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The Non-Polluter-Gains Principle in Environmental Taxation

 Evy Crals and Lode Vereeck (2007)

In the literature, tradable permits are considered more effective than Pigouvian taxes (Tietenberg, 2001; Koutstaal and Nentjes, 1995). It is often claimed, however, that the transaction costs of tradable permits schemes are prohibitively high. This argument is seriously flawed resting on an inaccurate and incomplete definition of transaction costs (Crals and Vereeck, 2005). However, at the start, the implementation of new environmental policies can give rise to huge set-up costs. Since modern states already have extensive tax administrations, the set-up costs for environmental tax schemes are relatively low and sunk. It follows that the marginal transaction costs of environmental tax measures are considerably lower than those of innovative policy instruments such as tradable permit systems. Hence, from a policy management perspective, it makes perfect sense in some cases to adapt taxes in spite of their lower effectiveness. This article tries to find ways to improve the effectiveness of environmental taxation by incorporating elements from a tradable permit system. More specifically, we aim not only to make polluters pay, but also to reward non-polluters. To that end, this paper explores the feasibility of using a transport tax deductible as an alternative for taxation and tradable permits in curbing the negative externalities of road transport.

in: J├╝rgen Backhaus (ed.), Fiscal Sociology. Public Auditing, Frankfurt: Peter Lang, p. 195-213. ISBN 978-3-631-56016-7

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