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Environmental fiscal reform in Germany: a computable general equilibrium analysis

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  • Heinz Welsch

    (University of Oldenburg)

  • Viola Ehrenheim

    (University of Oldenburg)

Abstract

This article reports the effects of environmental fiscal reform recently undertaken in Germany. Our assessment uses a computable general equilibrium model of Germany and the rest of the European Union (EU) calibrated to input-output data for 1995. We found that the environmental fiscal reform yielded a moderate double dividend in terms of reduced CO2 emissions and increased employment but had little impact on the gross domestic product (GDP). Even though the manufacturing industries are facing reduced ecotax rates, the trend toward deindustrialization is strengthened owing to significant induced changes in the structure of demand. The favorable employment effect vanishes, and the GDP effect turns negative if there is an initial rise in employment that triggered rising wage claims. Effects elsewhere in the EU, especially in terms of emissions, are negligible.

Suggested Citation

  • Heinz Welsch & Viola Ehrenheim, 2004. "Environmental fiscal reform in Germany: a computable general equilibrium analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 6(3), pages 197-219, September.
    • Handle: RePEc:spr:envpol:v:6:y:2004:i:3:d:10.1007_bf03353937
    DOI: 10.1007/BF03353937
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    References listed on IDEAS

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    1. Bach, Stefan & Kohlhaas, Michael & Meyer, Bernd & Praetorius, Barbara & Welsch, Heinz, 2002. "The effects of environmental fiscal reform in Germany: a simulation study," Energy Policy, Elsevier, vol. 30(9), pages 803-811, July.
    2. Bosello, Francesco & Carraro, Carlo & Galeotti, Marzio, 2001. "The double dividend issue: modeling strategies and empirical findings," Environment and Development Economics, Cambridge University Press, vol. 6(1), pages 9-45, February.
    3. Barker, Terry, 1998. "The effects on competitiveness of coordinated versus unilateral fiscal policies reducing GHG emissions in the EU: an assessment of a 10% reduction by 2010 using the E3ME model," Energy Policy, Elsevier, vol. 26(14), pages 1083-1098, December.
    4. Jean-Marc Burniaux & John P. Martin & Giuseppe Nicoletti & Joaquim Oliveira Martins, 1992. "GREEN a Multi-Sector, Multi-Region General Equilibrium Model for Quantifying the Costs of Curbing CO2 Emissions: A Technical Manual," OECD Economics Department Working Papers 116, OECD Publishing.
    5. Kemfert, Claudia & Welsch, Heinz, 2000. "Energy-Capital-Labor Substitution and the Economic Effects of CO2 Abatement: Evidence for Germany," Journal of Policy Modeling, Elsevier, vol. 22(6), pages 641-660, November.
    6. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-948, July.
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    Cited by:

    1. Obernhofer, Ulrich & Rennings, Klaus & Sahin, Bedia, 2006. "The impacts of the European Emissions Trading Scheme on competitiveness and employment in Europe: A literature review," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 111466.
    2. Maruf Rahman Maxim & Kerstin Zander, 2019. "Can a Green Tax Reform Entail Employment Double Dividend in European and non-European Countries? A Survey of the Empirical Evidence," International Journal of Energy Economics and Policy, Econjournals, vol. 9(3), pages 218-228.
    3. Maruf Rahman Maxim, 2020. "Environmental fiscal reform and the possibility of triple dividend in European and non-European countries: evidence from a meta-regression analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(4), pages 633-656, October.
    4. Böhringer Christoph & Welsch Heinz & Löschel Andreas, 2008. "Environmental Taxation and Induced Structural Change in an Open Economy: The Role of Market Structure," German Economic Review, De Gruyter, vol. 9(1), pages 17-40, February.

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