Why did Argentina and Uruguay decide to pursue a carbon tax? Fiscal reforms and explicit carbon prices

Since 2014, carbon taxes have been spreading in South America. Counterintuitively, while they are primarily considered climate policies, their adoption has been largely driven by causes unrelated to the reduction of greenhouse gas emissions. The carbon tax policymaking literature has overlooked the causes that trigger the causal mechanisms for adopting carbon taxes and has instead centered on parts of the causal mechanism. Focusing on the very beginning of the process, namely the causes triggering the decision to pursue carbon taxes in Argentina and Uruguay, this study both contributes to the carbon tax policymaking literature and to the burgeoning application of logical Bayesian analysis in qualitative studies. According to previous studies, the pursuit of carbon taxes inherently entails political challenges linked, among others, to its potential regressive impacts and effects on industries, which makes the sudden rise of carbon taxes in Argentina and Uruguay surprising. Based on 26 expert interviews and a desk review, the study applies a logical Bayesian analysis to study potential causes structured around mutually exclusive hypotheses consistent with the carbon tax policymaking literature. It shows that the causes for pursuing carbon taxes in Argentina and Uruguay are not primarily related to mitigation. Instead, Argentina conceived carbon taxation as part of a broader reform of its fiscal system, and Uruguay as a way to make explicit the already high implicit carbon price.     

Environmental Tax,Polluting Plants’ Strategies and Effectiveness: Evidence from China

Although environmental taxes have become a popular policy tool, their effectiveness for pollution control and impact on the compliance strategies of agents remains questionable. This research uses a quasi‐experimental design to examine the effectiveness of the Pay for Permit policy, an environmental tax that has been imposed on water pollution emissions in Lake Tai Basin, Jiangsu, China, since 2009. A plant‐level panel dataset from 2007 to 2010 is used for both difference‐in‐differences and difference‐in‐difference‐in‐differences analyses to compare the pollution discharge, pollution abatement, and pollution generation of policy participants and control groups. The results indicate that treated plants reduce their emissions by about 40 percent after two years of the policy implementation. Thus, the policy generated approximately a 7 percent decrease in the industrial chemical oxygen demand emission in the entire Lake Tai Basin based on the emission level of 2007. Pollution is primarily reduced via end‐of‐pipe abatement instead of cleaner production. Our results show the effectiveness of environmental taxes in controlling industrial pollution, and indicate that the tax may not motivate the adoption of innovative techniques in the short term.     

Carbon Taxation and Policy Labeling: Experience from American States and Canadian Provinces

A vast economics literature embraces taxation of the carbon content of fossil fuels as the superior policy approach for reducing greenhouse gas emissions. However, experience around the world suggests that carbon taxes face exceedingly difficult political hurdles. Federal experience in the United States and in Canada confirms this pattern. This article reviews sub‐federal policy development among American states and Canadian provinces, a great many of which have pursued climate policy development. With one major exception, explicit carbon taxation appears to remain a political nonstarter. At the same time, states and provinces have been placing indirect carbon prices on fossil fuel use through a wide range of policies. These tend to strategically alter labeling, avoiding the terms of “tax” and “carbon” in imposing costs. The article offers a framework for considering such strategies and examines common design features, including direct linkage between cost imposition and fund usage to build political support.     

Does capital mobility reduce the corporate-labor tax ratio?

Previous empirical studies have shown that there is only a small negative (if any) effect of capital mobility on the corporate tax burden. Using data for up to 20 OECD countries in the period 1979–2000 this paper tries to investigate a less rigid hypothesis: Although capital taxes have not substantially declined in the last twenty years the relative burden of corporate to labor taxes may have fallen due to capital mobility. The results suggest that capital mobility has a weak negative impact on the corporate-labor tax ratio. Other factors however, i.e. the size of the country or the share of investment expenditures are more important in explaining the relative tax burden than capital mobility.     

