Abstract
An environmental fiscal reform (EFR) represents a transition of a taxation system toward one based in environmental taxation, rather than on taxation of capital, labor, or consumption. It differs from an environmental tax reform (ETR) in that an EFR also includes a reform of subsidies which counteract environmental policy. This research details different ways in which an EFR is not only possible but also a good option that provides economic and environmental benefits. We have developed a detailed dynamic CGE model examining 101 industries and commodities in Spain, with an energy and an environmental extension comprising 31 pollutant emissions, in order to simulate the economic and environmental effects of an EFR. The reform focuses on 39 industries related to the energy, water, transport and waste sectors. We simulate an increase in taxes and a reduction on subsidies for these industries and at the same time we use new revenues to reduce labor, capital and consumption taxes. All revenue recycling options provide both economic and environmental benefits, suggesting that the “double dividend” hypothesis can be achieved. After three to four years after implementing an EFR, GDP is higher than the base case, hydrocarbons consumption declines and all analyzed pollutants show a reduction.
Highlights
There is a growing consensus in the European Union that environmental taxes are a promising policy for reducing environmental impacts and as a way to increase public revenues and reduce fiscal pressure [1]
This section describes the policy scenarios simulated with the model and the results obtained in terms of economic and environmental impacts
We develop a dynamic Computable general equilibrium (CGE) model with an energy and enviTrohnismaerntticalleexintevnessitoignattheasttmheodpeoltse3n1tidalifofefraenntEpFoRllutotatnatckemleicssliimonast;eucshinagngtheisanmdohdeeal,lwthersisimksuwlatitehout dainsriunpctrienagsethine eocuotnpoumt tiacxseyssotef m20.%WaenddeaverleodpuactdioynnainmsiucbCsGidEiems oofd2e0l%wiftohr asneveenrearlginydaunsdtreiensvrireolantmedental etxoteennseirogny,twhaattemr osudpeplsly3,1trdainffseproernttapnodlwluatastnetteremaitsmsieonntsa;cutisviintigest.his model, we simulate an increase in output taxes of 20% and a reduction in subsidies of 20% for several industries related to energy, water supply, transport and waste treatment activities
Summary
There is a growing consensus in the European Union that environmental taxes are a promising policy for reducing environmental impacts and as a way to increase public revenues and reduce fiscal pressure [1]. Revenues from environmental taxes in Spain are the lowest in the EU-27, accounting for 1.57% of gross domestic product (GDP), far below the EU average, which was 2.40% in 2012. As is the case in most of the EU’s member states, environmental taxation in Spain is mostly focused on energy (1.3% of GDP) [2]. The European Commission has recommended that Spain increase its environmental taxes in order to converge with those of other Member States and to increase its public revenues [3]. The social benefits of a Pigouvian tax could outstrip its costs
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