Alm, JamesBanzhaf, H. Spencer2012-06-082012-06-082007-10https://hdl.handle.net/10986/7566When external effects are important, markets will be inefficient, and economists have considered several broad classes of economic instruments to correct these inefficiencies. However, the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants, the enforcement authority of various levels of government, and the fiscal responsibilities of the levels of government. For example, externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions. Also, local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction, but they may not consider the effects of their actions on other jurisdictions. Finally, the existence of locally-generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government. The standard analysis therefore focuses mainly upon an aggregate (or national) perspective, it typically ignores the possibility that the externality may be created and addressed by local governments, and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems. This paper examines the implications of decentralization for the design of corrective policies; that is, how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services, as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities?CC BY 3.0 IGOABATEMENT COSTSACID RAINAIR POLLUTIONAIR QUALITYALLOWANCE TRADINGAVERAGE COSTSAVERAGE TAX RATESBENEFICIARIESBUSINESS CYCLESCAPITAL FLOWSCENTRAL GOVERNMENTSCOMMODITIESCOMPETITIVE MARKETCONSUMPTION TAXCONTINUOUS MONITORINGCOST SAVINGSCREDIBILITYDECENTRALIZATIONDEPOSITDEVELOPED COUNTRIESDEVELOPING COUNTRIESDEVELOPMENT BANKDISTRIBUTION OF INCOMEDRINKING WATERECONOMIC ANALYSISECONOMIC CONDITIONSECONOMIC GROWTHECONOMIC INCENTIVESECONOMIC INSTRUMENTSECONOMICSECONOMISTSELECTRICITYEMISSION STANDARDSEMISSIONSEMISSIONS STANDARDSEMISSIONS TRADINGEMPIRICAL EVIDENCEENVIRONMENTALENVIRONMENTAL ECONOMICSENVIRONMENTAL EXTERNALITIESENVIRONMENTAL POLICIESENVIRONMENTAL POLICYENVIRONMENTAL PROBLEMSENVIRONMENTAL PROTECTIONENVIRONMENTAL QUALITYENVIRONMENTAL STANDARDENVIRONMENTAL STANDARDSENVIRONMENTAL TAXATIONENVIRONMENTAL TAXESEQUILIBRIUMEQUILIBRIUM ANALYSESEXCISE TAXESEXPENDITUREEXPENDITURE ASSIGNMENTEXPENDITURE RESPONSIBILITIESEXPENDITURESEXTERNAL COSTSEXTERNALITIESFACTORS OF PRODUCTIONFINANCIAL CAPITALFISCAL AUTONOMYFISCAL CAPACITIESFISCAL CAPACITYFISCAL CONSTRAINTSFISCAL FEDERALISMFISCAL POLICYFUEL TAXESGEOGRAPHIC SCOPEGLOBAL CLIMATEGLOBAL CLIMATE CHANGEGLOBAL ECONOMYGLOBALIZATIONGOVERNMENT EXPENDITUREGOVERNMENT EXPENDITURESGOVERNMENT FINANCEGOVERNMENT FINANCESGOVERNMENT POLICIESGREEN ECONOMICSHARMONIZATIONINCOMEINCOME TAXINCOME TAXESINCOMESINDIVIDUAL POLLUTERSINELASTIC DEMANDINFLATIONINFORMATION SERVICESINFORMATION SHARINGINSTRUMENTINTANGIBLEINTANGIBLE GOODSINTEREST INCOMEINTERGOVERNMENTAL TRANSFERSINTERNATIONAL BANKJURISDICTIONJURISDICTIONSLEGAL AUTHORITYLEVIESLEVYLOCAL AUTONOMYLOCAL FINANCELOCAL GOVERNMENTLOCAL GOVERNMENT SERVICESLOCAL GOVERNMENT TAXLOCAL GOVERNMENTSLOCAL TAXESLOTTERIESMARGINAL ABATEMENTMARGINAL ABATEMENT COSTSMARGINAL COSTMARGINAL COSTSMARKET FAILUREMARKET FAILURESMARKET PRICESMARKET TRANSACTIONSMATCHING GRANTSMONETARY POLICYMONITORING EQUIPMENTMONOPOLYMORAL HAZARDMPCNATURAL RESOURCEOPEN COUNTRYOUTPUTOUTPUTSOZONE LAYERPOLICY DECISIONSPOLICY INSTRUMENTSPOLITICAL ECONOMYPOLLUTERSPOLLUTIONPOLLUTION ABATEMENTPOLLUTION CHARGESPOLLUTION CONTROLPOLLUTION FEESPOLLUTION LEVELSPOLLUTION PERMITSPOLLUTION TAXPOLLUTION TAXESPOWER PLANTSPRICE CHANGESPRIVATE COSTSPRODUCERSPROPERTY TAXPROPERTY TAXESPROVISIONSPUBLICPUBLIC ECONOMICSPUBLIC FINANCEPUBLIC FINANCESPUBLIC GOODPUBLIC GOODSPUBLIC POLICYRECYCLINGREGISTRATION FEEREGRESSIVE TAXREGULATORY CONSTRAINTSRESERVERESOURCE USEREVENUE ASSIGNMENTREVENUE PERFORMANCEREVENUE SHARINGREVENUE SOURCESREVENUE TRANSFERSROADSRULE OF LAWSALES TAXSALES TAXESSERIAL NUMBERSSHAREHOLDERSSIN TAXESSOCIAL COSTSOCIAL COSTSSOFT BUDGET CONSTRAINTSSOLID WASTE COLLECTIONSTABILIZATION POLICIESSTABILIZATION POLICYSTAMP DUTIESSUBNATIONAL GOVERNMENTSSUBSIDIARITY PRINCIPLESULFUR DIOXIDESURCHARGESSURTAXSURTAXESSUSTAINABLE DEVELOPMENTTANGIBLE GOODSTAX ASSIGNMENTTAX BASETAX BASESTAX BREAKSTAX COLLECTIONSTAX COMPETITIONTAX INCENTIVESTAX LAWSTAX LIABILITIESTAX POLICIESTAX POLICYTAX RATETAX SHARINGTAX SYSTEMTAX SYSTEMSTAXATIONTAXPAYERSTRADABLE PERMITSTRADEOFFSTRADESTRADING SYSTEMTRANSFER TAXTRANSITION COUNTRIESTRANSITION ECONOMIESTREASURYUNEMPLOYMENTURBAN ECONOMICSURBAN GROWTHURBAN PUBLIC FINANCEUSER CHARGESUTILITIESVALUATIONVALUE ADDED TAXVALUE ADDED TAXESWAGESWASTE MANAGEMENTWELFARE ECONOMICSWorld Bank10.1596/1813-9450-4379