Wednesday, August 05, 2015

How Not to Pass a Carbon Tax

Greg Mankiw makes some good points about how political reality can prevent implementing good economics.

Here is the link.

Mankiw makes the point that, in principle, a carbon tax can be sensible.  He notes that one problem with implementing one is that the revenue is likely to be used to increase Government, rather than to reduce other taxes, hence a reason for many to oppose a carbon tax.  Mankiw fails to mention two other key problems - (1) how is one to one to know what is the right tax level and (2) that there are political motives to make the tax larger - much larger - than optimal, even if the optimum tax level is known.

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