Ecological Tax Reform Research Articles

Green Tax Reform and Employment: The Interaction of Profit and Factor Taxes

The employment effects of an ecological tax reform depend decisively on the presence of a profit tax and on the extent to which profits are taxed. This is shown in a model where firms have monopoly power on product markets and bargain over wages with unions on the labour market. In this setting, the value of the employment-maximising energy tax rate depends on the level of the profit tax. The question of whether there is unemployment or not turns out to be less important.

Green Tax Reform and Employment: The Interaction of Profit and Factor Taxes

The employment effects of an ecological tax reform depend decisively on the presence of a profit tax and on the extent to which profits are taxed. This is shown in a model where firms have monopoly power on product markets and bargain over wages with unions on the labour market. In this setting, the value of the employment-maximising energy tax rate depends on the level of the profit tax. The question of whether there is unemployment or not turns out to be less important.

Expected effects of the ecological tax reform for the Polish economy

This study presents an assessment of possible consequences of ecological tax reform for the Polish economy. Computable general equilibrium model has been used. The model calibrated for the base year 1995 provides results for the year 2005. Six different scenarios have been considered. Final results confirm both theoretical and practical implications of the ecological tax reforms experiences in Western European countries. The reform is the most favorable when it is based on the concept of shifting tax burden from labor force or households’ income to environmental pollution. Long-run effects of the proposed tax reform in Poland would not slow down the economic growth. The reform, however, has to be implemented as a package of changes in the entire tax system. Such comprehensive reform could even contribute to economic growth of the Polish economy.

From High Regulatory State to Social and Ecological Market Economy? New Environmental Policy Instruments in Germany

Demands for wider use of 'new' environmental policy instruments (NEPIs), namely market-based instruments (such as eco-taxes and tradable permits), voluntary agreements and informational devices (such as eco-labels and eco-audits) have increased significantly in Germany in recent years. Germany has also been urged to make wider use of market-based instruments by external actors (such as the Organisation for Economic Cooperation and Development and the World Bank). However, the uptake of 'new' policy instruments in Germany has remained uneven despite considerable NEPI innovation. German environmental policy has shown a high uptake of VAs and eco-labels. However, it has made only moderate use of eco-taxes although they have increased significantly with the introduction of the ecological tax reform in 1999. Tradable permits have not yet been tested on the national level although some states (Lander) set up pilot projects to gain practical experience ahead of the EU's tradable permit scheme. Overall, NEPIs have been used mainly to supplement traditional regulatory instruments which still dominate German environmental policy. Germany's transformation from a 'high regulatory' state (which makes wide use of traditional regulation and VAs) towards an ecological market economy (which relies primarily on market-based instruments) has therefore been a slow one.

Struggling to Leave Behind a Highly Regulatory Past? 'New' Environmental Policy Instruments in Austria

Austria has long been urged to make wider use of market-based instruments by the Organisation for Economic Cooperation and Development. Despite this and the significant increase in domestic demands in recent years, the uptake of 'new' environmental policy instruments (NEPIs), namely market-based instruments (such as eco-taxes and tradable permits), voluntary agreements and informational devices (such as eco-labels and eco-audits) has been only moderate. Austria has used some eco-taxes but has refrained from adopting an ecological tax reform. Tradable permits have arrived on the domestic political agenda primarily because of the European Union's efforts to make use of this type of NEPI. Voluntary agreements have been used only very sparingly despite a consensual domestic policy style. Overall, NEPIs have mainly supplemented traditional regulatory instruments and subsides which continue to dominate Austrian environmental policy. Austria is struggling to leave behind a strongly regulatory past. The Austrian policy structures and style as well as its formidable past environmental record have retarded NEPI innovation.

Ecological tax reforms and environmental benefits in Italy and Sweden

The paper calculates the implications of including monetary measurements of environmental emission changes for the welfare impacts of ecological tax reforms in Italy and Sweden. Taxes on emissions of SO2, NOx and CO2 are investigated. Country-specific computable equilibrium models are used for estimating net welfare changes of the introduction of these taxes, the incomes of which are used for reducing distorting labour taxes. The results indicate that the inclusion of environmental benefits reduces the costs of ecological tax reforms considerably for both countries, and may even turn into net welfare gains.

