Closed-Loop Fiscal Control
The adaptive tax law itself, its stability requirements, and the distributional safeguard that has to bind alongside it.
Closed-loop fiscal control
A fixed-rate environmental or circularity tax has an obvious weakness: it does not know whether it is working. This proposal instead treats the signal as a feedback controller.
Given a desired trajectory for a physical outcome, r_m(t) (for example,
virgin-material consumption in a product category), and an observed
trajectory y_m(t), define the control error
In its simplest conceptual form, the fiscal signal then adapts:
If virgin-material consumption stays persistently above the desired
trajectory (e_m(t) > 0), the fiscal signal strengthens; if circular
supply chains, reuse and substitution bring consumption below the desired
path (e_m(t) < 0), it can ease.
This is explicitly not a proposal to change tax rates continuously or unpredictably. Manufacturers need investment horizons; consumers need predictable prices. A workable version of this controller needs, at minimum:
- a bounded rate of change,
|τ(t+1) − τ(t)| ≤ Δτ_max; - smoothing and minimum policy review periods rather than instantaneous adjustment;
- forward guidance, so the direction of travel is known well before it is acted on;
- appropriate policy timescales — quarters or years, not days;
- an explicit distributional safeguard alongside the physical target, for
example
VirginMaterials(t) ≤ M̄(t)andPr(DEC_i(t) < 0) ≤ ε, so that reducing resource throughput does not do so by pushing vulnerable households below acceptable discretionary economic capacity.
That last constraint is not a footnote — a controller that hits its physical target by making low-income households unable to replace a broken essential appliance has not solved the problem, it has relocated it. See Distribution-aware control under Evidence for the associated testable claim.