Abstract
The Japanese government plans to reduce greenhouse gas emissions by 80% by 2050. However, it is not yet clear which policy measures the government will adopt to achieve this goal. In this regard, environmental tax reform, which is the combination of carbon regulation and the reduction of existing distortionary taxes, has attracted much attention. This paper examines the effects of an environmental tax reform in Japan. Using a dynamic computable general equilibrium (CGE) model, we analyze the quantitative impacts of an environmental tax reform and clarify which types of environmental tax reform are the most desirable. In the simulation, we introduce a carbon tax and consider the following four scenarios for the use of the carbon tax revenue: (1) a lump-sum rebate to the household, (2) a cut in income taxes, (3) a cut in corporate taxes and (4) a cut in consumption taxes. The first scenario is a pure carbon tax, and the other three scenarios are types of environmental tax reform. Our CGE simulation shows that (1) environmental tax reform tends to generate more desirable impacts than the pure carbon tax and that (2) the strong double dividend is obtained in some cases. In particular, we show that a cut in corporate taxes leads to the most desirable policy in terms of GDP and national income.
Highlights
The Paris Agreement gave momentum to many countries’ long-term commitments to reduce greenhouse gases (GHGs)
Using a forward-looking dynamic computable general equilibrium model, we analyze the quantitative impacts of environmental tax reform and examine the validity of the double dividend hypothesis of the carbon tax by revenue recycling in the Japanese economy
As the emission reduction target, we chose the goal set by the Japanese government, i.e., the 80% reduction in GHG emission by 2050
Summary
The Paris Agreement gave momentum to many countries’ long-term commitments to reduce greenhouse gases (GHGs). If the government implements environmental tax reform, which is the combination of a carbon tax and a reduction in existing distortionary taxes, Japan may achieve both economic growth (or improvement of economics welfare) and emission reduction. This is known as the double dividend of the carbon tax (Bovenberg and Goulder 2002). Lee et al (2016) examined the double dividend for the Japanese economy These studies provided useful information about climate change policy in Japan. This shows that the Japanese economy can achieve economic growth while reducing GHG emissions, at least in 2030
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
