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Intergenerational aspects of ecotax reforms - An application to Germany

Listed author(s):
  • Habla, Wolfgang
  • Roeder, Kerstin

In a model of overlapping generations and majority voting, we analyze an ecotax reform consisting of the tax rate and the budgetary rule. Revenue can be recycled through a lump-sum transfer or a reduction in pension contributions. Our theoretical results as well as the calibration of our model to the German economy show that the median voter’s preferred tax rate may exceed the efficient rate. This holds whenever income of the decisive voter is sufficiently high compared to the average income, as rich individuals benefit more from a reduction in pension contributions than they are harmed by an increase in ecotaxes. The calibration confirms that the median voter prefers the earmarking of tax revenue for reductions in pension contributions to the alternative lump-sum transfer. This is quite an accurate prediction of the situation in Germany. Aging of society as expected for Germany lowers the ecotax in the political equilibrium below its optimal level.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20469.

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Date of creation: 2013
Publication status: Published in Journal of Environmental Economics and Management 2 66(2013): pp. 301-318
Handle: RePEc:lmu:muenar:20469
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Web page: http://www.vwl.uni-muenchen.de

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