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

Author

Listed:
  • 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 fiscal 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 stimulate 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.

Suggested Citation

  • Alfredo Marvão Pereira & Rui M. Pereira, 2013. "Environmental Fiscal Reform and Fiscal Consolidation: The Quest for the Third Dividend in Portugal," Working Papers 114, Department of Economics, College of William and Mary.
    • Handle: RePEc:cwm:wpaper:114
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    File URL: http://economics.wm.edu/wp/cwm_wp114rev1.pdf
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    References listed on IDEAS

    as
    1. Gilbert Metcalf & David Weisbach, 2008. "The Design of a Carbon Tax," Discussion Papers Series, Department of Economics, Tufts University 0728, 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    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.
    3. Hájek, Miroslav & Zimmermannová, Jarmila & Helman, Karel & Rozenský, Ladislav, 2019. "Analysis of carbon tax efficiency in energy industries of selected EU countries," Energy Policy, Elsevier, vol. 134(C).
    4. Alfredo Pereira & Rui Pereira, 2013. "Fossil fuel prices and the economic and budgetary challenges of a small energy-importing economy: the case of Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 12(3), pages 181-214, December.
    5. Pereira, Alfredo M. & Pereira, Rui M., 2014. "On the environmental, economic and budgetary impacts of fossil fuel prices: A dynamic general equilibrium analysis of the Portuguese case," Energy Economics, Elsevier, vol. 42(C), pages 248-261.
    6. 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.
    7. Vít Pászto & Jarmila Zimmermannová & Jolana Skaličková & Judit Sági, 2020. "Spatial Patterns in Fiscal Impacts of Environmental Taxation in the EU," Economies, MDPI, vol. 8(4), pages 1-18, November.
    8. Pereira, Alfredo & Pereira, Rui, 2017. "On the Effect of an Increase in the VAT on Electricity in Portugal," MPRA Paper 77594, University Library of Munich, Germany.
    9. Pereira, Alfredo & Pereira, Rui, 2016. "On the Optimal Use of Revenues from a CO2 Tax and the Importance of Labor Market Conditions," MPRA Paper 77630, University Library of Munich, Germany.
    10. Alfredo Marvão Pereira & Rui M. Pereira & Pedro G. Rodrigues, 2014. "On the Long-Term Impact of a Fiscal Devaluation: An Application to the Portuguese Case," Working Papers 116, Department of Economics, College of William and Mary.

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    More about this item

    Keywords

    Carbon Tax; Environmental Fiscal Reform; Endogenous Growth; Budgetary Consolidation.;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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