Bureaucratic Tax-Seeking: The Danish Waste Tax

Abstract

We suggest that when individual ministries are able to add differentiated green taxation on top of traditional taxation, the result is over-taxation. This is so for two reasons. Firstly, budget maximisation leads to overwhelming fiscal pressure because bureaucracies are competing for resources just like fishermen or hunters (here named ‘bureaucratic tax-seeking’). Secondly, the absence of a strong and fully informed ‘troop leader’, i.e. overall budget co-ordinator, prevents the rational co-ordination of collective action. Taxing citizens or firms may then be likened to harvesting rents from a natural resource and we therefore apply a common-pool resource model. These suggestions are confirmed by a case study of the Danish waste tax with its fixed price approach and perverse incentives compared to that of achieving environmental target levels in a cost-minimising way. Thus, we recommend that bureaucratic institutions should coordinate their tax-seeking efforts to maximise budgets in the long run and that the ministries that collect green tax revenues should not be allowed to control these revenues. Furthermore, our results dictate that the postulated effects arising from green tax intervention need to be demonstrated.