Abstract
The aim of this paper is to argue the applicability of the Pigouvian tax on negative externalities such as carbon emissions. Our approach is based on the fierce debate between Pigou’s followers and opponents from which we can underline the tax’s primary flaws and advantages to enable us to propose a viable and efficient taxation system that would have a declining effect on carbon emissions. To construct a carbon-impacting tax, we propose an analysis of the fundamental rationale that led to the construction of Pigou’s theory on eliminating negative externalities using taxation.
Our paper tries not to defend or deny the Pigouvian view but instead to propose an improved form of tax on negative externalities such as carbon emissions. We consider that the sustainability of carbon taxation depends not only on its ability to internalise the external cost of pollution but also on its ability to enhance the transition towards sustainable sources of energy and environmentally friendly technologies.
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Notes
- 1.
The double-dividend hypothesis holds that environmental taxation can have two inter-related outcomes: increased environmental protection through pollution reduction and increased efficiency of the fiscal system. To achieve the second outcome or “dividend”, the revenues resulted from environmental taxation can be “recyclated” by cutting existing, distortionary taxes.
- 2.
Revenue recyclation according to the double-dividend hypothesis is the instrument used to produce the second outcome: decreasing the distortionary effect of pre-existent direct taxation. Carbon taxation enactment should be followed by cuts to other direct taxes, such as income and capital gains, so that the revenues collected from environmental levies are “recyclated” to decrease the excess burden of the current fiscal system.
- 3.
We decided to use panel-data multiple regression to focus our analysis on a large number of observations over different countries, which would provide more efficient and asymptotically consistent estimates. Stepwise regression using the backward method of including all of the independent variables in a single multiple regression was used. This method offers the possibility of choosing the “best” set of explanatory variables for a regression model. We expect that the estimates obtained will confirm the previous correlation results, which show that the impact of public spending on environmentally related R&D will have a minor or even a negative impact on green innovation.
- 4.
The augmented Dickey-Fuller test (ADF) and the Levin, Lin and Chu test were used.
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Nerudová, D., Dobranschi, M. (2016). Pigouvian Carbon Tax Rate: Can It Help the European Union Achieve Sustainability?. In: Huber, P., Nerudová, D., Rozmahel, P. (eds) Competitiveness, Social Inclusion and Sustainability in a Diverse European Union. Springer, Cham. https://doi.org/10.1007/978-3-319-17299-6_8
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DOI: https://doi.org/10.1007/978-3-319-17299-6_8
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