ABSTRACT

Hypothecation is a primitive form of tax. As a principle it is fiercely opposed by most orthodox economists. And it is true that earmarking is most common in the early stages of tax development. In developing countries it is common to find airport and hotel bed taxes used to finance tourist development. Environmental tax policy is usually discussed in terms of creating a new economic rationality that can encompass the environment. Powerful arguments support the idea that tax should be shifted away from goods like work and onto bads such as environmentally damaging activities and waste. The general hypothecation of environmental revenues to environmental spending is appropriate in a quite different structure, where one arm of government has total responsibility for managing the environment, including the sale of rights to exploit it, and for subsidizing environmental improvements.