A Tale of Two Taxes: The Fate of Environmental Tax Reform in Canada

Policy makers who embrace market‐based approaches to environmental regulation, typically eschew carbon taxes in favor of the political advantages of cap and trade, which offers lower visibility of costs to consumers and the opportunity to allocate valuable permits freely to industry. Against this backdrop, the article examines two surprising proposals for carbon taxes, by the government of British Columbia (BC) and by the federal Liberal Party of Canada. Both reflected a triumph of party leaders' normative “good policy” motives over “good politics.” The BC tax alone succeeded first because it was adopted by a party already in government. Second, the onset of a recession before the next elections shifted voters' attention to the economy, which advantaged the BC Liberals but disadvantaged their federal counterparts. However, proposals for carbon taxes were unpopular in both jurisdictions, offering a cautionary tale concerning the fate of politicians' normative commitments absent electoral backing.     

Changing the Federal Tax Philosophy: A National Value-Added Tax or Retail Sales Tax?

Moving the federal government from its heavy reliance on taxes on income and profits to taxes on general consumption has been proposed as a way to improve equity, economic efficiency, and transparency of the tax system. The value-added tax and the retail sales tax offer economically equivalent approaches to general consumption taxation, differing only in how they are administered. A comparison of the two taxes as they now operate, however, suggests considerable advantage for the value-added tax as a national revenue source. Only in terms of requiring fewer businesses to collect the tax is there an advantage to the retail sales tax. The value-added tax is superior or equivalent to the retail sales tax in other important fiscal criteria.     

Unintended Consequences of Local Sales Tax: Capitalization of Sales Taxes into Housing Prices

Local governments are under pressure to look for alternatives to property taxes as their main revenue source. One response has been to adopt local sales taxes. Prior studies offer little guidance on whether and how much local governments enhance their revenue capacity with local sales taxes. This article unveils the underlying mechanisms by exploring the capitalization of sales taxes into housing prices as a property tax base measure. The empirical analysis reveals a capitalization of local sales taxes into housing prices, indicating the reduction of property tax bases in higher sales tax areas from the long-term perspective. The findings suggest that a sales tax rate increase might not raise local revenue capacity as much as policymakers intend.     

The incentive effects of property taxes on local governments

This paper applies the ideas of Brennan and Buchanan (1977, 1978, 1980) to local property taxes. When local governments maximize their revenues, property taxes provide incentives for adequate amenity provision. Local amenity provision determines property values which then determine local tax revenues. As long as the demand for housing is inelastic, property-taxes will provide stronger incentives for local governments than lump-sum taxes. As current property values reflect expectations about future amenity levels, property taxes create incentives for even the most myopic government to invest for the future. Local property taxes can also act to limit the incentives of localities to tax; there are cases where higher levels of local property taxes lead to lower overall tax burdens. These ideas are applied to the tax reform in the late 1970s; one reason that tax reform may have been so successful is that in a period where land prices are driven by many forces other than government amenities, property taxes lose their value as incentive devices.     

Tax decentralization and local government size

This paper investigates the relationship between fiscal federalism and the sizes of local governments. While many empirical studies emphasized that grants encourage the growth of local public spending and local taxes constrain it, they are more silent regarding the effects of different types of tax autonomy. The paper addresses this issue by arguing that tax decentralization as organized on tax bases used only by local governments (tax-separation), rather than on tax-base sharing, would restrain local public expenditures. Using an unbalanced panel of OECD countries, the key finding is that only property taxes—mostly based on a “tax-separation” scheme—seem to favor smaller local governments. Thus, while tax decentralization is a necessary condition for limiting the growth of local governments, it does not appear sufficient, as tax-separation schemes among government levels would in fact be required.     

Administrative problems of the provincial sales tax on beer in Papua New Guinea

With the establishment of provincial government in Papua New Guinea, the Organic Law has conferred on the provincial governments the authority to raise revenue using local revenue bases including retail sales taxes. These taxes have significant advantages and a sales tax on beer has particular benefits in P.N.G. in terms of potential yield and ease of administrative management. The tax is levied on the two breweries and the breweries collect the tax at their breweries and wholesale warehouses on behalf of the provincial governments. For the brewery with the dominant share of the market the arrangement under which it collects the tax for a commission and pays over quarterly to the provincial governments brings financial advantage. The brewery with a smaller share of the market and localized sales is less likely to be benefitting by the arrangement. For the future given expected beer consumption a change from a quantity based tax to ad valorem rates would be financially advantageous to the provincial governments, and would reduce the need for some provinces to seek tax sources elsewhere, but experience shows the general benefit of raising the tax, not at the point of final sale, but on the wholesaler or manufacturer.     

