ABSTRACT
In relation to fiscal policy, a vigorous pursuit of environmental objectives might imply a trade-off between revenue and environmental goals. The restructuring of prevailing energy taxes into carbon taxes in Sweden, for example, was intended to meet environmental objectives but subject to the constraint that budget revenues were not threatened. Recognizing these other objectives, there are circumstances when efficiency reasons warrant environment tax rates that are higher than justified by environmental considerations. Moreover, the optimal environment tax rate depends on the public expenditure side of the budget. One reason is that the environment tax rate determines the provision of a public good, namely a cleaner environment, and this public good may, for example, be complementary to other public goods. In any event, the optimal rate of environment tax is likely to differ from that justified on environment grounds alone.
