Tax Reform in Open Economies
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Tax Reform in Open Economies

International and Country Perspectives

Edited by Iris Claus, Norman Gemmell, Michelle Harding and David White

The eminent contributors (including Altshuler, Creedy, Freebairn, Gravelle, Heady, Kalb, Sørensen and Zodrow) investigate the beneficial directions for medium-term tax reform in the light of global developments and lessons from the latest taxation research. In addressing this issue, they review recent advances in both the theoretical and empirical tax literature and reform evidence from individual countries. Topics covered include the impact of taxes on economic performance; international and corporate taxation; personal tax and welfare systems; environmental taxation; and country-specific tax reform experiences.
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Chapter 11: Improving Lake Water Quality Through a Nutrient Trading System: The Case of New Zealand’s Lake Rotorua

Suzi Kerr and Kelly Lock


Suzi Kerr and Kelly Lock* INTRODUCTION 11.1 This chapter is concerned with how public policy should respond to allocate the social costs of abating water pollution – in this case, Lake Rotorua, one of New Zealand’s largest lakes, where water quality is declining due to increasing nutrient run-off. The chapter examines how the social benefits and costs of water quality improvements in Lake Rotorua could be shared. In this case, a simple environmental tax instrument is not likely to be the best option as it does not limit the quantity of nutrient loss, which is what determines the lake’s water quality. Rather this chapter proposes a ‘nutrient trading system’. This would consist of tradable ‘nutrient allowances’ which limit allowable nutrient losses into the lake by setting the total allowances equal to an environmental ‘goal level’. All potential nutrient loss sources would be monitored and required to surrender allowances to cover the nutrient loss at the end of each trading year. An interesting aspect of this particular pollution problem is that it can take anything from zero to 200 years for nutrients applied to farmland in the catchment area to reach the lake. This raises especially tricky issues concerned with how pollution costs can, and should, be allocated. We show how different options for allocating nutrient allowances and achieving pollution reductions over time conform with standard cost-sharing principles. Deciding who should pay for improvements in lake water quality is always a politically challenging issue. Our aim in this chapter is to clarify...

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