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Collection and Incidence of Green Taxes

Collection and Incidence of "Green" Taxes

There are multiple different ways an ecotax can be levied, which adds to the versatility of the tax.

  • A severance tax can be applied to the extraction and export of the raw materials like oil that are tied to such an externality as air pollution. A similar tax can be levied on the importing country or firm.
  • A tax can be imposed on the transport, refinement, and other activities tied to the precursors of the exernality
  • An emission's rate tax based on the amount of the externality-causing chemical produced; eg. a tax of $200 per ton of mercury emitted from a smokestack.
  • Can also be levied on consumers who purchase products that create negative externalities (eg. gas) or are produced using externality causing processes (gas again). This can be in the form of a tax or a license fee .
(Hanley, 285)

These collection methods can be solely employed or combined to provide further disinincentives to continuing to produce the externality.

Incidence of Tax

The incidence of a tax shows who bears the burden of the tax: how the increased cost caused by the tax is split between suppliers and consumers. The party with the larger share of the burden is said to bear the incidence of the tax. As it relates to green taxes, the higher up the supply chain the tax is imposed (Oil rigs etc.), the more effective the tax will be in preventing the externality from occurring in the first place. Or, at the very least, it will force suppliers to incorporate the damage costs the externality does to society. The further down the pipe the tax is imposed- from the processors to the transporters, sellers and other middle men to the end-user- the less effective the tax is (Hanley, 285). This isn't to say that taxes shouldn't be imposed on these people, or that consumer green taxes couldn't be part of an overall eco-tax structure. It is just that already the incidence of taxes in many cases trickle down the supply chain till it becomes the consumers' burden.
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