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Optimal fiscal policy with environmental tax and abatement spending in a model with pollution and utility-enhancing environmental quality: the case of Bulgaria

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  • Vasilev, Aleksandar

Abstract

This paper characterized optimal fiscal policy - with environmental taxes, and public spending on abatement - in the presence of pollution, and evaluated it relative to the exogenous (observed) one in Bulgaria, an economy with a largely unreformed and polluting industry. The results are evaluated in light of the optimal environmental taxation of dirty production and the optimal spending on abatement, and the effect of those fiscal measures on the utility-enhancing environmental quality. To this end, a dynamic general-equilibrium model is calibrated to Bulgarian data (1999-2016). The main findings from the computational experiments performed are: (i) The optimal steady-state income tax rate is zero; (ii) The benevolent Ramsey planner provides twenty percent higher utility-enhancing environmental quality; (iii) The optimal level of carbon taxes is almost three times higher, and the optimal level of abatement spending is six times higher; (iv) The optimal steady-state consumption tax is twice lower.

Suggested Citation

  • Vasilev, Aleksandar, 2018. "Optimal fiscal policy with environmental tax and abatement spending in a model with pollution and utility-enhancing environmental quality: the case of Bulgaria," EconStor Preprints 175661, ZBW - Leibniz Information Centre for Economics.
  • Handle: RePEc:zbw:esprep:175661
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    File URL: https://www.econstor.eu/bitstream/10419/175661/1/env_RBC_Ramsey.pdf
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    References listed on IDEAS

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    1. Vasilev, Aleksandar, 2015. "Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria's 2008 flat tax reform," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 169-185.
    2. Aleksandar Vasilev, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    3. Vasilev, Aleksandar, 2018. "Optimal fiscal policy in the presence of VAT evasion: the case of Bulgaria," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    4. Vasilev, Aleksandar, 2017. "Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014)," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    5. repec:zbw:espost:178768 is not listed on IDEAS
    6. Vasilev, Aleksandar, 2018. "A Real-Business-Cycle model with pollution and environmental taxation: the case of Bulgaria," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    7. Aleksandar Vasilev, 2016. "Search and Matching Frictions and Business Cycle Fluctuations in Bulgaria," Bulgarian Economic Papers (www.bep.bg) bep-2016-03, St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration / Center for Economic Theories and Policies, revised Feb 2016.
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    Cited by:

    1. Vasilev, Aleksandar, 2018. "Optimal fiscal policy with Epstein-Zin preferences and utility-enhancing government services: lessons from Bulgaria (1999-2016)," EconStor Preprints 183134, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    Ramsey policy; pollution; environmental tax; environmental quality;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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