How should governments use revenue from corrective taxes?

Corrective taxes can encourage healthier, safer, and less polluting behavior. But how should governments use their revenue?

Options abound to cut other taxes, boost spending, or reduce borrowing. We organize those uses into four categories: 

  1. offsetting new burdens created by the tax, 
  2. furthering the goal of the tax, 
  3. compensating people who bear costs from the taxed activity, or 
  4. funding unrelated public priorities. 

We illustrate them with examples including greenhouse gas emissions, unhealthy foods and drinks, financial transactions, tobacco, gasoline, and other products and activities. We discuss the pros and cons of competing revenue uses and describe tradeoffs across their social benefits and political appeal.

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