Ecological tax reform—a value chain level approach

AbstractThis study assesses the effects of an ecological tax reform on three value chains. These case studies lead to an analysis of the business strategy options when companies face a shift in the relative prices of their production factors. The results support earlier research findings that the direct effects of an ecological tax reform on the price competitiveness of companies is on average rather small. However, the effects of the reform are shown to vary significantly between the different parts of the value chain. Copyright © 2002 John Wiley & Sons, Ltd. and ERP Environment

Ökologische Steuerreform Der Winderstand gegen die Veränderung

There is a growing consensus among economists that an Ecological Tax Reform is suitable to reduce emission and increase employment in Germany – and on top of that in the European Union – at the same time. Nevertheless, the practical implementation has been and remains difficult. This article focuses on distributive conflicts and the aversion to change a major causes.

Ökologische Steuerreform: Hemmnisse ihrer Durchsetzung und Ansätze zur Überwindung institutioneller Restriktionen auf EU-Ebene

The Ecological Tax Reform has once been broadly supported by many stakeholder. However, the public became more critical after its introduction. A major barrier to further steps is the unlikely meaningful harmonisation of minimum tax rates at EU level. This article thus examine possibilities how to though follow this approach whilst maintaining the incentive for saving energy.

Should high-tax countries pursue revenue-neutral ecological tax reforms?

A politically intriguing question concerning the effects of a revenue-neutral ecological tax reform is whether such a political measure may succeed in providing a double dividend: to improve environmental quality and increase employment simultaneously. Theoretical studies reveal that for a competitive labor-market a green tax reform hardly yields a positive employment effect, whereas for a non-competitive market such an effect may well be obtained. However, little attention has focused on whether the ecological dividend remains attainable when an employment dividend accrues. We show for three different non-competitive labor-market scenarios that a positive employment effect can be expected, but that, for high-tax countries, environmental quality plausibly deteriorates when a revenue-neutral ecological tax reform is implemented.

Changing economies of scale – synergies between implementation of an ecological tax reform and development of industrial ecosystems

AbstractIn this paper an investigation is presented into the long‐term effects of an ecological tax reform. Exploring time frames of different length, the paper considers the reform's effects on manufacturing systems, especially on economies of scale. Industrial ecology, a framework for restructuring into industrial ecosystems, is one attempt at transforming the socio‐economic system for sustainability. The paper points out the synergetic effects an ecological tax reform has with those restructuring efforts for sustainable industry and society. For that purpose, the economies of scale in the current linear production system and those found in the closed‐loop circular structures of industrial ecosystems are compared, and the paper is concluded by a discussion of opportunity costs of implementation of an ecological tax reform and industrial ecological restructuring. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment

Premediation analysis of the energy taxation dispute in Finland

This paper illustrates a real application of negotiation and decision analytic techniques to a long-continued dispute between industry and the environmentalists in Finland. Specifically, we applied the so-called premediation analysis to discover efficient compromise solutions for Finland’s future energy taxation problem. The author’s role was to act as a neutral mediator. The premediation included the elicitation of the fundamental objectives of the disputants as well as their preferences relating to the issues under negotiation. The quantitative analysis pointed out several efficient compromise solutions to the dispute, implying that it was worth negotiating rather than unilaterally seeking to influence the state authorities. This induced the participants to start unofficial face-to-face negotiations mediated by the author. The compromise achieved together with the contacts created during the post-analysis negotiations contributed immediately to the Finnish Government’s first move towards a real ecological tax reform. Later on, the Government implemented a refund scheme for the industry that resembled by and large the one outlined in the post-analysis negotiations. This study thus provides a clear indication of the usefulness of the premediation concept in an unsettled conflict situation, where the disputants have not earlier tried to resolve their disagreements by negotiating.

The Effects of the Ecological Tax Reform in Germany

The Effects of the Ecological Tax Reform in Germany

Money Illusion and the Double Dividend in the Short Run

In their seminal paper, Bovenberg and De Mooij (1994) elucidate why an ecological tax reform will not yield a double dividend, i.e. fails to increase the efficiency of the tax system. The present paper slightly modifies the Bovenberg and De Mooij model by introducing money illusion. With this modification, an environmental tax reform that raises the price level may generate a double dividend, since the additional tax on the dirty good does not reduce labor supply. A prerequisite for the double dividend to occur is a sufficiently small elasticity of substitution between clean and dirty consumption. Moreover, accounting for money illusion always reduces the intertemporal gross cost of the tax reform.

