The Social Impacts of Environmental Taxes: removing regressivity

Duration:

April 2002 to January 2004

PSI researchers:


Simon Dresner

Background, summary and aims

Background

Concerns are often expressed that environmental taxes will have regressive effects (i.e. have a disproportionate negative impact on the poor). This does not need to be the case. A number of measures have been proposed that would mitigate or completely offset these effects. However, in the UK there is still little research which shows precisely how environmental taxes should be implemented in order not to have regressive effects.

The research undertaken by this project aims, in respect of the use of domestic energy, water, road fuels and the disposal of household waste, to:

  • analyse the household consumption of, and household expenditures on, these environmental resources, especially in respect of low-income groups, identifying the likely incidence and magnitude of any regressive effects that might be introduced by taxing these resources (or by charging for their consumption according to use);
  • propose practical measures to remove these regressive effects, and analyse their social, economic and administrative implications; and
  • present the results of the research in such a way that it is fully accessible to, and answers the questions of, policy makers.

Project Design

The project will employ a number of research methods. Existing national datasets will be analysed to yield the patterns of use of and expenditure on a range of basic environmental goods. A range of environmental taxes (or methods of charging for use) will be presented which have either been used or proposed to reduce the demand for these environmental resources. The likely impact of these taxes on low-income households will be explored, together with the revenues they might be expected to raise. Three methods of removing any regressive effects will then be analysed: redistributing the revenues through the benefits system; charging differential tariffs; issuing some kind of universal entitlement. Emphasis in the research will be laid on both the effectiveness and the administrative feasibility of these schemes. Conclusions will be drawn as to which are likely to be the most promising means of removing regressivity for the environmental resources identified.

Importance of Research

Although environmental taxes are generally accepted to be effective and efficient means of addressing many environmental problems, their implementation in a number of areas, particularly where the environmental resource in question is important for the satisfaction of basic needs, is currently being impeded by perceptions that they are likely to be regressive. By showing in detail how regressive effects can be avoided it is hoped that this research will both remove obstacles to the implementation of environmental taxes, improve the design of those environmental taxes that are implemented.

Related publications / project outputs

Green taxes and charges: Reducing their impact on low-income households