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The role of revenue recycling schemes in environmental tax selection : a general equilibrium analysis

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  • Timilsina, Govinda R.

Abstract

This study examines the roles of revenue recycling schemes for the selection of alternative tax instruments (i.e., carbon-, sulphur-, energy- and output-tax) to reduce CO2 emissions to a specified level in Thailand. A static, single period, multi-sectoral computable general equilibrium (CGE) model of the Thai economy has been developed for this purpose. This study finds that the selection of a tax instrument to reduce CO2 emissions would be significantly influenced by the scheme to recycle the tax revenue to the economy. If the tax revenue is recycled to finance cuts in the existing labour or indirect tax rates, carbon tax would be more efficient than the sulphur-, energy- and output-taxes to reduce CO2 emissions. On the other hand, if the tax revenue is recycled to households through a lump-sum transfer, sulphur and carbon taxes would be more efficient than energy and output taxes. The ranking between the sulphur and carbon taxes under the lump sum transfer scheme depends on substitution possibility of fossil fuels. Sulphur tax is found superior over carbon tax at the higher substitution possibility between fossil fuels; the reverse is found true at the lower substitution possibility. In all schemes of revenue recycling considered, the output tax is found to be the most costly (i.e., in welfare terms) despite the fact that it generates two to three times higher revenue than the other tax instruments.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4388.

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Date of creation: 01 Nov 2007
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Handle: RePEc:wbk:wbrwps:4388

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Keywords: Environmental Economics&Policies; Taxation&Subsidies; Transport Economics Policy&Planning; Energy Production and Transportation; Debt Markets;

References

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  1. Goulder Lawrence H., 1995. "Effects of Carbon Taxes in an Economy with Prior Tax Distortions: An Intertemporal General Equilibrium Analysis," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 271-297, November.
  2. Ian W. H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," NBER Working Papers 5967, National Bureau of Economic Research, Inc.
  3. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521319867.
  4. Welsch, Heinz, 1998. "Coal subsidization and nuclear phase-out in a general equilibrium model for Germany," Energy Economics, Elsevier, Elsevier, vol. 20(2), pages 203-222, April.
  5. Dufournaud, Christian M. & Quinn, John T. & Harrington, Joseph J., 1994. "An Applied General Equilibrium (AGE) analysis of a policy designed to reduce the household consumption of wood in the Sudan," Resource and Energy Economics, Elsevier, Elsevier, vol. 16(1), pages 67-90, March.
  6. Adam Rose & Shih-Mo Lin, 1995. "Regrets or No Regrets -- That is the Question: Is Conservation an Costless CO2 Mitigation Strategy?," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 3), pages 67-88.
  7. Warwick J. McKibbin & Martin T. Ross & Robert Shackleton & Peter J. Wilcoxen, 1999. "Emissions Trading, Capital Flows and the Kyoto Protocol," Economics and Environment Network Working Papers, Australian National University, Economics and Environment Network 9901, Australian National University, Economics and Environment Network.
  8. Schmutzler, Armin & Goulder, Lawrence H., 1997. "The Choice between Emission Taxes and Output Taxes under Imperfect Monitoring," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 51-64, January.
  9. Jorgenson, D.W. & Wilcoxen, P.J., 1992. "Reducing US Carbon Dioxide Emissions: An Assessment of Different Instruments," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1590, Harvard - Institute of Economic Research.
  10. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier, Elsevier.
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Cited by:
  1. Lu, Chuanyi & Tong, Qing & Liu, Xuemei, 2010. "The impacts of carbon tax and complementary policies on Chinese economy," Energy Policy, Elsevier, Elsevier, vol. 38(11), pages 7278-7285, November.

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