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Fiscal Policy to Address Energy’s Environmental Impacts – IMF

IMF Survey Magazine:Fiscal policies should be center stage in getting energy prices to reflect the harmful and environmental side effects associated with energy use, according to a new report released by the IMF. Energy prices in many countries are wrong because they are set at levels that do not reflect environmental damage, notably climate change, air pollution, and various side effects of motor vehicle use, such as traffic accidents and congestion. Whether on energy or any other product, prices should provide consumers with an accurate assessment of the actual costs associated with the product. A number of countries rely too much on general income, payroll, and consumption taxes for their fiscal objectives, and too little from taxes on energy use, according to the IMF report.  The case for a tax shift:  The report stresses that energy tax reform need not be about raising new revenues. Rather, reform could focus on restructuring the tax system away from taxes that are likely to be most harmful for efficiency and growth, such as income taxes, and towards carefully designed taxes on energy—smarter taxes rather than higher taxes. According to the report, getting energy prices right involves extending motor fuel taxes, which are already well established and easily administered in many countries, to other fossil fuel products, such as coal and natural gas, or their emissions, and aligning the rates of these taxes with environmental damage.”

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