Government behavior, endogenous growth and the economic and budgetary impact of CO2 taxation in Portugal
AbstractThe objective of this paper is to examine the influence of government behavior on the growth and budgetary impacts of CO2 taxation in Portugal. We develop marginal abatement cost curves for CO2 emissions associated with CO2 taxation using a dynamic general equilibrium model of the Portuguese economy which highlights the mechanisms of endogenous growth and includes a detailed modeling of the public sector. Simulation results show that a tax of 17.00 Euros per tCO2 has the technical capacity to limit emissions growth to the existing 2020 climate policy target for Portugal. In turn, changes in tax revenues together with reductions in public spending, lead to a decline of 2.7 percent in the public debt. These desirable outcomes, however, come at the cost of a 0.7 percent reduction in GDP relative to steady-state baseline levels and a 0.1 percent reduction in social welfare. Although this paper is applied to the Portuguese case its relevance is not parochial. From a conceptual perspective it highlights an important political economy dimension of environmental taxation by suggesting that a situation of budgetary restraint may be the ideal background for the introduction of a carbon tax. Fully committing to the austerity measures and not overcompensating in the face of these welfare concerns can substantially influence the costs and trade-off between growth and fiscal sustainability. From a methodological perspective it highlights the importance of endogenous growth mechanisms and the modeling of the public sector in evaluating the magnitude of the economic and budgetary impacts of CO2 taxes.
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Bibliographic InfoPaper provided by Department of Economics, College of William and Mary in its series Working Papers with number 105.
Length: 24 pages
Date of creation: 01 Jun 2013
Date of revision:
Marginal Abatement Costs; Endogenous Growth; Budgetary Effects; Carbon Taxation; Dynamic General Equilibrium; Portugal.;
Find related papers by JEL classification:
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-DGE-2011-02-05 (Dynamic General Equilibrium)
- NEP-ENE-2011-02-05 (Energy Economics)
- NEP-ENV-2011-02-05 (Environmental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Marginal abatement cost curves and the budgetary impact of CO2 taxation in Portugal
by Christian Zimmermann in NEP-DGE blog on 2011-02-07 02:31:15
- Alfredo Marvão Pereira & Rui M. Pereira, 2012. "DGEP - A Dynamic General Equilibrium Model of the Portuguese Economy: Model Documentation," Working Papers 127, Department of Economics, College of William and Mary.
- Alfredo Marvão Pereira & Rui M. Pereira, 2011. "On the Economic and Budgetary Impact of Fiscal Devaluation in Portugal," Working Papers 116, Department of Economics, College of William and Mary.
- Gerhard Glomm & Juergen Jung, 2012. "A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy: The Case of Egypt," Caepr Working Papers 2012-006, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
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