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Behavioral and Distributional Effects of Environmental Policy$
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Carlo Carraro and Gilbert E. Metcalf

Print publication date: 2000

Print ISBN-13: 9780226094816

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226094809.001.0001

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Green Taxes and Administrative Costs: The Case of Carbon Taxation

Green Taxes and Administrative Costs: The Case of Carbon Taxation

(p.91) 3 Green Taxes and Administrative Costs: The Case of Carbon Taxation
Behavioral and Distributional Effects of Environmental Policy

Sjak Smulders

Herman R. J. Vollebergh

University of Chicago Press

Implementing environmental policies — through standards, tradable permits, or environmental taxes alike — is far from costless. For instance, when implementing an environmental tax, the tax department has to run a special unit to enforce and collect taxes and to monitor compliance. In practice, the costs of implementing environmental policies play a significant role in the choice between policy options. This chapter investigates the potential trade-off between administrative costs and incentives of environmental regulation, in particular if the government aims to reduce carbon dioxide emissions. It analyzes how the optimal choice of carbon taxes is affected by the administrative costs incurred by the regulator (government). Using a simple model, the chapter determines the optimal rates for emissions and input taxes in the presence of administrative costs and which of these taxes should optimally be introduced. It also explores and interprets the scarce empirical evidence on administrative costs of taxation in the light of optimal carbon taxation. Finally, it evaluates both explicit and implicit carbon taxation in OECD countries in terms of the trade-off and suggests some opportunities for welfare-improving carbon tax policies.

Keywords:   carbon taxes, administrative costs, environmental regulation, incentives, carbon dioxide emissions, OECD countries, trade-off

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