||This thesis studies optimal environmental taxes in an economy with preexisting distortions in the labour market. Unlike most previous studies, we do not assume separable preferences of individuals and we show that if the taxed good is a sufficiently week substitute for leisure, the optimal environmental tax is larger than the marginal environmental damage associated with the taxed good. We also examine whether this theoretical possibility actually takes place in reality. Using Czech household level data, we estimate an augmented Almost Ideal Demand System for household expenditure on leisure, residential energy and other goods and services. Contrary to what one would expect, we find that residential energy is an average or even stronger than average substitute to leisure. Consequently, the optimal tax on residential energy should be lower than the marginal environmental damage.