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Environmental Fiscal Reform and Fiscal Consolidation: The Quest for the Third Dividend in Portugal

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Author Info

  • Alfredo Marvão Pereira

    () (Department of Economics, The College of William and Mary)

  • Rui M. Pereira

    () (Department of Economics, University of the Algarve)

Abstract

This paper explores the capacity for environmental reform to reduce CO2 emissions, stimulate economic performance, and promote fiscal sustainability. Simulation results suggest that reforms based on CO2 taxation stimulate GDP when tax revenues are used to promote private or public investment and employment when used to finance reductions in personal income taxation or firms' social security contributions. More generally, reforms allow for reductions in the costs of climate policy, a weaker realization of the second dividend. In addition, several reforms lead to reductions in public debt, the realization of a third dividend. When political constraints on reducing public spending are considered, however, this third dividend only materializes when revenues finance public investment or reductions in the firms' social security contributions. Overall, our results suggest that low growth and high public debt need not be regarded as hindrances for environmental fiscal reform but can actually be seen as catalysts.

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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 114.

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Length: 49 pages
Date of creation: 20 Apr 2011
Date of revision:
Handle: RePEc:cwm:wpaper:114

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Related research

Keywords: Carbon Tax; Environmental Fiscal Reform; Economic Growth; Budgetary Consolidation; Dynamic General Equilibrium; Endogenous Growth;

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References

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  1. Gilbert Metcalf & David Weisbach, 2008. "The Design of a Carbon Tax," Discussion Papers Series, Department of Economics, Tufts University 0727, Department of Economics, Tufts University.
  2. Carlo Carraro & Enrica De Cian & Massimo Tavoni, 2009. "Human Capital Formation and Global Warming Mitigation: Evidence from an Integrated Assessment Model," CESifo Working Paper Series 2874, CESifo Group Munich.
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Citations

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Cited by:
  1. 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.
  2. 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.

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