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Sustainability 2018, 10(2), 501; doi:10.3390/su10020501

Environmental Fiscal Reform and the Double Dividend: Evidence from a Dynamic General Equilibrium Model

Department of Economics, Harvard University, Cambridge, MA 02138, USA
ENT Environment and Management, Sant Joan, 39, 1, Vilanova i la Geltrú, 08800 Barcelona, Spain
Harvard China Project on Energy, Economy and Environment, Harvard University, Cambridge, MA 02138, USA
Author to whom correspondence should be addressed.
Received: 12 December 2017 / Revised: 29 January 2018 / Accepted: 2 February 2018 / Published: 13 February 2018
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
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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. View Full-Text
Keywords: environmental fiscal reform; CGE; pollutant emissions; double dividend hypothesis environmental fiscal reform; CGE; pollutant emissions; double dividend hypothesis

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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Freire-González, J.; Ho, M.S. Environmental Fiscal Reform and the Double Dividend: Evidence from a Dynamic General Equilibrium Model. Sustainability 2018, 10, 501.

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