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Performing an Environmental Tax Reform in a Regional Economy: A Computable General Equilibrium Approach

Author

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  • Francisco J. André
  • M. Alejandro Cardenete

Abstract

We use a Computable General Equilibrium model to simulate the effects of an Environmental Tax Reform in a regional economy (Andalusia, Spain). The reform involves imposing a tax on CO2 or SO2 emissions and reducing either the Income Tax or the payroll tax of employers to Social Security, and eventually keeping public deficit unchanged. This approach enables us to test the so-called double dividend hypothesis, which states that this kind of reform is likely to improve both environmental and non-environmental welfare. In the economy under analysis, an employment double dividend arises when the payroll tax is reduced and, if CO2 emissions are selected as environmental target, a (limited) strong double could also be obtained. No double dividend appears when Income Tax is reduced to compensate the environmental ta

Suggested Citation

  • Francisco J. André & M. Alejandro Cardenete, 2004. "Performing an Environmental Tax Reform in a Regional Economy: A Computable General Equilibrium Approach," Computing in Economics and Finance 2004 115, Society for Computational Economics.
  • Handle: RePEc:sce:scecf4:115
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    Keywords

    Environmental Rax Reform; Computable General Equilibrium; Double Dividend;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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