ABSTRACT
Corrective taxes or Pigovian taxes have shown to be more effective in correcting or changing human behaviour (in general) than the command-and-control mechanism. Environmental taxes have a dual purpose: It can penalise the environmental “bads” through additional taxes and nurture the environmental “goods” through tax incentives (also known as the stick and carrot approach). The range of environmental tax reform instruments is wide, and no one instrument has proved more successful than the other. In the main, these instruments can be subdivided into the following categories: (a) taxes on products pollutants and emissions, (b) user charges and levies, (c) environmental subsidies, (d) tradable permits, and (e) deposit-refund systems. While the government of India has realised the importance of environmental fiscal reform in achieving environmental goals, very little environmental fiscal reform has seen the light.
The objective of this chapter is to analyse, document, and evaluate the general principles of the stick and carrot approach towards effective environmental fiscal reform in India with specific consideration of the existing tax framework.
