March 29, 2008
The Undercover Economist: Green lite
I recently discovered that I am entitled to an occasional tax-free breakfast, because I cycle to work. (The UK government advises that “Under general principles such meals are a taxable benefit in kind but regulations exempt them from tax, as long as they are provided on designated ‘cycle to work’ days.’’) Good to know – and a reminder that the idea of using the tax system to promote environmental goals has taken a wrong turn somewhere.
The basic idea behind green taxes is sound. Since people usually respond to financial incentives, whenever something is taxed they tend to do less of it. Usually, that is a problem. When the government taxes income, we slack off. When the government taxes moving house, we may stay in the wrong size house on the opposite side of town from our new job. What’s more, whenever the tax dissuades someone from earning income or moving house, the tax office loses out as well.
But when the government levies a “green tax’’ – that is, a tax on some polluting activity – these vices become virtues. If the tax does not dissuade the polluters, they pay through the nose, funding public spending or tax cuts on the rest of us. And if the tax does dissuade the polluters, all the better, because pollution will fall.
The remainder of this column can be read here. Please post comments below.
I am not sure that conclusion is correct, though you only echo that of Parry and Small.
Because while the US tax on gas should be higher according to their analysis, I think the article actually suggests is that in the UK there is a very high requirement for “congestion” charging but petrol taxes are not a good substitute…
true so far, and the personal impact of pollution and accident and global warming does not warrant such high taxes - again no argument there.
But “poor” substitute though it is, petrol taxes are still possibly the “best available” short-term substitute for true congestion pricing. So not ideal, but petrol taxes have many of the same general incentives.
So I think what Parry and Small actually said was that more sophisticated congestion charging is needed, based on miles travelled, roads travelled, time travelled. But in the absence of that, surely petrol tax is a sensible “temporary” alternative.
Posted by: RNB | March 29th, 2008 at 6:19 pm | Report this commentI am not sure that this is very helpful as very little indication is given of the premises of the study. It seems to me that the authors assume that the most important externality is congestion. I am not sure that this is still the case. Lowering CO2 conditions may be a more important consideration now and the interest in reintroducing the fuel tax escalator has been encouraged by concerns about global warming. While high taxes might have limited effects in driving down congestion, they might be more effective in getting drivers to switch to less polluting cars. Certainly there is a massive difference in average emissions between Europe and the US now.
Obviously, however, petrol taxes are regressive. For that reason, the policy of slapping higher sales tax on polluting vehicles or some equivalent strategy makes a lot of sense.
Posted by: Craig | March 30th, 2008 at 4:39 pm | Report this commentI used to walk to work, which is probably even greener than cycling (although, who knows - I wear English-made shoes, my Nike and Ferrogamo-sporting colleagues might have racked up the shoe-airmiles). Do I get tax-exempt brekky as well? Would I have had to organize a ‘walk to work’ day?
Posted by: wowbagger | March 31st, 2008 at 7:03 am | Report this commentIf we are talking about ‘green subsidies’ for increased energy usage through concessionary tax rates, surely the prize goes to aviation fuel - tax AND duty free.
Posted by: student | March 31st, 2008 at 1:15 pm | Report this comment