Samenvatting Green taxation
Lecture 1 Societal challenges for taxation
A Planetary boundaries, SDGs and taxation
Goal: description of the background for the role of government incentives to steer transitions
2. Key Global Challenges Impacting Tax Policy
Four main critical developments:
A. Global challenges for planet earth: overexploitation
B. Global responses: Sustainable Development Goals
C. International fragmentation: transition from OECD power to Power of Blocks
D. Incoherent policies: some stimulate activities that others try to control
SDGs no longer focus on GDP only
social welfare matters (not only consumption)!
Explicit recognition of concerns about environmental sustainability
limits matter (account for local and global resources and environment)!
Much more then explicit targets
more than lip service matters (e.g. European Semester)!
Broad coverage of countries
also developed countries matter (fairness; ecological debt)!
1
,4. System Perspective and Choice Behavior
Key challenge is proper reduction of complexities to essentials such as
A. ambition as defined by the transition(s) challenge(s)
B. system (‘landscape’) description relevant parameters (accounting in ‘value units’)
C. behavior and constraints of different actors
D. explanation of failure and recipes for change
Economic approach offers coherent framework to discuss these essentials:
Ambitions are translated in (measurable) goals and instruments
Allows for system accounting (‘both physical representation and valuation of relevant
stocks and flows’)
Represents behavior by choices in many circumstances (‘markets’)
Has a theory of system failure and change (‘incentives’ matter)
How to assess the developments and ambitions sketched in section 2?
Distinguish carefully between three perspectives on social sciences:
Descriptive: describing stocks and flows Production and Consumption System with
Environmental System at a given point in time (‘accounting’)
Explanatory (‘positive’): explaining what drives observable interactions (choice
behavior under constraints) plus empirical causality issues
Normative: what would be desirable from a societal point of view
Focus in lectures on this ‘economic’ approach
A. Anthropocentric perspective: choice behavior key
B. System view: accounting (both physical and monetary stocks and flows)
C. Managing societies through markets & governments in face of scarcity
Choice behavior (individuals) focal point (but also institutions matter such as firms,
agencies, political parties, etc)
Markets everywhere:
for consumption: different products with many characteristics (‘commodities ‘)
for production: for factors (labor, capital and… energy/environment) and products
for political power: voting for representation (unless autocracy)
But markets are incomplete or even do not exist :
2
, for waste or pollution (‘negative externalities’)
for innovation (‘positive externalities’)
for ‘common’ or public goods
for some preferences (self control, etc) or ‘merit goods’
Goals, instruments and welfare as our tools of analysis
Transition: from ‘dirty’ to ‘clean’, from ‘unjust’ to ‘just’, etc
A social welfare perspective: choice behavior reflected in goals, instruments and
welfare
Assessment top down (‘Plato’) vs bottom-up (‘Aristoteles’)
Markets always key, also their embeddedness (by regulation or the lack of it)
Management requires ideas where to go as society (‘clean’ and ‘just’)
Looking at SDGs from this perspective:
Given goals from government guiding where to go
Goals as aspiration levels in some time frame
But also need for proper instrumentalization (‘regulation’)
5. Role of Government and Principles of Taxation
Markets AND governments:
Governments control for externalities, public and even merit goods or they do not
(organizing level playing fields)
Taxation is a key instrument for financing public goods but also to steer (‘incentivize’)
transitions as government ‘incentives’ like taxes matter (a lot)
Transitions: (Tax) incentives to improve pricing and innovation
5.1. Government’s Role in Externalities and Public Goods
Governments use taxes to provide public goods (like clean air) and correct negative
externalities (like pollution). Visuals illustrate these concepts, showing pollution as an
external cost not reflected in the market price of goods, necessitating government
intervention.
5.2. Taxation Principles: Allocation, Distribution, and Feasibility
Allocation: Taxes should ideally restore efficient resource use, especially where
markets fail.
Distribution: Taxes redistribute wealth and fund essential services.
Feasibility: The practicality of implementing taxes, such as the difficulty of monitoring
emissions for an accurate carbon tax.
