Hi Everyone,
I have a pure content question:
How do I conceptualize the effect of a tax on a rather narrow base, say a CO2 tax on kerosene on other tax bases; and on general revenues. My intuition is that such a tax would raise revenue by itself, however there would be some external revenue effects: Corporate and income taxes from the airline industries would fall due to fewer customers. At the same time, people substitute flying with other modes of transport, say trains, where again tax revenue is created by increases in profits and labour.
Do you know of research, which examines whether there is a theoretical possibility or even practical examples of environmental taxes decreasing/increasing general government revenues from other tax bases than the one being taxed with the environmental instrument?
I have an intuition that this would be rather unlikely, however, I can construe situations in which a marginal increase in an environmental tax may lead to a decrease in overall revenues?
Would be great to get some insights!
Best,
Amani
