A Dictionary of Taxation, Second Edition
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A Dictionary of Taxation, Second Edition

Simon James

This second edition of the Dictionary of Taxation contains over 200 new or substantially revised entries to enhance the existing wide range of accessible definitions and terms used to describe various aspects of tax and tax systems around the world.
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earmarking of taxes

Simon James

Tax earmarking or tax hypothecation involves assigning revenue from a particular tax to a specific part of public expenditure. An extension of the concept would allow taxpayers to assign their taxes to particular uses. There has been some debate about whether earmarking would unduly constrain government or whether it might promote greater democracy if it were possible for taxpayers to vote over different spending decisions and their associated taxes, rather than a single decision on the aggregate level of public spending and taxation. Earmarking arrangements are vulnerable to general public financial pressures. for example, in the UK, in principle the Road fund set up in 1921 was a mechanism by which vehicle and fuel taxes paid for spending on roads. However, those taxes came to be used for general purposes and the independent life of the Road fund finished in 1937.

Further reading

  • BilodeauM. (1994) ‘Tax-earmarking and separate school financingJournal of Public Economics54 (1) 5163.

  • BuchananJ.M. (1963) ‘The economics of earmarked taxesJournal of Political Economy71 (5) 45769.

  • NewberyD.M. and G. Santos (1999) ‘Road taxes, road user charges and earmarkingFiscal Studies20 (2) 10332.

  • TejaR.S. and B. Bracewell-Milnes (1991) The Case for Earmarked Taxes: Government Spending and Public ChoiceLondon: Institute of Economic Affairs.

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  • WilkinsonM. (1994) ‘Paying for public spending: is there a role for earmarked taxes?Fiscal Studies15 (4) 11935.