Ad I: Allocation
Study of the allocation of resources (and goods) is devoted to finding the conditions under
which particular mechanisms of resource allocation lead to Pareto efficient outcomes, in
which no party's situation can be improved without hurting that of another party
Taxes distort allocation unless markets fail (externalities, public goods)
Proper corrective taxation could restore first best (see next week)
Ad II: Distribution
3
, Distribution is the way total output, income, or wealth is distributed among
individuals or among the factors of production (such as labour, land and capital)
Taxation causes a redistribution from owners of output, income or wealth to the
government in order to finance public goods production (e.g. education, health, etc)
In corrective taxation, e.g. in the case of an environmental distortion, a tax
intervention causes also causes a redistribution relative to the case without
intervention
Fairness or ‘just’ taxation requires a yardstick against which utility across individuals
is weighted (e.g. by using a social indifference curve)
Ad III: Feasibility (‘administrative cost’)
(Corrective) taxes may be costly to implement and therefore are not always possible
(‘first best’)
Other interventions might be more efficient (‘less costly to implement’)
This could be other, more indirect taxes
Or other instruments such as tradeable emission permits, subsidies, information
provision, etc
Lecture 2: Property Rights, Markets, and Externalities
Theory of corrective taxation
1. Characterizing Markets for Goods
Key focus in economics is choice behavior under constraints: scarcity matters and drives
behavior of agents (consumers, producers, voters, etc)!
Definition of economic science (Robbins 1936):
Economics is the science which studies human behavior as a relationship between ends
(‘preferences’) and scarce means (‘constraints’) which have alternative uses
Applicable to a very wide range of goods (‘markets’), institutions (firms, policy makers
(political parties, bureaucrats, etc), and information transmitters (money, votes, physical
feedbacks, etc)
Both at the market level (‘partial equilibrium’) as well as for society as a whole
(‘general equilibrium and social welfare’)
Start with well-known partial equilibrium analysis of a market (1 good, 1 market)
Property rights:
guarantees proper working of transactions – including the role of money – by rule of
law
Includes all inputs (labor, capital) including natural resources
Two sides of markets:
Preferences and choice behavior by consumers: weighing utility of market goods with
their prices given their income (constraint)
4
Lecture 1 Societal challenges for taxation
A Planetary boundaries, SDGs and taxation
Goal: description of the background for the role of government incentives to steer transitions
2. Key Global Challenges Impacting Tax Policy
Four main critical developments:
A. Global challenges for planet earth: overexploitation
B. Global responses: Sustainable Development Goals
C. International fragmentation: transition from OECD power to Power of Blocks
D. Incoherent policies: some stimulate activities that others try to control
SDGs no longer focus on GDP only
social welfare matters (not only consumption)!
Explicit recognition of concerns about environmental sustainability
limits matter (account for local and global resources and environment)!
Much more then explicit targets
more than lip service matters (e.g. European Semester)!
Broad coverage of countries
also developed countries matter (fairness; ecological debt)!
1
,4. System Perspective and Choice Behavior
Key challenge is proper reduction of complexities to essentials such as
A. ambition as defined by the transition(s) challenge(s)
B. system (‘landscape’) description relevant parameters (accounting in ‘value units’)
C. behavior and constraints of different actors
D. explanation of failure and recipes for change
Economic approach offers coherent framework to discuss these essentials:
Ambitions are translated in (measurable) goals and instruments
Allows for system accounting (‘both physical representation and valuation of relevant
stocks and flows’)
Represents behavior by choices in many circumstances (‘markets’)
Has a theory of system failure and change (‘incentives’ matter)
How to assess the developments and ambitions sketched in section 2?
