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Paying for public spending: is there a role for earmarked taxes?

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  • Margaret Wilkinson

Abstract

Tax earmarking, or hypothecation, refers to the assigning of receipts either from a single tax base, or as a proportion from a wider pool of revenue, to a specific end use; it contrasts with general fund financing of expenditure from consolidated receipts. The idea has been seized on both by those who want to defend the public sector who think it would make taxation popular and by those who want to cut public spending who expect the opposite effect. Earmarking may be applied in a strong or substantive sense, or in a weak or nominal sense. In the strong case, revenue determines expenditure, or at least revenue must match expenditure, and there may be associated referendums on the amount of spending and the tax rate. In the weak case, earmarking is purely formal — undertaken to make the system more transparent and to inform the taxpayer of the cost of a service. Earmarking may also be wide, covering a whole spending programme, or narrow, for a specific project within a programme. The principal example of earmarking (nominal) in the UK today is National Insurance contributions (NICs) which go to the National Insurance Fund out of which contributory benefits are paid. This paper considers the range of support for earmarked taxes, examines the issues, and asks if there is a role for such taxes in the British system.

Suggested Citation

  • Margaret Wilkinson, 1994. "Paying for public spending: is there a role for earmarked taxes?," Fiscal Studies, Institute for Fiscal Studies, vol. 15(4), pages 119-135, November.
    • Handle: RePEc:ifs:fistud:v:15:y:1994:i:4:p:119-35
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    References listed on IDEAS

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    1. James M. Buchanan, 1963. "The Economics of Earmarked Taxes," Journal of Political Economy, University of Chicago Press, vol. 71(5), pages 457-457.
    2. Rivlin, Alice M, 1989. "The Continuing Search for a Popular Tax," American Economic Review, American Economic Association, vol. 79(2), pages 113-117, May.
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    Cited by:

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    2. Paul Mortimer-Lee, 2021. "The New Employment Tax," National Institute of Economic and Social Research (NIESR) Policy Papers 30, National Institute of Economic and Social Research.
    3. Neva Novarro, 2004. "Do Policy-Makers Earmark to Constrain their Successors? The Case of Environmental Earmarking," Working Papers 0408, College of the Holy Cross, Department of Economics.
    4. Paolo Liberati, 2011. "‘‘Which Tax’’ or ‘‘Which Tax for What?’’: Tax Assignment in the Theory of Fiscal Federalism," Public Finance Review, , vol. 39(3), pages 365-392, May.
    5. Pezzey, John C.V., 2001. "Distributing the Value of a Country’s Tradeable Carbon Permits," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 125832, Australian Agricultural and Resource Economics Society.
    6. Henry Ergas, 2010. "New policies create a new politics: issues of institutional design in climate change policy," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(2), pages 143-164, April.
    7. Dieter Bös, 1999. "Earmarked Taxation: Welfare versus Political Support," CESifo Working Paper Series 207, CESifo.
    8. Guillem López i Casasnovas & David Casado i Marín, "undated". "Análisis prospectivo de la oferta de servicios públicos en España," Studies on the Spanish Economy 28, FEDEA.
    9. Bos, Dieter, 2000. "Earmarked taxation: welfare versus political support," Journal of Public Economics, Elsevier, vol. 75(3), pages 439-462, March.
    10. Sclen, Håkon & Kallbekken, Steffen, 2011. "A choice experiment on fuel taxation and earmarking in Norway," Ecological Economics, Elsevier, vol. 70(11), pages 2181-2190, September.
    11. Calvin Blackwell & John C. Crotts & Stephen W. Litvin & Alan K. Styles, 2006. "Local Government Compliance with Earmarked Tax Regulation," Public Finance Review, , vol. 34(2), pages 212-228, March.
    12. Ergas, Henry, 2010. "New policies create a new politics: issues of institutional design in climate change policy," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(2), pages 1-22.
    13. Andrew Jones;Alan Duncan, 1995. "Hypothecated Health Taxes: An evaluation of recent proposals," Monograph 000413, Office of Health Economics.

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