Thematic Report: Macroeconomic Models Including Specifically Social and Environmental Aspects. WWWforEurope Deliverable No. 8

A significant reduction of the global environmental consequences of European consumption and production activities are the main objective of the policy simulations carried out in this paper. For this purpose three different modelling approaches have been chosen: Two macroeconomic models following the philosophy of consistent stock-flow accounting for the main institutional sectors (households, firms, banks, central bank, and government) are used to quantify the impact of several different policies. These policies comprise classical tax reforms (pricing of resources and emissions) as well as policies aiming at behavioural change in private and public consumption and at technological change (energy and resource efficiency and renewable sources). A Dynamic New Keynesian (DYNK) model is used for a comparison between classical green tax reform and taxing direct and indirect (footprint) energy and resource use of consumers. An important leading principle of the modelling work is the simultaneous treatment of economic (GDP, employment), social (income distribution, unemployment) and environmental issues. The paper shortly describes the different modelling approaches and highlights the most important features for the evaluation of the impacts of different policies. The different policy scenarios that are carried out with each model are described. The policy scenarios are not directly comparable between the different models, but show some similarities. Two important conclusions can be drawn from the simulation results: important trade-offs and synergies exist between the different economic, social and environmental goals, and simple policy scenarios mainly putting all the effort in one simple instrument (e.g., tax reform) are not likely to achieve an optimal result. A combination of instruments is most likely to achieve results satisfying the different economic, social and environmental goals.