Working Paper: NBER ID: w7505
Authors: Don Fullerton; Ann Wolverton
Abstract: This paper suggests two generalizations of the deposit-refund idea. In the first, we apply the idea not just to solid waste materials, but to any waste from production or consumption including wastes that may be solid, gaseous, or liquid. Using a simple general equilibrium model, we derive the optimal combination of a tax on a purchased commodity and subsidy to a clean' activity (such as emission abatement, recycling, or disposal in a sanitary landfill). This two-part instrument' is equivalent to a Pigovian tax on the dirty' activity (such as emissions, dumping, or litter). In the second generalization, we consider the case where government must use distorting taxes on labor and capital incomes. To help meet the revenue requirement, would the optimal deposit be raised and the refund reduced? We derive the second-best revenue-raising DRS or two-part instrument to answer that question.
Keywords: deposit-refund system; pollution tax; waste management; environmental economics
JEL Codes: H21; Q20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| two-part instrument (tax and subsidy) (H23) | reduction in pollution levels (Q53) |
| tax on dirty activities (H23) | decrease in dirty activities (like dumping or emissions) (Q53) |
| subsidy for clean activities (H23) | increase in clean practices (such as recycling or proper disposal) (Q53) |
| government revenue needs increase (H29) | raise optimal deposit and reduce refund (G51) |
| raise optimal deposit and reduce refund (G51) | alter incentives for pollution reduction (H23) |