State Sales Tax Policy in a Changing Economy: Balancing Political and Economic Logic Against Revenue Needs

Soon after implementation in the 1930s, the general sales taxes emerged as the largest state tax source. In 1990, income taxes produced nearly as much state revenue as did sales taxes. Although income tax revenue have increased significantly, the sales tax is not in jeopardy of being replaced in the immediate future. The sales tax still remains a vital state fiscal concern, particularly to those states without a broad individual income tax.     

Does the Local‐Option Sales Tax Provide Property Tax Relief? The Georgia Case

This study examines the effect of a one percent local-option sales tax (LOST) on property tax level, millage rate, and total spending level in Georgia counties. The study covers a 13-year period for 136 Georgia counties. The findings suggest that the law, which requires rollback of property taxes when the LOST is used, led to actual property tax relief as well as millage rate reduction. Regression results show that counties collecting the LOST tend to have per capita property taxes that are an average of $12 or 1.8 mills lower than counties that do not collect the tax. Whereas an extra dollar of LOST revenue provides about 28 cents in property tax relief, it leads to an increase in total spending of about 48 cents. In sum, the LOST has achieved the objectives of property tax relief, but on balance it is more an augmentation of than an effective substitute for property taxes in Georgia counties.     

Economic growth and alternative deficit-reducing tax increases and expenditure cuts: A cross-sectional study

This paper assesses empirically the relative desirability of alternative deficit-reducing tax increases and expenditure cuts in terms of their individual impact on economic growth, using cross-sectional data for a sample of 21 developed countries for the period 1972–81.Property taxes are by far superior to deficit financing, and are the best choice for implementing deficit-reducing tax increases. Income taxes and domestic taxes on goods and services, which are as bad for growth as are deficits, rank second with no difference between them. Foreign trade taxes are even worse for growth than are deficits, and are the worst choice for reducing deficits.     

Worldwide experience in sales taxation: Lessons for North America

Worldwide fiscal experience over the past twenty-five years indicates steady expansion in the political and academic constituency for expenditure taxation, including indirect taxes on consumption. Retail levies have emerged as the preferred method of indirect taxation of consumption, as older, pre-retail sales taxes have proven unsuited to modern economic structures. Increasingly, reform of sales taxation has involved a shift to one particular form of tax, the European Community type of value-added tax (VAT). This consumption tax option is again a topic of policy debate in North America, particularly in Canada where a VAT was under active consideration in 1985.This paper sifts through worldwide experience with broad-based sales taxes to identify lessons for tax policy in North America both in the short and longer-run. It indicates that the reputation of such taxes as regressive instruments may have been much exaggerated, and that in any case methods are available, particularly in Canada, for resolving equity issues in sales taxation. The VAT is shown to have marginal economic and administrative advantages over single-stage federal retail taxes in both Canada and the US. However, these advantages are not nearly so significant as in European countries where the VAT was adopted there. Further, sensible debate over the merits and limitations of the VAT in North America will call for much closer scrutiny of the problems unique to this form of tax. Finally, three political issues that were not significant in Europe will likely have an important bearing on any future choices of sales tax instruments, both in the U.S. and in Canada.     

SUPERFUND FINANCING ALTERNATIVES

In 1980 Congress created the Superfund to pay for the selective cleanup of hazardous waste disposal sites. The original Superfund program was financed by earmarked "feedstock" taxes on petroleum and 42 chemicals, and by a "waste-end" tax on hazardous waste received a t disposal facilities. Budgetary authority for the program expired in September 1985. Over a year elapsed before Congress renewed budgetary authority for the program by expanding the feedstock taxes, suspending the waste-end tax, and imposing a new broad-base tax on corporate income. This paper examines the efficiency and equity effects of the current and several alternative Superfund tax policies. Special emphasis is given to the administrative and compliance costs associated with each tax, and the capacity of each to complement EPA regulation of hazardous waste externalities.     

Tax Evasion Across Italy: Rational Noncompliance or Inadequate Civic Concern?