Taxing Mobile Capital with Labor Market Imperfections

Taxing internationally mobile factors of production has been dismissed as an inefficient means of raising tax revenue. This paper addresses the question of whether it is efficient to tax capital at source when labor markets and the taxation of lumpsum income suffer from imperfections. Four reasons for taxing capital are identified: (i) institutional constraints rendering any taxation of profit income infeasible; (ii) market power in the demand for labor; (iii) market power in the supply of labor if it increases with the employment of capital; (iv) unemployment benefits that are not tied to net real wages. It is argued that the case for taxing capital is not particularly strong. By reinterpreting capital as energy the results are applicable to the discussion about ecological tax reforms.

Taxing Mobile Capital with Labor Market Imperfections

Taxing internationally mobile factors of production has been dismissed as an inefficient means of raising tax revenue. This paper addresses the question of whether it is efficient to tax capital at source when labor markets and the taxation of lumpsum income suffer from imperfections. Four reasons for taxing capital are identified: (i) institutional constraints rendering any taxation of profit income infeasible; (ii) market power in the demand for labor; (iii) market power in the supply of labor if it increases with the employment of capital; (iv) unemployment benefits that are not tied to net real wages. It is argued that the case for taxing capital is not particularly strong. By reinterpreting capital as energy the results are applicable to the discussion about ecological tax reforms.

Ecological modernization — origins, dilemmas and future directions

Several of the preceding contributions to this special issue have raised critical comments and questions on the concept and research agenda of ecological modernization. It is our impression that these comments not only reflect academic ingenuity, but also a broader and growing hesitation about the concept and its usefulness, as similar scepticism was also expressed by participants at the international workshop on ecological modernization in Helsinki. As the term ecological modernization has grown popular among leading politicians and policy-makers, so has the dilution of it. In this paper, we make an attempt to move away from the purely heuristic use of ecological modernization, by clarifying both its origins and meanings. For connoisseurs of the concept, our paper may be seen as a recapitulation, rather than as an innovation; our mission is not to reinvent a concept, but to clarify its origins and connected dilemmas. In essence, ecological modernization refers to a specific type of foresighted and preventive environmental policy, which is closely related to the precautionary principle and, therefore, involves long-term structural change of the patterns of production and consumption. The agenda for ecological modernization, and for an associated ecological tax reform, was promoted by scientists outside of the economics profession, but helped breathe new life into the dormant discipline of environmental economics. In recent years, much of the debate on the opportunities of ecological modernization have been ‘captured’ by economists, who tend to perceive it in the vein of conventional efficiency measures. In view of the serious environmental problems facing the global community in the 21st century, ecological modernization as a concept, in our opinion, only makes sense if reserved for a reference to more radical structural changes that promote ecological consistency rather than ordinary efficiency. Copyright © 2000 John Wiley & Sons, Ltd.

Ecological Tax Reform: Many Know Why But Few Know How

Ecological tax reform involves the utilisation of the tax system to facilitate sustainable development. The generally accepted approach to ecological tax reform is to reduce tax rates on income and labour and to impose Pigouvian taxes on resource use and pollution emissions. While this approach is a vast improvement on current tax systems, it is an inadequate means of achieving sustainable development because it relies exclusively on the manipulation of market prices – an allocation instrument – when ecological sustainability is a throughput problem that requires a separate policy instrument to be adequately resolved. With the aid of a linear throughput representation of the economic process, it is argued that conventional ecological tax reform measures promote just two of the five behavioural modes put forward to achieve sustainable development. In order to promote all five behavioural modes, it is argued that ecological tax reform is best conducted with the incorporation of tradeable resource use permits and assurance bonds.

Ecological Tax Reform with Exemptions for the Export Sector in a Two Sector Two Factor Model

This present paper analyzes an energy tax reform that exempts the energy-intensive export sector from paying the energy tax and uses the additional revenue to cut existing taxes in all sectors. To that end, a two sector two factor model of an open economy that is small on the import side but not on the export side is applied. Within this model, an equivalence between a tax reform with and without exemption of the export sector is derived. The equivalence occurs because in both tax schemes the tax burden is shifted through an increasing producer price of labor from the domestic to the foreign household.

Using revenue from an energy tax to finance social security: a dynamic general equilibrium model for Switzerland

A substantial increase in the dependency ratio due to both population ageing and low economic growth will put pressure on social security systems. This paper analyses an ecological tax reform that uses revenues from an energy tax to finance reductions in either the wage or the value added tax. The simulation results based on a dynamic general equilibrium model for Switzerland show that increasing energy prices by 50% or 100% will substantially lower energy use, while decreasing the efficiency of the fiscal system only slightly. Furthermore, it turns out that the effects do not differ when an increase in the VAT substitutes part of the social security payroll tax.