Abstract

Abstract Carbon pricing is difficult to introduce in many countries because it is not easy to obtain public support for carbon pricing due to the burden associated with it. One way to overcome this difficulty is to rely on the double dividend of a carbon tax. If a government uses revenue from a carbon tax to reduce existing distorting taxes, such as corporate taxes or labor taxes, a carbon tax can improve economic efficiency while reducing greenhouse gas (GHG) emissions. This chapter examines the net burden of a carbon tax with revenue recycling (RR) for two types of stakeholders: firms and households. Using dynamiccomputable general equilibrium (CGE) modeling, we examine the carbon prices needed to achieve the emission targets set for 2030 and 2050. Then, we simulate two types of RR: corporate tax reduction and a reduction in social security payments. We compare the benefit of the tax reduction to the increase in the burden from the carbon tax in scenarios for 2030/2050. In the scenario of corporate tax reduction, by selecting firms from the land transportation sector and power sector, we examine how profit changes due to the carbon tax. We find that the tax burden for a firm in the land transportation sector can be eased greatly with the corporate tax reduction. In the scenario of the social security payment reduction, we find that some households are better off under carbon pricing despite expenditure increases due to the carbon tax. Thus, we show that RR can increase support for the carbon tax.

Highlights

  • Carbon pricing is known as the most efficient way to reduce greenhouse gas (GHG) emissions in an economy

  • Our analysis shows that the increase in energy costs is neutralized by the corporate tax reduction in the COR scenario to a certain degree, the operating profit decreases as a result of the carbon tax

  • We examined the impacts of environmental tax reform on households and firms in selected sectors with the aim of reducing GHG emissions by 80% in 2050

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Summary

Introduction

Carbon pricing is known as the most efficient way to reduce greenhouse gas (GHG) emissions in an economy. If the revenue of the carbon tax is used to reduce the corporate tax, we can expect an expansion in investment because the net return of the investment increases as the corporate tax rate is reduced This increase in investment will lead to an increase in production and an increase in the GDP. Governments can use the revenue of the carbon tax to reduce the social security burden of employers In this case, we can expect an increase in employment, which leads to an increase in the GDP through an expansion in production activities. We can expect an increase in employment, which leads to an increase in the GDP through an expansion in production activities In this way, the revenue recycling (RR) of the carbon tax can lead to economic growth

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