The paper suggests anexplanation for the geographical dimensionof tax evasion that focuses on thestructure of territorial government. Taxesadministered by the central government arenot differentiated by regions. Poor areasmay prefer a combination of lower taxes andlower levels of public services at both thecentral and the local level. This isespecially true when income and wealthlevels differ among the areas and thedemand for publicly provided goods iscorrelated to these levels. But the use ofnationally uniform tax schedules imposes awelfare burden on poorer areas. While thetax rates of local taxes can be adjusted tolocal preferences, tax evasion may betacitly accepted as a compensation for thewelfare loss deriving from too highcentrally set tax rates.     

The tax-welfare mix: explaining Japan's weak extractive capacity

Abstract

Despite having the highest level of public debt in the Organisation for Economic Co-operation and Development (OECD), higher than Greece or Italy, Japan has one of the lowest aggregate tax burdens of the advanced industrial democracies. This paper asks why Japan, once described as a strong developmental state, has had such a weak extractive capacity, an inability to raise revenues to confront deficits and public debt? In contrast to the existing explanations that focus on political institutions, partisan preferences, or economic globalization, this article argues that Japan's ‘tax–welfare mix’ – the combination of taxes and redistributive welfare polices – undermined the state's long-term capacity to secure adequate tax revenue. More than just a source of revenue, taxes can be used directly to achieve redistributive goals, such as targeting low taxes and exemptions to specific groups. This study shows how Japan's tax–welfare mix diminished its extractive capacity through three mechanisms: the political lock-in of a redistributive social bargain struck around low taxes, the timing and sequencing of its tax policy and welfare development, and the erosion of public trust, which undermined tax consent. Beyond offering a new theory of extractive capacity, the tax–welfare mix explains aspects of Japan's tax structure that defy existing explanations and contributes to our understanding of the capitalist development state by highlighting the redistributive political function of tax policy and its long-term impact on state capacity.     

Policy attribute framing: A comparison between three policy instruments for personal emissions reduction

A comparative experiment in the UK examined people's willingness to change energy consumption behavior under three different policy framings: energy tax, carbon tax, and personal carbon allowances (PCA). PCA is a downstream cap‐and‐trade policy proposed in the UK, in which emission rights are allocated to individuals. We hypothesized that due to economic, pro‐environmental and mental accounting drivers PCA would have greater potential to deliver emissions reduction than taxation. Participants (n = 1,096) received one version of a survey with the same energy‐behavior–related questions and identical incurred costs under one of the following framings: energy tax (where carbon was not mentioned), carbon tax, and PCA. Results suggest that policies that draw people's attention to carbon (PCA and carbon taxation) could have greater impact on their stated willingness to reduce energy consumption, and on the reduction amounts prompted, than would a non‐overt price signal (energy tax). There is mixed evidence, however, as to whether PCA or carbon taxation would produce the largest energy demand reductions. Some indication was found for a spillover toward wider carbon conservation under the PCA framing. © 2011 by the Association for Public Policy Analysis and Management.     

Federal tax reform and the financing of state and local governments

Although the Reagan Administration tax reform proposals would reduce federal income tax liabilities for most taxpayers, federal tax reform would also create strong pressures on state and local governments to cut taxes and public services. These pressures would arise primarily because itemizers would no longer be able to deduct state and local taxes in determining their federal income tax liabilities. In New York City and Boston, it is likely that the Administration's tax reform would induce cuts in spending that range from 2.5 to 7.5 percent. While the elimination of state and local tax deductibility may promote allocative efficiency in the provision of local public goods, the cost would be a decline in the degree of redistribution through the state and local public sector, and a reduction in local public services for the poor.     

Tax exporting,federal deductibility,and state tax structure

This paper studies the interaction between the federal and state tax systems during the 1980s and, in particular, considers how the Tax Reform Act of 1986 affected state tax structure. Using a panel data set on state governments over a nine-year period, I estimate tax share equations for six categories of taxes. I find that the state personal income tax is sensitive to changes in its tax price, but find a much smaller sensitivity to changes in tax prices for the general sales tax. I then consider various reasons why the sales tax does not exhibit a sensitivity to changes in tax price and consider the implications of these results for policymakers. The regression results suggest that different income groups are concerned with different tax instruments. Moreover, the results motivate a possible benefit approach to taxation at the state level. Linking taxes, about which a particular income group is most concerned, to services received by that group might generate additional political support for state tax systems during a time when many states are facing fiscal crisis.