DYNAMICS OF COMMODITY TAXATION - AN EXAMPLE OF AN ENERGY TAX

Commodity taxation represents one means of raising public revenues. Recently, this proposal has received considerable support from environmentalists, who argue that commodity taxation, besides raising revenues, will have the positive effect of controlling externalities and limiting negative environmental side‐effects of commodity production. This article considers the dynamics of such taxation when taxpayers must solve a costly and intertemporal adjustment problem. Applying recent data from Austria, the author analytically and quantitatively explores the implications of sluggish consumption on the design of a revenue‐stable tax policy. If demand is elastic, the stability of such a tax regime is questionable for theoretical reasons. In practice, its stability may be questionable even if demand is inelastic. Copyright © 1991 John Wiley & Sons, Ltd.