Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Ana Yábar Sterling, Pedro Herrera, Janet E. Milne and Hope Ashiabor
Chapter 1: Improving the methodology for measuring the greening of the tax system
The ‘greening of a (national) tax system’ is usually measured using two indicators: the revenues from environmentally related taxes as a percentage of GDP, and the revenues from environmentally related taxes as a percentage of the total tax revenues for a country. Both indicators have the advantage that the required data are gathered by almost all countries on a yearly basis. Moreover, they are easy to aggregate and suitable for international comparison. But there is one important drawback: revenues rise when the tax base (pollution) increases. This might lead to the conclusion of a greening tax system, while the tax rates might not have changed at all. In this chapter, we first explore the theoretical concept of the ‘greening of a tax system’. Then we will explore alternative indicators measuring the greening of a tax system. We develop a simple analytical framework. In this, next to the revenue-based indicators, three alternative types of indicators are evaluated using seven evaluation criteria: validity, data availability, comparison over time, international comparability, ease of aggregation, inclusion of exemptions and tax cuts, and limited complexity. Finally, conclusions are drawn with regard to the strong points and the weaknesses of the four types of indicators, and recommendations are formulated for optimizing the analysis of the greening of a tax system.
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