How taxes of local governments can contribute to climate goals

Abstract

This article examines the roles (local) taxes can play in pursuing climate goals. The authors analyse the factors within the Dutch context which are limiting, and which are contributing to the effectiveness of the use of local taxes in the pursuit of climate goals. On the one hand, (local) taxes can serve their primary purpose: Funding government spending, for example the creation of certain sustainable facilities. On the other hand, taxes can give a financial incentive to influence behaviour by improving the business case for sustainable solutions or make unsustainable behaviour more expensive or sustainable behaviour financially more attractive. This article presents examples of both funding sustainable facilities as of stimulating desired sustainable behaviour by means of a certain Dutch local tax measure. Despite the examples presented, we conclude that under the current legislative restrictions, in the Netherlands local taxes can play a modest role within the sustainability policy of local governments. The research into the current legal restrictions and possibilities for achieving climate goals with local taxes in the Netherlands leads to an analysis of insights that are also relevant outside the Dutch context.