Pollution Charges as a Source of Public Revenues
The economic theory of environmental regulation revolves around the concept of an externality — a form of social cost that is not borne by the agent who is its source. The theory carries with it a straightforward policy implication: to correct for the misallocation, in this case excessive emissions of pollutants, the regulatory agency can place a charge, a unit tax, on the offending activity that is equal to the marginal social damage. Such a Pigouvian tax serves to internalize the social cost associated with polluting emissions and can sustain an economically efficient level of environmental quality.
KeywordsDioxide Europe Income Arena Abate
Unable to display preview. Download preview PDF.
- Ballard, C.L., J.B. Shoven and J. Whalley. 1985. “General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States.” American Economic Review 75 (March): 128–138.Google Scholar
- Barde, J.-P. 1991. “The Use of Economic Instruments for Environmental Protection in OECD Countries.” Unpublished paper.Google Scholar
- Baumol, W.J. and W.E. Oates. 1988. The Theory of Environmental Policy. Second Edition. Cambridge: Cambridge University Press.Google Scholar
- Brennan, G. and J. Buchanan. 1980. The Power to Tax: Analytical Foundations of a Fiscal Constitution. Cambridge: Cambridge University Press.Google Scholar
- Cropper, M.L. and W.E. Oates. 1992. “Environmental Economics: A Survey.” Journal of Economic Literature 30 (June): 675–740.Google Scholar
- Fullerton, D. 1991. “Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation.” American Economic Review 81 (March): 302–308.Google Scholar
- Hahn, R.W. 1989. “Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor’s Orders.” Journal of Economic Perspectives 3 (Spring): 95–114.Google Scholar
- Oates. W.E. and R.M. Schwab. “Economic Competition among Jurisdictions: Efficiency Enhancing or Distortion Inducing?” Journal of Public Economics 35(April): 333–354.Google Scholar
- Smith, A. 1937. The Wealth of Nations. New York: Random House, The Modern Library.Google Scholar