Pollution taxes as a source of budgetary revenues in economies in transition

In environmental policy, as in other fields, the best is often the enemy of the good. Poland's pollution tax system, as described in this chapter is an example of this dictum. In violation of the usual tenets of public economics (Pigovian taxes, no earmarking), the country imposes a wide variety of pollution taxes (at lower than Pigovian levels) whose revenues feed various environmental funds that finance abatement, conservation projects, and the clean-up of past environmental neglect. The earmarking mechanism shields the revenues from being diverted to other 'worthy' purposes. Although the funds have not brought about an ecological miracle, the pollution tax system has become an effective mechanism for funding environmental investment and ecological recovery - despite some doubts as to the system's efficiency. The system accounts for some 1.6% of the state budget, too little to entertain the idea of making it a source of general budgetary revenue and substantially reducing the traditional distortionary taxes on labor and capital. For the time being, the case for continuing the present arrangements, although not perfect, seems self-evident. 11 refs