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Input vs. Output Taxation—A DSGE Approach to Modelling Resource Decoupling

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  • Marek Antosiewicz

    (Institute for Structural Research, Warsaw 02-516, Poland
    Warsaw School of Economics, Warsaw 02-554, Poland)

  • Piotr Lewandowski

    (Institute for Structural Research, Warsaw 02-516, Poland)

  • Jan Witajewski-Baltvilks

    (Institute for Structural Research, Warsaw 02-516, Poland)

Abstract

Environmental taxes constitute a crucial instrument aimed at reducing resource use through lower production losses, resource-leaner products, and more resource-efficient production processes. In this paper we focus on material use and apply a multi-sector dynamic stochastic general equilibrium (DSGE) model to study two types of taxation: tax on material inputs used by industry, energy, construction, and transport sectors, and tax on output of these sectors. We allow for endogenous adoption of resource-saving technologies. We calibrate the model for the EU27 area using an IO matrix. We consider taxation introduced from 2021 and simulate its impact until 2050. We compare the taxes along their ability to induce reduction in material use and raise revenue. We also consider the effect of spending this revenue on reduction of labour taxation. We find that input and output taxation create contrasting incentives and have opposite effects on resource efficiency. The material input tax induces investment in efficiency-improving technology which, in the long term, results in GDP and employment by 15%–20% higher than in the case of a comparable output tax. We also find that using revenues to reduce taxes on labour has stronger beneficial effects for the input tax.

Suggested Citation

  • Marek Antosiewicz & Piotr Lewandowski & Jan Witajewski-Baltvilks, 2016. "Input vs. Output Taxation—A DSGE Approach to Modelling Resource Decoupling," Sustainability, MDPI, Open Access Journal, vol. 8(4), pages 1-17, April.
  • Handle: RePEc:gam:jsusta:v:8:y:2016:i:4:p:352-:d:68060
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    Cited by:

    1. Chan, Ying Tung, 2020. "Optimal emissions tax rates under habit formation and social comparisons," Energy Policy, Elsevier, vol. 146(C).
    2. Marek Antosiewicz & Rodrigo Fuentes & Piotr Lewandowski & Jan Witajewski-Baltvilks, 2020. "Distributional effects of emission pricing in a carbon-intensive economy: the case of Poland," IBS Working Papers 07/2020, Instytut Badan Strukturalnych.
    3. Michał Antoszewski, 2020. "Macroeconomic, Sectoral and Fiscal Consequences of Decreasing Energy Intensity in the Polish Economy," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 53-81.
    4. Doreen Fedrigo-Fazio & Jean-Pierre Schweitzer & Patrick Ten Brink & Leonardo Mazza & Alison Ratliff & Emma Watkins, 2016. "Evidence of Absolute Decoupling from Real World Policy Mixes in Europe," Sustainability, MDPI, Open Access Journal, vol. 8(6), pages 1-22, May.
    5. Colin M. Rose & Julia A. Stegemann, 2018. "From Waste Management to Component Management in the Construction Industry," Sustainability, MDPI, Open Access Journal, vol. 10(1), pages 1-21, January.

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    More about this item

    Keywords

    DSGE model; resource decoupling; technological change; environmental taxes; environmental policy; double dividend;
    All these keywords.

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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