Distinguish carefully between three perspectives on social sciences:
Descriptive: describing stocks and flows Production and Consumption System with
Environmental System at a given point in time (‘accounting’)
Explanatory (‘positive’): explaining what drives observable interactions (choice
behavior under constraints) plus empirical causality issues
Normative: what would be desirable from a societal point of view
Focus in lectures on this ‘economic’ approach
A. Anthropocentric perspective: choice behavior key
B. System view: accounting (both physical and monetary stocks and flows)
C. Managing societies through markets & governments in face of scarcity
Choice behavior (individuals) focal point (but also institutions matter such as firms,
agencies, political parties, etc)
Markets everywhere:
for consumption: different products with many characteristics (‘commodities ‘)
for production: for factors (labor, capital and… energy/environment) and products
for political power: voting for representation (unless autocracy)
But markets are incomplete or even do not exist :
2
, for waste or pollution (‘negative externalities’)
for innovation (‘positive externalities’)
for ‘common’ or public goods
for some preferences (self control, etc) or ‘merit goods’
Goals, instruments and welfare as our tools of analysis
Transition: from ‘dirty’ to ‘clean’, from ‘unjust’ to ‘just’, etc
A social welfare perspective: choice behavior reflected in goals, instruments and
welfare
Assessment top down (‘Plato’) vs bottom-up (‘Aristoteles’)
Markets always key, also their embeddedness (by regulation or the lack of it)
Management requires ideas where to go as society (‘clean’ and ‘just’)
Looking at SDGs from this perspective:
Given goals from government guiding where to go
Goals as aspiration levels in some time frame
But also need for proper instrumentalization (‘regulation’)
5. Role of Government and Principles of Taxation
Markets AND governments:
Governments control for externalities, public and even merit goods or they do not
(organizing level playing fields)
Taxation is a key instrument for financing public goods but also to steer (‘incentivize’)
transitions as government ‘incentives’ like taxes matter (a lot)
Transitions: (Tax) incentives to improve pricing and innovation
5.1. Government’s Role in Externalities and Public Goods
Governments use taxes to provide public goods (like clean air) and correct negative
externalities (like pollution). Visuals illustrate these concepts, showing pollution as an
external cost not reflected in the market price of goods, necessitating government
intervention.
5.2. Taxation Principles: Allocation, Distribution, and Feasibility
Allocation: Taxes should ideally restore efficient resource use, especially where
markets fail.
Distribution: Taxes redistribute wealth and fund essential services.
Feasibility: The practicality of implementing taxes, such as the difficulty of monitoring
emissions for an accurate carbon tax.
Ad I: Allocation
Study of the allocation of resources (and goods) is devoted to finding the conditions under
which particular mechanisms of resource allocation lead to Pareto efficient outcomes, in
which no party's situation can be improved without hurting that of another party
Taxes distort allocation unless markets fail (externalities, public goods)
Proper corrective taxation could restore first best (see next week)
Ad II: Distribution
3
, Distribution is the way total output, income, or wealth is distributed among
individuals or among the factors of production (such as labour, land and capital)
Taxation causes a redistribution from owners of output, income or wealth to the
government in order to finance public goods production (e.g. education, health, etc)
In corrective taxation, e.g. in the case of an environmental distortion, a tax
intervention causes also causes a redistribution relative to the case without
intervention
Fairness or ‘just’ taxation requires a yardstick against which utility across individuals
is weighted (e.g. by using a social indifference curve)
Ad III: Feasibility (‘administrative cost’)
(Corrective) taxes may be costly to implement and therefore are not always possible
(‘first best’)
Other interventions might be more efficient (‘less costly to implement’)
This could be other, more indirect taxes
Or other instruments such as tradeable emission permits, subsidies, information
provision, etc
Lecture 2: Property Rights, Markets, and Externalities
Theory of corrective taxation
1. Characterizing Markets for Goods
Key focus in economics is choice behavior under constraints: scarcity matters and drives
behavior of agents (consumers, producers, voters, etc)!
Definition of economic science (Robbins 1936):
Economics is the science which studies human behavior as a relationship between ends
(‘preferences’) and scarce means (‘constraints’) which have alternative uses
Applicable to a very wide range of goods (‘markets’), institutions (firms, policy makers
(political parties, bureaucrats, etc), and information transmitters (money, votes, physical
feedbacks, etc)
Both at the market level (‘partial equilibrium’) as well as for society as a whole
(‘general equilibrium and social welfare’)
Start with well-known partial equilibrium analysis of a market (1 good, 1 market)
Property rights:
guarantees proper working of transactions – including the role of money – by rule of
law
Includes all inputs (labor, capital) including natural resources
Two sides of markets:
Preferences and choice behavior by consumers: weighing utility of market goods with
their prices given their income (constraint)
4
