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Environmental Fiscal Reform and Fiscal Consolidation

Author

Listed:
  • Alfredo M. Pereira

    () (Department of Economics, College of William and Mary, Williamsburg, VA, USA)

  • Rui M. Pereira

    (Department of Economics, College of William and Mary, Williamsburg, VA, USA)

Abstract

This article explores the capacity for environmental fiscal reform to reduce carbon dioxide (CO2) emissions, stimulate economic performance, and promote fiscal sustainability. Simulation results suggest that reforms based on CO2 taxation stimulate gross domestic product (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 M. Pereira & Rui M. Pereira, 2014. "Environmental Fiscal Reform and Fiscal Consolidation," Public Finance Review, , vol. 42(2), pages 222-253, March.
  • Handle: RePEc:sae:pubfin:v:42:y:2014:i:2:p:222-253
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    Citations

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    Cited by:

    1. Alfredo M. Pereira & Rui M. Pereira, 2017. "Reducing carbon emissions in Portugal: the relative roles of fossil fuel prices, energy efficiency, and carbon taxation," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 60(10), pages 1825-1852, October.
    2. 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.
    3. 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.
    4. Pereira, Alfredo M. & Pereira, Rui M. & Rodrigues, Pedro G., 2016. "A new carbon tax in Portugal: A missed opportunity to achieve the triple dividend?," Energy Policy, Elsevier, vol. 93(C), pages 110-118.
    5. Alfredo Marvao Pereira & Rui Marvao Pereira, 2019. "Achieving the triple dividend in Portugal: a dynamic general-equilibrium evaluation of a carbon tax indexed to emissions trading," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 22(2), pages 148-163, April.

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