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From shadow to green: Linking environmental fiscal reforms and the informal economy

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  • Markandya, Anil
  • González-Eguino, Mikel
  • Escapa, Marta

Abstract

In the past few decades many papers have analysed in some depth different environmental tax reforms and the double dividend hypothesis, i.e. the possibility of improving not only the environment but also the economy through the reduction of distortions in the tax system. However, such studies have not modelled the effects of the presence of a shadow economy, even though informal markets account for a significant and growing part of GDP in many developed economies. This paper analyses this important link using a Computable General Equilibrium model for the case of Spain, with historically high unemployment rates and a large informal economy. Since the informal labour is not taxed, when the green tax is introduced and the tax on formal labour is reduced, the pre-existing non-environment-related inefficiency of the tax system is remarkably reduced. Our analysis shows that if the distortions created by the shadow economy are considered, the case for an environmental tax reform where revenues are used to reduce labour taxes is strengthened and the possibility to find a double divided is more likely. Our sensitivity analysis also shows that these results can also be extrapolated to some extent to other countries with different sizes of the shadow economy or different labour market conditions.

Suggested Citation

  • Markandya, Anil & González-Eguino, Mikel & Escapa, Marta, 2013. "From shadow to green: Linking environmental fiscal reforms and the informal economy," Energy Economics, Elsevier, vol. 40(S1), pages 108-118.
  • Handle: RePEc:eee:eneeco:v:40:y:2013:i:s1:p:s108-s118
    DOI: 10.1016/j.eneco.2013.09.014
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    Cited by:

    1. repec:col:000438:016614 is not listed on IDEAS
    2. Kurt Kratena & Mark Sommer, 2014. "Labour Market Policy and Environmental Fiscal Devaluation: A Cure for Spain in the Aftermath of the Great Recession?," WIFO Working Papers 476, WIFO.
    3. Jan Siegmeier & Linus Mattauch & Max Franks & David Klenert & Anselm Schultes & Ottmar Edenhofer, 2015. "A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare," Working Papers 2015.31, Fondazione Eni Enrico Mattei.
    4. repec:oap:ijaefa:2017:p:48-52 is not listed on IDEAS
    5. repec:eco:journ2:2019-03-25 is not listed on IDEAS
    6. Christoph Böhringer, Xaquin Garcia-Muros, and Mikel González-Eguino, 2019. "Greener and Fairer: A Progressive Environmental Tax Reform for Spain," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    7. Anil Markandya & Mikel González- Eguino & Marta Escapa, 2012. "Environmental fiscal reform and unemployment in Spain," Chapters,in: Carbon Pricing, Growth and the Environment, chapter 1, pages 3-16 Edward Elgar Publishing.
    8. Antal, Miklós, 2014. "Green goals and full employment: Are they compatible?," Ecological Economics, Elsevier, vol. 107(C), pages 276-286.
    9. Cristina Fernández & Leonardo Villar & Nicolás Gómez, 2017. "Taxonomía de la informalidad en América Latina," Coyuntura Económica, Fedesarrollo, vol. 47(1 y 2), pages 137-167, December.
    10. Fuss, Sabine & Chen, Claudine & Jakob, Michael & Marxen, Annika & Rao, Narasimha D. & Edenhofer, Ottmar, 2016. "Could resource rents finance universal access to infrastructure? A first exploration of needs and rents," Environment and Development Economics, Cambridge University Press, vol. 21(6), pages 691-712, December.
    11. Xaquín Garcia-Muros & Mercedes Burguillo & Mikel Gonzalez-Eguino & Desiderio Romero-Jordán, 2014. "Local air pollution and global climate change taxes: a distributional analysis," Working Papers 2014-01, BC3.
    12. repec:eee:wdevel:v:115:y:2019:i:c:p:246-257 is not listed on IDEAS
    13. repec:gam:jsusta:v:11:y:2019:i:7:p:1936-:d:219004 is not listed on IDEAS
    14. Ibon Galarraga & Mikel Gonzalez-Eguino & Dirk T. G. Rübbelke, 2016. "Environmental Economics, Climate Change Policy and Beyond: A Tribute to Anil Markandya," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 219-224, February.
    15. de Wit, Jaap G., 2014. "Unlevel playing field? Ah yes, you mean protectionism," Journal of Air Transport Management, Elsevier, vol. 41(C), pages 22-29.
    16. 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.

    More about this item

    Keywords

    Environmental fiscal reform; Double dividend hypothesis; Shadow economy; Unemployment; General equilibrium analysis; Spain;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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