To achieve a truly circular economy, tax systems should treat a product's 'depreciation' as a physical flow into a waste dump, charging higher taxes on goods that break faster.
April 1, 2026
Original Paper
Optimal Circular Taxation and Eco-Modulated Extended Producer Responsibility under Heterogeneous Capital Durability
SSRN · 6505414
The Takeaway
This research argues that items with high turnover rates (short lifespans) carry an 'intertemporal waste liability.' It proposes a fiscal model where 'efficient' taxes are strictly tied to a product's durability, meaning fast-fashion or cheap electronics would face significantly higher tax 'wedges' than long-lasting goods.
From the abstract
This paper develops a dynamic theory of circular taxation in an economy with heterogeneous capital durability, waste accumulation, and material recovery. The key insight is that capital depreciation is not only a replacement cost, but also a physical flow into the waste stock. Assets with similar productive value but different depreciation rates therefore embody different intertemporal waste liabili- ties. We formulate a continuous-time planner’s problem in which produced capital, waste, and nat