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The Economic and Environmental Effects of Taxing Air Pollutants and CO2: Lessons from a Study of the Czech Republic

Author

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  • Kiula, Olga
  • Markandya, Anil
  • Ščasný, Milan
  • Menkyna Tsuchimoto, Fusako

Abstract

This paper analyzes the impacts of local emissions charges as well as a tax on CO2 for a small open economy. We do this to see the separate and collective impacts of these taxes so as to understand the effects of a system of environmental taxes that reflects something close to the full internalization of external effects in the case of air emissions. The analysis was carried out using a static CGE model, with unemployment, bottom-up abatement technologies and with sector- and fuel-specific emission coefficients. The model imposes environmental charges on several pollutants, as a result of which emissions can fall through three channels: reduced output of the polluting good, substitution between production factors, and increased end-of-pipe abatement activity. Such CGE modeling of both local and global pollutants, with a wide range of abatement options is one of the first of its kind. The analysis shows that a full internalization of air pollution externalities can result in modest overall welfare gains and the combination of local pollution taxes and CO2 taxes should be feasible. There are, however, differences in terms of employment and output impacts, depending on what combination of taxes are applied, which sectors are covered and how fiscal revenues are redistributed.

Suggested Citation

  • Kiula, Olga & Markandya, Anil & Ščasný, Milan & Menkyna Tsuchimoto, Fusako, 2014. "The Economic and Environmental Effects of Taxing Air Pollutants and CO2: Lessons from a Study of the Czech Republic," MPRA Paper 66599, University Library of Munich, Germany, revised Oct 2015.
  • Handle: RePEc:pra:mprapa:66599
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    References listed on IDEAS

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    Cited by:

    1. Rečka, L. & Ščasný, M., 2016. "Impacts of carbon pricing, brown coal availability and gas cost on Czech energy system up to 2050," Energy, Elsevier, vol. 108(C), pages 19-33.
    2. 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.
    3. Zuzana KRISTKOVA, 2013. "Analysis of Private R&D Effects in a CGE Model with Capital Varieties: The Case of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(3), pages 262-287, July.

    More about this item

    Keywords

    CGE modelling; Internalisation of external costs; Ancillary benefits; Carbon taxation; Air pollution charging;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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