On the Political Economy of Green Tax Reforms
Univ. of Aarhus Dept. of Economics WP 1997-20
Posted: 21 Jan 1998
Date Written: 1997
Abstract
This paper offers a political model of green tax reforms in which the use of the revenue from the ecotax is an integrated part. We use the model to explain why and when a link between an ecotax and cuts in other non-environmental taxes can be expected. In our model, green tax swaps arise because a producer lobby group, even if the use of the revenue does not affect profits per se, takes an interest in the allocation of revenue from the ecotax. The reason being that the lobby group uses the allocation of the revenue to reduce the "price" of other political favors that it cares a lot about. To this end, the lobby group acts in the best interest of the voters and to the extent that the voters prefer tax cuts on labor income. The paper also analyzes the environmental impact of various budgetary procedures and discusses to what extent the revenue from an ecotax can be used to create a constituency in favor of the environmental protection.
JEL Classification: D72, D78, H23, H41
Suggested Citation: Suggested Citation