Earmarked Taxes to Finance Global Public Goods: Relevance and Implementation

Financing global public goods with the proceeds of earmarked taxes is an idea that has been regularly discussed and implemented in France after the 2004 Landau report through the solidarity tax on airline tickets and the tax on financial transactions. In this article, we propose an evaluation grid for such a financing mechanism inspired by the theory of mechanism design. We examine its properties in terms of efficiency and equity, facilitation of commitment, coordination of actors, and transparency and control. We use this framework to highlight the strengths and weaknesses of two practical cases: the Solidarity Fund for Development and the International Oil Pollution Compensation Funds, both of which are funded by earmarked taxation. Our analysis shows that the precise modalities of implementation of the earmarked tax are important for judging the relevance of this financing mechanism.