Reforming energy excise duties: a possible balance between environmental and redistributive objectives

The paper suggests a possible strategy to reform energy excise duties to address the issue of climate change, following the provisions of the proposed revision of the Energy Taxation Directive. The analysis focuses on three products: petrol, diesel, and electricity consumption. The logic of the environmental reform follows the double dividend theory. Indeed, using a micro-simulation model on data from the Household Budget Survey provided by the Italian National Statistics Institute, a first reform scenario is simulated for the values of the excise duties mentioned. The focus is on the additional revenue generated by the environmental reform, which will be used to intervene firstly on VAT, the main indirect tax in Italy, and secondly on excise duties themselves. The aim is to demonstrate that more robust redistributive effects can be achieved by using public expenditure to limit the regressive effect of the environmental reform, working with a comprehensive tax reform.