Premium
DESIGNING ECONOMIC INSTRUMENTS FOR THE ENVIRONMENT IN A DECENTRALIZED FISCAL SYSTEM
Author(s) -
Alm James,
Banzhaf H. Spencer
Publication year - 2012
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.2010.00632.x
Subject(s) - decentralization , externality , economics , scope (computer science) , public economics , government (linguistics) , enforcement , public finance , work (physics) , local government , macroeconomics , economic system , microeconomics , market economy , public administration , mechanical engineering , linguistics , philosophy , computer science , political science , law , programming language , engineering
When external effects are important, markets will be inefficient, and economists have considered several broad classes of economic instruments to correct these inefficiencies. However, the standard economic analysis has tended to take the region, and the government, as a given; that is, this work has neglected important distinctions and interactions between the geographic scope of different pollutants, the enforcement authority of various levels of government, and the fiscal responsibilities of the various levels of government. It typically ignores the possibility that the externality may be created and addressed by local governments, and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems. This paper examines the implications of decentralization for the design of corrective policies; that is, how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services and to choose tax instruments that can both finance these expenditures and correct the market failures of externalities?