Abstract
In principle, corrective taxes are needed to address a diverse range of externalities (e.g., pollution, congestion). However, tax design can be complicated in the presence of other distortions and constraints, such as overlapping externalities, practical restrictions on tax coverage, acceptability constraints, market power, distortions in technology markets, and preexisting tax and regulatory policies. This article discusses how these other complications should be factored into corrective tax design, using a range of topical applications such as fuel taxes, carbon taxes, congestion tolls for roads and airports, tax-like instruments for forestry and international maritime, taxes on drug use, garbage taxes, fees for urban development, and complementary technology policies.
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