Environmental Taxation and Development: A Scoping Study

Developing countries face increasing environmental pressures across a range of dimensions. At the same time, the capacity of these governments to effectively pursue policy goals is often constrained by a lack of resources, with tax revenues in many countries being half of what is common in developed economies. For some, these are distinct issues that should be considered separately. For others, they can and should be dealt with together. This paper reviews the potential of one type of mechanism to address both goals simultaneously: environmental taxation. After distinguishing between different forms, the paper uses a Pigouvian framework to organise and analyse theoretical and empirical evidence on the impacts of environmental taxes in developing countries. Despite limited evidence it is possible to draw some conclusions.