low
carbon society” and to go ahead with the Information and Com-
munication Technology (ICT) economy. The state of the art sug-
gests major investments are necessary to try to accomplish these
results. Given the budget situation of the great majority of coun-
tries, these investments can only come from the private sector;
but to deliver the required scale of investment the private sectorr
needs the appropriate “signals” from the government which can
take the form of tax savings from investments in low carbon al-
ternatives or higher tax liabilities from investment in polluting
technologies. Interestingly, in countries where opinion polls have
been produced by association of firms themselves, such as in UK,
it has emerged that the business sector would welcome the in-
troduction of green taxes since the definition of the tax base, tax
rates, exemptions etc., would create the climate of certainty ne-
cessary to take decision about investments. The uncertainty about
public sector endorsement of a precise environmental policy is
deemed the greatest obstacle to private investment.
It seems that the time for a green tax reform has come but
while the literature is already well equipped with theoretical res-
ults, more empirical studies are necessary, especially in some
countries, such as Italy. To conduct such studies specific data
which are not available at present are necessary. This fact comes
as a confirmation that many changes in the economy, namelyy
those traceable to the pollution effects of consumption and pro-
duction patterns, have been overlooked and therefore not even
caught by the statistical offices.
This special issue aims to encourage the study of fiscal re-
forms – consistent with the ongoing environmental problems. Dis-
seminating concepts and results and addressing a variety of issues
under different perspectives and in relation to different countries,
has been the focus of the papers included here.
To provide the reader with a roadmap to the special issue, we
have grouped the eight papers under three main titles. Besides an
opening section devoted to the general issues, we choose to have