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A New Proposal of Ecological Tax Reform

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  • Takumi HAIBARA
  • Hiroshi OHTA

Abstract

Using the simplest general equilibrium model incorporating consumption-generated pollution externalities, we identify the condition under which a revenue-neutral tax reform (RNTR), which combines increased consumption tax with reduced income tax, increases pollution emissions. More importantly, we propose a new approach to ecological tax reform, namely carbon-neutral tax reform (CNTR). We show that under plausible conditions, the CNTR raises government revenue and increases economic efficiency without jeopardizing the environment. Furthermore, the CNTR can put a limit on the degree of trade-off, which is frequently accentuated by the RNTR, between environmental and nonenvironmental efficiency. The present paper could herald a new era of tax reform and therefore offers a promising research agenda.

Suggested Citation

  • Takumi HAIBARA & Hiroshi OHTA, 2011. "A New Proposal of Ecological Tax Reform," GSICS Working Paper Series 24, Graduate School of International Cooperation Studies, Kobe University.
    • Handle: RePEc:kcs:wpaper:24
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    Cited by:

    1. Michael S. Michael & Panos Hatzipanayotou, 2013. "Cooperative and Non-Cooperative Equilibrium Consumption Taxes in the Presence of Cross-Border Pollution," CESifo Working Paper Series 4501, CESifo.
    2. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2016. "On the Efficiency of Destination and Origin Commodity Taxation in the Presence of Consumption Generated Cross-Border Pollution," CESifo Working Paper Series 6221, CESifo.

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    More about this item

    Keywords

    Revenue-neutral tax reforms; Carbon-neutral tax reforms; Welfare;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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