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From Shadow to Green: Linking Environmental Fiscal Reforms and the Informal Economy

Author

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  • Mikel González-Eguino
  • Anil Markandya
  • Marta Escapa

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. Recently, more stress has been placed on testing empirically what effects a reduction in labour taxes may have on unemployment when accompanied by a carbon or other environmental tax. 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 link using an Applied General Equilibrium model for the case of Spain, which has one of the highest unemployment rates in the world and one of the biggest informal economies of any wealthy country. We conclude that our analysis strengthens the case for an environmental tax reform in Spain if revenues from a CO2 tax are recycled via a labour tax reduction.

Suggested Citation

  • Mikel González-Eguino & Anil Markandya & Marta Escapa, 2012. "From Shadow to Green: Linking Environmental Fiscal Reforms and the Informal Economy," Working Papers 2012-03, BC3.
  • Handle: RePEc:bcc:wpaper:2012-03
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. repec:oap:ijaefa:2017:p:48-52 is not listed on IDEAS
    3. 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.
    4. Antal, Miklós, 2014. "Green goals and full employment: Are they compatible?," Ecological Economics, Elsevier, vol. 107(C), pages 276-286.
    5. Cristina Fernández & Leonardo Villar, 2017. "Taxonomía de la informalidad en América Latina," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 015814, FEDESARROLLO.
    6. 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(06), pages 691-712, December.
    7. 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.
    8. 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.
    9. 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.

    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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