A climate of fairness : environmental taxation and tax justice in developing countries

Abstract

Developing countries are increasingly affected by environmental pollution. Air pollution resulting from fossil fuel combustion for power generation and transport is having an increasingly high impact on life expectancy. Deforestation, soil degradation, air, soil and water pollution, and poor resource management are an obstacle to poverty alleviation. All economic predictions indicate that climate change will hit developing countries hardest. Environmental taxes can address some of the environmental problems faced by developing countries while encouraging sustainable production and consumption patterns and delivering the financial means necessary to enhance environmental and social indicators. However, environmental taxes may result in both direct and indirect price increases of goods and services, which can have negative impacts on social equity, particularly in poor households. This report aims to address this potential conflict and to consider the trade-offs and complementarities between environmental taxation and social equity. It analyses the role that environmental taxation has to play in obtaining tax justice and considers whether and to what extent environmental taxation can contribute to more progressive and sustainable tax systems and more equitable societies in developing countries.