What is it about?
This paper investigates how a tax revenue allocation rule determines the level of environmental taxation influenced by interest groups. A model of special interest politics is modified to incorporate environmental taxation. Two groups of agents exist. The first group earns wage income, has negative utility derived from pollution generated by energy consumption, and earns a profit share of the energy industry. The second group earns wages and has negative utility from pollution, but does not own shares. The government imposes an ad-valorem pollution tax and spends a proportion of its revenue as compensation for the tax burden on the first group and the remainder on public abatement. Two regimes are considered. First, a resource-rent group lobbies the government to protect its income source. Second, an environmentally conscious group lobbies the government to spend the revenue for pollution reduction. The critical proportion of transfer to tax revenue is derived to achieve the socially optimal rate of environmental taxation, even when the tax rate is subject to the influence of interest groups.
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Why is it important?
Lobbying activities by interest groups may result in inefficient environmental policies, such as Aidt (1998), Schleich and Orden (2000) and Gulati (2008). However, even if the tax rate is subject to the influence of lobbyists, the government could consider a tax revenue allocation rule to interest groups for improving the efficiency of environmental taxation.
Perspectives
A more fundamental question may be how to endogenously determine the level of proportion (see such as Habla and Roeder 2013). Because the critical proportion of transfer to tax revenue is common to two regimes, the analysis suggests that, even if the allocation rule were endogenously determined, the optimal taxation could be achieved under both regimes. Moreover, we have not examined other types of models, such as probabilistic voting. Such factors require further examination.
Prof. (Associate) Minoru Nakada
Graduate School of Environmental Studies, Nagoya University
Read the Original
This page is a summary of: The impact of environmental tax revenue allocation on the consequence of lobbying activities, Economics of Governance, September 2020, Springer Science + Business Media,
DOI: 10.1007/s10101-020-00243-6.
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