Who should bear the administrative costs of an emissions tax?

Abstract

Abstract:All environmental policies involve administrative costs, the costs of implementing and managing policies that extend beyond abatement costs. We examine theoretically the optimal distribution of these costs between the public and regulated sources of pollution. The distribution of administrative costs affects social welfare only if public funds are more expensive than private funds, or if the distribution of administrative costs affects the size of a regulated industry. If having the public take on a larger part of administrative costs increases the size of the industry and this does not lead to lower emissions for a given emissions tax, then it is optimal to make the pollution sources bear all of the administrative costs. A necessary, but not sufficient, reason for having the public bear part of the cost burden is if aggregate emissions decrease as a result. Abstract: All environmental policies involve administrative costs, the costs of implementing and managing policies that extend beyond abatement costs. We examine theoretically the optimal distribution of these costs between the public and regulated sources of pollution. The distribution of administrative costs affects social welfare only if public funds are more expensive than private funds, or if the distribution of administrative costs affects the size of a regulated industry. If having the public take on a larger part of administrative costs increases the size of the industry and this does not lead to lower emissions for a given emissions tax, then it is optimal to make the pollution sources bear all of the administrative costs. A necessary, but not sufficient, reason for having the public bear part of the cost burden is if aggregate emissions decrease as a result.