How Should Governments Use Revenue from Corrective Taxes?

22 Pages Posted: 1 Feb 2016

See all articles by Donald B. Marron

Donald B. Marron

The Urban Institute

Adele C. Morris

The Brookings Institution

Date Written: January 29, 2016

Abstract

Corrective taxes can encourage healthier, safer, and less polluting behavior. But how should governments use their revenue? Options abound to cut other taxes, boost spending, or reduce borrowing. We organize those uses into four categories: offsetting new burdens, furthering the same goal, compensating people harmed by the taxed activity, or funding unrelated priorities. We illustrate them with examples including greenhouse gas emissions, unhealthy foods, financial transactions, tobacco, gasoline, and other products. We discuss the pros and cons of competing revenue uses and describe tradeoffs across their social benefits and political appeal.

Keywords: internalities, corrective tax, sin tax, pigouvian tax, externalities, government budgets, tax revenue

JEL Classification: H23, Q58

Suggested Citation

Marron, Donald B. and Morris, Adele C., How Should Governments Use Revenue from Corrective Taxes? (January 29, 2016). Available at SSRN: https://ssrn.com/abstract=2724133 or http://dx.doi.org/10.2139/ssrn.2724133

Donald B. Marron (Contact Author)

The Urban Institute ( email )

2100 M Street, NW
Washington, DC 20037
United States

Adele C. Morris

The Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/morrisa.aspx

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