Environmental taxes and policies for
            developing countries
Increasing urbanization and
            industrialization can exacerbate pollution problems in
            developing countries. Tax revenues in developing countries
            are too low to support adequate infrastructure for treating
            and disposing of wastes, but the problem is also
            attributable to the classic problem of externalities in
            productiion and consumption. "Externalities" means
            that the costs of environmental degradation are not
            considered by the private decisionmakers undertaking the
            activities that cause the problems. Two types of policies
            are commonly considered to correct this market failure and
            improve the allocation of resources: command-and-control
            policies (such as emmission and abatement standards) and
            market-based incentive policies (such as emissions charges,
            taxes on production and consumption, and marketable
            pollution quotas), which raise the price of such activities
            for the perpetrators. Market based incentives theoretically
            reduce pollution at least cost and increase government
            revenues, but may require costly monitoring to be effective,
            and are usually implemented in an environment of imperfect
            information about the costs of abatement. Sometimes command
            and control policies make more economic sense in this
            environment.  Efficiency gains from curbing pollution in
            developing countries may be large. Some polluting activities
            are subsidized, so curtailing them brings both fiscal and
            environmental benefits. Taxing polluting inputs and outputs
            is a particularly attractive policy in developing countries
            which often lack experience in administering and enforcing
            other types of environmental regulation. Corrective taxes
            make use of existing administrative structures and increase
            tax revenues, which can be spent on public goods to improve
            environmental quality (including treatment facilities for
            water and sewage, waste disposal, and sanitation) or can be
            used to reduce other taxes (which are often highly
            distortionary in countries with a narrow tax base). Which
            goods and inputs to single out for corrective taxation
            depends on the main sources of pollution, which varies from
            country to country. Air pollution from vehicles is growing
            in many countries where increased fuel taxes, perhaps
            coupled with improved regulations for vehicle maintenance,
            may be desirable. Higher taxes on high sulphur coal would
            curb both industiral and household emissions of sulphur
            dioxide. Charges can be implemented for fixed site easy to
            monitor industrial emissions. Subsidies to industries that
            cause pollution should be phased out and those industries
            should be subjected to higher than average tax rates.