The Misinterpretation of Pigouvian Taxes

Abstract

The tax revenues from Pigouvian taxes are difficult to calculate. The optimal pollution taxes are weighted averages of Ramsey taxes and Pigouvian taxes, and the entanglement of environmental, fiscal and other taxes complicate the meas- urements. The present international environmental tax statistics do not rely on a theoretical basis, and include several fiscal and resource taxes. Starting with the additivity theorem by Sandmo [1], we propose theoretically consistent guidelines for environmental tax statistics. Calculations based on this framework prove that the present international official statistics (Eurostat, IEA, OECD) severely overestimate environmental taxes. The lack of theoretical consistency forms arbitrary results and the statistics used as measures of environmental taxes may cause major flaws in research and policy-making based on such statistics. Keywords: